Talking tech since 2003

In the industry that is information technology it’s not uncommon at all to see large and established companies such as Microsoft and Google swallow up startups that they see as a potential asset to their overall operations.  This “if you can’t beat them, but them” approach is not only beneficial for the buyers who gain what are often times already established products and services, but also gives the purchased startups the ability to leech onto the resource of the larger entity in order to expand at levels they wouldn’t have previously been able to fathom before without big wallets backing them up.

But these acquisitions don’t always stop with small buys.  Sometimes it makes sense for businesses to acquire large companies that they see as competition or a threat to their business.  Recently Microsoft dropped $8.5 billion to buy VOIP service Skype, and Google earned a bit of publicity earlier this year when they offered $6 billion to purchase Groupon only to be turned down.

More recently, Google has shown off their developments and innovations in the mobile payment market by unveiling their yet to be released “Google Wallet” service.  While some people still aren’t sold on the concept, I for one think it is a beautiful idea.  Really.  Mobile phones are such a huge fixture in our society, and by tapping into this market Google will not only become a huge player in point-of-sale payments but will also be able to gain more traction with their current Google Checkout service which I personally think has yet to take off because of PayPal‘s strong-arm on that particular market.  However soon after making their progress and intentions public, Google was promptly hit with a lawsuit by PayPal who claims that Google stole trade secrets from the company after they hired Osama Bedier; a previous employee of PayPal.  Combine the legal issues and the dominance in the market, and PayPal really is the only big obstacle between Google and your money.

So what can Google do to rid themselves of PayPal?  Well, I think that Google could benefit from buying PayPal in more ways than one.  You see, not only would a Google acquisition of PayPal put the trade secret issues at rest, but Google would ultimately have access to all of PayPal’s innovations and developments.  Seeing as how PayPal is being very defensive about their trade secrets right now, it seems to me that they too are working on a way to extend their presence in the mobile industry.  If Google were able to gain all of PayPal’s progress – all whilst eliminating all of the competition in the market – it’s almost a sure thing that the company would do incredibly well.

On top of this, Google would also end up inheriting PayPal’s current user-base.  Seeing as how PayPal is one of the largest and most commonly used online payment methods, Google would have an invaluable asset on their hands and Google Checkout would grow significantly.

Sure, a world where Google held rein over mobile and electronic payments wouldn’t exactly be ideal.  Undoubtedly there would be clusters of individuals afraid of the power and position that Google would have, especially seeing as how the company doesn’t have the best record with privacy.  At the same time, though, I don’t think that PayPal has made many innovations over the last five or so years.  If Google were to take charge, I honestly think we’d see big changes in how we pay for goods and services.  For the better, though?  That part is up for debate.

But when it comes down to it, would it be worth the cost for Google?  When PayPal was bought by eBay in October of 2002 the online bidding site paid a mere $1.5b for it.  Over the last eight and a half years, though, PayPal has grown.  There’s no telling what PayPal in itself is worth, but based on a quick look at Google Finance, eBay (PayPal’s parent company) is worth about $40b.  Seeing as how eBay would be nothing without PayPal, I honestly don’t see where Google would be able to justify spending as much money as they would need to in order to make the acquisition.

So my money says that it won’t happen; at least right now.  While it’s a great idea, I just don’t see where it’s practical or where it would pay off enough for Google.

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