July 6 (Bloomberg) -- EBay Inc.'s Meg Whitman is doing what most Internet chiefs can only dream of: She's beating Google Inc. in at least one corner of the Web.

In recent surveys, the world's largest auctioneer found that less than one out of five users of Google's Checkout online payment service was happy with it. At EBay's PayPal, the figure was more than double that. Meanwhile, PayPal, bought by EBay for $1.5 billion in 2002, has widened its lead over Checkout since the holiday season.

``PayPal is a huge home run,'' Whitman, EBay's chief executive officer, said in an interview. ``It's the most innovative Web payment product out there and has done really well, even in the face of a little bit of a challenge from Google.''

As revenue growth from EBay's auctions unit slows, Whitman is using other divisions to spur profit at the San Jose, California-based company, which she's run since 1998. Two years ago, EBay paid $2.6 billion for Skype Technologies SA, which allows users to make telephone calls over the Internet. It also expanded its free classifieds site to the U.S. last week.

Nonetheless, Whitman has a long way to go to catch up with the growth of Google, the owner of the world's most popular search engine.

In 2004, the two companies' annual sales were almost equal. Revenue at Mountain View, California-based Google tripled since then to $10.6 billion last year, while EBay sales increased 82 percent to $5.97 billion. Google's 120 million visitors in May were 51 percent more than EBay's, according to Reston, Virginia- based ComScore Networks.

Sixfold Surge

Google also continues to expand its online reach, buying an Internet phone company this week and setting up another showdown with EBay.

As a result, Google shares have surged sixfold since the company went public in August 2004, compared with a 16 percent decline by EBay over that same period.

Shares of EBay rose $1.12, or 3.5 percent, to $33.39 at 4 p.m. in composite trading on the Nasdaq Stock Market, their biggest jump in more than three months. Shares of Mountain View, California-based Google fell $2.23 to $539.40.

Meanwhile, EBay's PayPal service, which generated a fourth of the company's revenue last year, has become increasingly important as auction sales growth slowed to 23 percent in the first quarter, half that in 2004.

Google started Checkout in June 2006 in an effort to chip away at PayPal's leadership and drive advertising revenue. EBay doesn't allow the use of Checkout, saying it's an unproven service.

14 Percent

``In the latest survey we did, only 14 percent of Google Checkout users were pleased with their experience,'' Whitman said in the June 15 interview on ``Conversations with Judy Woodruff,'' which aired on Bloomberg TV July 4 and will repeat this weekend. She said EBay may eventually use Google Checkout if more people are satisfied.

In a J.P. Morgan Securities Inc. survey in January, 19 percent rated Checkout ``good'' or better. At PayPal, it was 44 percent.

Google declined to comment.

PayPal processed more than 40 percent of the merchandise sold on EBay last year. Whitman estimates the unit makes up as much as $20 billion of EBay's $44 billion market value.

`Meaningful Fee'

``If I were in EBay's shoes, I'd make the same decision,'' said Jim Friedland, an analyst with Cowen & Co. in New York, who has a ``neutral'' rating on EBay and an ``outperform'' rating on Google. ``EBay makes a meaningful fee when somebody pays using PayPal.''

Sellers accepting PayPal may pay 2 to 3 percent of the product's sales price plus 30 cents a transaction. Checkout has waived transaction fees for the rest of the year for merchants, who would usually pay a 2 percent commission plus 20 cents a transaction.

Checkout, whose revenue isn't disclosed by Google, has made little headway against PayPal since December, when the service offered promotions to buyers during the holidays.

In May, about 33 people visited PayPal's Web site for each Checkout visitor, up from an 11-to-1 ratio in December, according to Nielsen/NetRatings.

That gap may narrow as more customers use Checkout links on Google to pay for items from companies listed in queries and Google offers more promotions to boost traffic, Friedland said.

Driving Customers

``Google isn't trying to use Checkout as a profit center,'' said Friedland. ``For EBay, PayPal is a profit and growth center. For Google, Checkout is a way to drive people onto its advertising platform.''

Now the two companies may butt heads in another area: Internet communications.

Google this week acquired GrandCentral Communications Inc., which allows users to combine all of their phones into a single number.

``It fits into our mission to organize the world's information,'' said Google spokesman Jon Murchinson in an e- mail.

Whitman has other ideas, saying she wants Skype to serve as an Internet communications hub, much like EBay's platform, which attracts nine in 10 auction users. Skype allows subscribers to call each other for free and pay a flat annual fee for calls within North America.

Whitman also opened EBay's two-year-old free classifieds advertising site in the U.S. last week to compete with the Craigslist.org site it partly owns. Kijiji.com has sites in more than 300 cities worldwide and includes category listings for items such as jobs, housing and services.

To contact the reporter on this story: Danny King in Los Angeles at dking19@bloomberg.net

Last Updated: July 6, 2007 16:19 EDT