While it’s too early to call the game on Google Checkout because Google is committed to making it work, even if it means forcing Android users and developers to use it, it’s not exactly a huge success. For those of us clamoring for a PayPal competitor to make the market more consumer friendly, Checkout hasn’t delivered yet.
Rather than just being a PayPal clone tied to Google services, Google should think about creating the impossible dream that so many others have failed at: a web-wide virtual currency. Hundreds of millions of VC capital has been wasted trying to create a universal online currency. Outside of in-game purchasing, none have taken off. Most have crashed and burned. Google could be the one that makes it work.
The advantage of an online or “e” currency is that it makes micro-transactions possible. Right now there’s no effective way to spend a few cents or a fraction of a cent outside of a particular platform. Credit card transaction fees make it impossible to sell services and content for a few cents. Facebook has its own plans, but I’m skeptical of how well that will work outside of Facebook’s eco-system.
A successful virtual currency creates value in two important ways:
- It creates an economy for micro-transactions.
- It reduces the overhead from credit-card transactions (which eat up 2 to 5% of every online purchase).
To make an online currency work you need to solve five problems:
We need to trust the company handling the currency and making the exchange. Google has trust issues like any other company, but I think they’re best positioned to make an online e-currency work. We trust their algorithm with billions of dollars of commercial transactions everyday (AdWords and AdSense).
Besides trust, we need to feel that the company involved has the resources to make these transactions secure. Fraud killed several PayPal clones and made it nye impossible for anybody else without some serious capitalization to even get started. Google has a state-of-the-art technology for preventing fraud.
An effective e-currency should be able to be moved from person to person and cashed out with minimal transaction costs. A friction-free currency is also capable of very tiny transactions like a thousandth of cent that can be useful in certain financial transactions like moving away from a CPM model in online advertising.
A virtual currency that’s only useful in one place is not very helpful. Other virtual currencies failed to take off because potential users were concerned by the first three problems. Would you ship a physical good to someone in exchange for a virtual currency from a third-party you didn’t trust? Google can encourage a wide variety of third-parties to adopt the currency.
In-game and other virtual currencies have no external value. An online currency needs to be pegged to real currency to have real value. A company can’t just generate currency like an African dictator. It has to based upon money on hand. Google is large enough and trustworthy enough to back an online currency we’d feel has real world value.
How to implement a virtual currency
All five problems can be solved by a company with the resources of Google. To implement their currency they should first think about making it a universal currency within games and then extend it outward to virtual goods, digital downloads and then physical goods. By working step by step from content with little intrinsic value to goods with real worth they can grow the currency and learn how to solve minor problems before they become major ones.
The benefits for Google and the economy in general would be great. The more you can reduce the cost of transactions, the greater the surpluses and efficiencies you can generate.