Shares of eBay Inc. (EBAY) fell almost 2 percent Monday on worries that Google Inc. may offer an online payment service to rival eBay's PayPal as soon as this fall.
Shares in eBay, which fell were down as much as 4 percent during the trading session, closed down 81 cents, or 2.13 percent, to $37.24 in late-day trade. Google's stock was up about 2.28 percent, or $6.40 to $286.70. Both names trade on the Nasdaq.
The move comes amid news reports that Google this year may launch "Google Wallet (search)," an electronic-payment service that could help the Internet-search company diversify revenue. Like PayPal, the service could let users pay for purchases on Web sites by funding accounts from their credit cards or checking accounts.
Separately, Google in April filed to start a new company called Google Payment Corp. (search) , according to California's department of corporations. In March, Google began testing a third-party electronic funds transfer service to send payments to Web sites that carry Google ads.
Piper Jaffray analyst Safa Rashtchy said in a client note Monday that regardless of the initial success of the product, such a launch would likely be a negative for eBay shares and a possible catalyst for Google's stock.
Rashtchy, who said the service might be launched by the third quarter, noted that Google has a history of releasing products that are superior to existing service, with new user interfaces or features.
Google already attracts both buyers and sellers to its sites. Consumers looking for things to purchase search both the main Google site and Google's comparison shopping site, Froogle, while sellers advertise on the main search site and Froogle, as well as listing items on Froogle.
Rashtchy said Google can likely subsidize the cost of transactions with advertising, so it can offer a lower price to merchants.
"A Google payment system may not compete directly with PayPal, but it could limit PayPal's expansion beyond eBay," Rashtchy said.
For the quarter ended March, PayPal had net revenue of $233.1 million -- just under one-fifth of the eBay's total quarterly revenue -- and 71.6 million account holders.
PayPal, which eBay bought in October 2002, is the Web's biggest payment service and has forged relationships with such online stores as Apple Computer's (AAPL) iTunes music service. It has also beaten back competing services from the likes of Yahoo Inc. and Citigroup, which failed due to lack of adoption.
Search has long been the Achilles heel at eBay, which this month announced plans to buy Froogle competitor Shopping.com for around $620 million in cash.
Needham & Co. analyst Mark May said that while the launch of an online payment service could boost Google's revenue growth, it would take time to match the market size of PayPal.
"Any such service would take at least 12 months to contribute to earnings," May said in a note. "In order to gain traction in online payments, Google must first gain traction as a destination for e-commerce transactions."
Eric Jackson, an early PayPal executive and author of "The PayPal Wars," said Google already does a good job of putting buyers and sellers together.
"In one fell swoop you've overcome the chicken and egg problem," he said, adding that the upstart PayPal not only grew on eBay, but clobbered eBay's own online payment service.
Google could face regulatory issues in launching a new online payment service, something it might avoid by outsourcing the work and offering a Google-branded service, Jackson said.