eBay vs. Google: Goliaths Battle Over Checkout

Published September 1, 2006

When eBay stuck it to Google this summer by announcing it would not allow Google’s new “Google Checkout” payment service to be used to clear transactions on eBay, many people shouted that eBay has excessive market power and antitrust measures need to be considered.

But lawmakers should allow this situation to play out without interference instead of imposing draconian antitrust solutions. Here’s why.

First, it will be interesting to see how eBay reacts if people take steps to work around the system and clear transactions outside of the company’s walls. For example, nothing stops a buyer from just mailing a check (or even cash) to the seller after completing an eBay deal. Other ways also exist to clear transactions outside of eBay, such as contacting a seller and providing a credit card number outside of eBay checkout.

What will happen if a buyer just cuts-and-pastes an eBay transaction number into a Google Checkout system that allows him to automatically zap payment to the vendor without going through eBay/PayPal? How will eBay stop that?

eBay likely suspects only a very small percentage of people will go through the hassle to do that. Thus, if it can restrict the automated incorporation of Google Checkout into the eBay walled garden, its job is probably done, and Google will not be able to get a piece of that revenue pie–at least, not in the short term.

Sparking the Competition

But eBay’s seemingly discriminatory behavior in this instance could have quite pro-competition effects in the long run. If it can’t play ball with eBay, Google might start partnering with a lot of independent sites (like Craig’s List) to create a legitimate mega-competitor to eBay. And it may find plenty of disgruntled eBay buyers and sellers to market to. By snubbing Google, eBay may have awakened the one giant that could mount a truly serious run at its core business. After all, Google has a lot of money in the bank!

Some critics have pointed out that eBay is being somewhat hypocritical in this case by violating some of the “digital non-discrimination” (or “network neutrality”) principles it has endorsed for broadband companies. But net neutrality mandates should not be applied to eBay, no matter how much market power it possesses.

eBay obviously is protecting its significant investment in PayPal by preventing Google Checkout from becoming an automated transaction-clearing mechanism in its community. If lawmakers applied “digital anti-discrimination mandates” in this case, it would be tantamount to a declaration that eBay is an “essential facility” of e-commerce that everyone (including giants like Google) must have access to on “just and reasonable” terms.

Such a move would be a disaster, because it would invite the government to play a far greater role in the online world as a regulator of rates and terms of service. Anyone who has spent a minute studying the disastrous history of telecommunications economic regulation can explain why this would be an anti-consumer, anti-innovation fiasco. Worse yet, it might discourage serious, facilities-based innovation and competition.

Instead, let the market play. See if the consumer backlash emerges and watch how Google cuts deals with others to create a serious competitive threat to eBay’s business model.

Adam Thierer ([email protected]) is senior fellow and director, Center for Digital Media Freedom, at the Progress & Freedom Foundation.