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It's been talked about for years and we all KNEW its time would eventually arrive. It has always been more about the who, the how and the when. I'm referring to the replacement of all the plastic in a consumer’s wallets with a single smart phone. At one point I recall it was going to be a single smart card... What happened? Google's (NASDAQ:GOOG) announcement of its deployment of Google Wallet certainly seems like it has impetus that will eventually result in the extinction of credit and debit cards.

What is the Google Wallet? Well, let's leave it to Google to explain it:

Google Wallet has been designed for an open commerce ecosystem. It will eventually hold many if not all of the cards you keep in your leather wallet today. And because Google Wallet is a mobile app, it will be able to do more than a regular wallet ever could, like storing thousands of payment cards and Google Offers but without the bulk. Eventually your loyalty cards, gift cards, receipts, boarding passes, tickets, even your keys will be seamlessly synced to your Google Wallet. And every offer and loyalty point will be redeemed automatically with a single tap via NFC.

The Google Wallet may very well signal the genesis of a new era of smart phone utility. Not because the Google Wallet is, or will be better, than anything else out there in this realm (although it might), but rather because of the mere fact that Google is behind it. The Google brand name is priceless in convincing the public of the new way of doing things. Google’s unparalleled market intelligence of consumer behavior through Google Search and all its other applications gives it big advantages in launching a revolutionary new payment method.

However, the large revenues gains and increased EPS that shareholders are looking for won’t come from Google Wallet; at least not directly. Just like the Android operating system, developed by Google for smart phones, Google Wallet will be given away for free and will only work with Android phones. The big hopes for Google shareholders will come from Google's bread and butter business of marketing. With the concurrent introduction of Google Offers, Google is entering the highly lucrative space of discount offer deals and coupons. Leaders in this business, Groupon and Living Social, have made a big splash. For an indication of how lucrative this business is, consider the recent report from Bloomberg News that Groupon is in discussions to launch an IPO at a stunning market cap of between $15,000,000,000 to $25,000,000,000 (that's a lot of zeros). Incredible, especially for a company that was founded in 2008!

Currently, both Living Social and Groupon offer smart phone apps that allow users of their discount offers to be displayed on a smart phone and shown to the merchant in addition to simply printing the deal on paper. The merchant then manually enters the discount in the merchant’s payment system.

Google Offers will take it up a notch and then some. The entire process will be 100% seamless. Any discount offers purchased, or gift certificates redeemed will be automatically deducted from the bill when payment is made. Surely, all companies in this space will converge towards the same model over time but being the first gives Google an advantage and a strong selling point before both merchants and consumers. Once again the Google name helps a bunch.

When Google reported first quarter 2011 results in April, the stock price plummeted as concerns about higher employee expenses trumped a healthy revenue gain. Google's fourth quarter 2010 decision to grant 10% salary increases across the board scared away some investors. Google feared that losing its best employees to competitors would hurt its long term growth prospects. It is now time for these employees to come through and deliver in this lucrative new business for Google. If they succeed, a higher stock price should follow and shareholders should get their fair share of the pie. At a forward price/earnings ratio of only 13, Google certainly appears to be a premier growth company hidden in a value company’s stock.

Disclosure: I am long GOOG.

Disclaimer: These are the personal views of Wall Street Titan and should not be relied upon for your investment decisions. All investors should always do their own due diligence.

Source: Google Ready to Take Market Share From Groupon and Living Social?