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Retailers Pay for Google e-Shopping

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Google Inc. (GOOG), the world's most popular Internet search engine, is leaving no stone unturned to reap maximum benefits from its search engine business. So long a free product service, product placements and information displayed by merchants in the company’s general search results will now be chargeable.

So far, retailers have displayed their products for free by providing Google some related data. The new move, to be known as Google Shopping, will ask retailers to pay if they want to display their results, and will list only those merchants who pay for the service. Placements on Google Shopping will be based on bids that retailers send via constant feed. The new system will replace Product Search by fall 2012.

We do not see Google charging a certain amount from retailers for the placement of their products on Google site as a negative but it could definitely alienate some retailers that were providing good data. However, the company must find new ways to expand its revenue base in order to win in this cut-throat business world. Retailers will feel the pinch but they will be on their toes to update product data with accurate pricing and special offers, keeping customers abreast of the best deals.

Google delivered a stellar first quarter, with gross revenue touching a record $10.65 billion. Revenues from both Google-owned and partner sites continued to grow double digits on a year-over-year basis. But in terms of shopping-related searches, Google lags online retail giants Amazon.com Inc. (AMZN) and eBay Inc. (EBAY).

In April, U.S. Internet users made about 80 million searches using Google's shopping-search site, while eBay and Amazon handled about 900 million and 335 million searches respectively, according to research firm comScore Inc. These figures in themselves indicate that though Google is the No. 1 web-search engine, it needs to perk up shopping related searches. So, any ethical move which could strengthen its competitive position is welcome.

Following the news, Google shares fell 1.3% on Thursday but its recent patent win against Oracle Corp. (ORCL) could limit further declines.

However, other legal entanglements related to competitive matters or patent infringements remain an overhang, keeping the Zacks Rank on Google shares at #3, which translates into a short-term Hold recommendation.

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