It was very interesting to read today of the new promotional program eBay Inc.'s (NASDAQ:EBAY) online payment system, PayPal, will be offering. PayPal's promotional incentive programs valued at up to $100 million, will be launched, naturally, just in time for the holiday shopping season starting Nov 3, 2006 and ending ... May 15, 2007. That some long holiday season, I say.

The incentives include (among others) offering the over 100 million PayPal account users up to $20 cash rebate when paying with PayPal on select merchant sites, including eBay.com. Of course, only merchants offering PayPal Express Checkout are eligible for this promotion. Some of the merchants already listed are Dell, Starbucks and Barnes & Noble.

Why did I find this interesting, you may ask? Well, I'm looking at this promotion vis-a-vis Google, Inc.'s (NASDAQ:GOOG) online payment service, Google Checkout. Checkout, when first launched, was feared by many as a threat to PayPal, despite PayPal's dominating position in the industry. Checkout's great merchant incentives, rebates and lower fees were deemed a good strategy. Everybody, however, agreed that Checkout didn't offer much in way of incentives, if indeed any at all, to buyers.

Now comes PayPal locking buyers to its service, attacking the market from its strong suit -- its user base (over 100 million, remember?). What is a merchant to do? Well, a smart merchant would have to offer PayPal (the few who don't already, anyway), since it would not only guarantee higher sales, it may also provide higher traffic by way of its promised advertising promotions this holiday season. And don't forget that PayPal's idea of the holiday shopping season stretches to May.

Google Checkout has lost this holiday season round, there's no doubt. But has PayPal won? Will the $100 million expense be worth it? I guess we'll have to wait and see.