eBay propped up by PayPal, but Google's still killing 'em

eBay reported earnings that beat Wall Street estimates, thanks in large part to the ongoing strong performance of PayPal. From Reuters:

Net revenue at online payments service PayPal grew 31 percent to $439 million, while the number of registered users of the credit card alternative rose 36 percent to 143 million.

Merchant services, the PayPal unit that supplies online payment services to Web sites beyond eBay's own properties, reported payment volumes grew 51 percent to $4.38 billion.

Competition from rival merchant payment system Google Checkout appears to be continuing to help drive PayPal's own growth, Whitman said. "Amazingly enough, we had 51 percent growth. The interest in this category is helping [PayPal]."

Readers of my book, The PayPal Wars, should know that it's no surprise to me that PayPal remains the engine of growth for eBay. The company's core auction business is facing strong competition from Google Adwords, and its management still suffers from the same lack of vision that I described in the book. All of this means that eBay is lucky that it has PayPal on its side to fuel revenue and user growth.

Additionally, I'll comment on Meg's statement about Google Checkout. I think she's not seeing the forest for the trees here. The reason that PayPal's non-auction volume is growing rapidly is primarily because Google's ad program continues to decentralize online commerce; it's not because of any press that Checkout is getting. This growth is coming at the expense of eBay's auction websites, which offer costly centralized commerce. Meg admits that their U.S. and German marketplaces are lagging, but this failure is a symptom of the same underlying trend that's lifting PayPal's non-auction growth. At least Google's ability to harm eBay Inc. is mitigated by PayPal's ability to profit from this shift.

(Interested readers are welcome to download a free chapter of The PayPal Wars.)