In an effort to take more market share from competitor PayPal, Google is extending the period in which merchants can utilize Google Checkout without paying transaction fees until February 1st, 2008.

After that, Google will charge 20 cents per transaction in addition to 2% of the total bill for each transaction.

Google will obviously have to spend more time eating fees from Visa, MasterCard, etc., and will thus take losses, but the move will allow them to build market share, which is not just important for Google Checkout, but their AdWords pay-per-click ad service as well.

Google is offering a program where for every dollar a merchant spends on AdWords, they will receive $10 worth of free Google Checkout processing. Google mentioned that dollars spent on AdWords in January, in spite of the extention, will apply towards the Google Checkout discount.

Let’s see how it adds up: suppose your business does 500 orders of an average of $40 each. That’s $20,000 in orders. If you use AdWords to get free processing, you’d have to spend $2,000 dollars on Google’s ad service.

How much would Google Checkout charge you without AdWords? First of all, there’s the 20 cent processing fee for each order, which would be $100. Then there’s the 2% fee, which would be $400. So for $20,000 in orders, Google would get $500.

If you’re considering using AdWords as both an advertising tool and a method of avoiding the Google Checkout tax, you’d have to ask yourself: is utilizing AdWords worth approximately four times more than I would pay in fees to Google without the ad service? Or is it a better idea to use an SEO campaign to attain a higher organic search rating on the search engine itself?

For now, merchants can enjoy the free ride from Google Checkout until February.

This entry was posted on Wednesday, December 12th, 2007 at 1:45 pmand is filed under Business, Search Engine Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.