Google Subsidies May be Disruptive: Analyst

The Checkout service, which provides users with a unified way to make secure purchases across participating websites, may accelerate Google’s expansion in to rivals’ territory, according to Sifel Nicolaus analyst Scott Devitt. Currently, merchants using the service are allowed to accept credit card payments without incurring fees.

"Google is spending aggressively on gaining traction with its Checkout product and we think the offering has the possibility of disrupting eBay’s (NASQ: EBAY) off-platform PayPal business as well as the general ecommerce market," Devitt said. "Google is now effectively paying all credit card fees for partners for a full year. We think Checkout is becoming Google’s Internet Explorer, if you will, and we think it is time to start paying close attention."

In addition to subsidies, Google also attracts merchants to its Checkout service by coupling the product with the AdWords advertising platform. AdWords places advertisements across the Internet related to content displayed on the website. Merchants enrolled in AdWords who also use Checkout would get a special icon placed next their ad, potentially raising visibility.

"We think, if it works, it is potentially very disruptive to the competition and materially beneficial to Google’s core Adwords business," Devitt added.

Devitt maintained his Buy rating and $554 price target for Google shares.

Google shares gained $1.30 or 0.27 percent to $488.30 in early Wednesday afternoon trading on the Nasdaq exchange.