Google makes a lot of money from cost per click (CPC) advertising. But for a vendor, cost per action (CPA) advertising (e.g. someone actually buys something rather than just clicks on the ad) is actually a much better proposition, since you only pay when you are making money, making it easy to guarantee profit.
Small businesses – the very ones that may not have sophisticated tracking systems to make sure that CPC ads are profitable but are the main CPC buyers – also may not have the resources to tie their shopping cart system to an advertising system. So CPA based advertising, in theory the web’s holy grail, has ceded to the compromise of CPC for small vendors, while the big guys who can even measure the benefits of brand advertising, still buy impressions based ads. Larger publishers, who vendors actively want to advertise with, have some leverage on the type of advertising they can get and therefore want to sell impressions based (CPM) ads (because they can guarantee ad revenue). For the rest of us there was Adsense…until now.
There are some things, that people are ready to buy just by reading an ad, e.g. ‘buy tickets for U2’.
Google checkout could mean the return of CPA based affiliate programs for 2 reasons: it allows people to bring transactions closer to ads, improving conversion rates; it solves the problem of hooking the shopping cart system to the ad system.
Google checkout would allow, for example, a distributed Ebay with classifieds appearing on blogs and social networks. It will make a ubiquitous CPA based ad network, with the creative design elements of CPM based advertising to make people hit the ‘buy’ button, viable.
…making Google checkout a big deal, and making Ebay look very slack for doing squat with Paypal.