On July 10, a story broke on Techcrunch inferring that Google was secretly investing $100-200 million in social media gaming with Zynga, the online game-maker of Farmville and Mafia Wars. While Google becoming a developer of online games is an interesting venture for the search giant, I think the bigger story is why? Speculation is that Google would like to steal marketshare from PayPal and replace it with its own payment system - Google Checkout. A partnership with Zynga could easily seal that deal.
According to multiple sources, this highly strategic alliance could pave the way for Google to carve out room for Google Games to grow within the lucrative online gaming space. It will also be Google's entry into developing a true "social graph" as users log into Google to play the games. Social graphs as we are learning is the hotly controversial component of Facebook's privacy TOS and their Open Graph.
Google Checkout, like Paypal is a one-source purchasing and payment system and like Paypal is a fast, secure checkout process that helps increase sales by bringing users more customers and allowing them to buy quicker and easier with one single login. Many online shoppers like the idea of using one payment system that allows them to avoid entering credit card numbers for every purchase made.
Additionally both services are third-party processors that shield customer data from retailers.
However there are some differences. Google Checkout has a convenience factor in that it allows users to buy items right from its search page. One would think this advantage would attract more customers. However Paypal still appears to be the payment system of choice. One of the major reasons for this is PayPay's ability to deduct from one's bank account, whereas Google Checkout requires a credit or debit card.
The other differentiators is Google Checkout is only available for US purchases while PayPal is accepted in 55 countries. In addition to the US dollar, PayPal also accepts the euro, the pound, the Canadian dollar, the yen and the Australian dollar. Currency exchange is also available (for a fee). PayPal also includes a wider range of services such as invoicing, statements and tax calculations.
So how would the Zynga deal help Google Checkout become more competitive than PayPal? For one, Zynga's target audiences are vast. These are folks that may not be interacting with Google financially at the present time. The partnership with Zynga would also open a new channel for Google to advertise its Checkout service to folks who have had no need for any payment system in the past.
Google's integration with Adwords and Adsense would also allow Google additional leeway to combine and bundle its others services into its social media game venture. This means that Google gamers could obtain preferred pricing with virtual gifts which are intrinsic components of these online games. Users could pay transaction fees with earnings from their Adword and Adsense accounts which could be integrated within the game itself. This monetization scheme would allow users to sell ads in place of virtual gifts on other users 'game' Web pages as a means of leveling up in a game.
The possibilities are endless once 'ubiquitous Google' puts its brain-trust to work on how to make the purchase-and-sell mechanism more robust. It would also finally provide Google with an opportunity to knock PayPal down a few pegs. With Zynga supposedly PayPal’s biggest single customer, its easy to see this could be advantageous for Zynga as well in obtaining lower cost margins dealing with Google versus PayPal.
So, while TechCrunch's speculations are not confirmed as of this posting, it's easy to see why this strategic partnership could change the digital landscape for three major players - allowing Google Gamers a whole new playing field to invest in - including, who know's - Googleville?