Google is actively promoting its Checkout service to merchants this holiday season, hoping to also convert them into online advertisers.

Google is dropping transaction fees for merchants through the end of 2007 and giving customers hefty discounts on some orders if they use Google Checkout, the New York Times reports. So far, the promotions are working to grow Checkout's share of the market, but likely at the expense of traditional payment methods - not rival PayPal's.

Google's main focus is to get merchants using the Checkout system and then convert them to advertisers. Ideally, Google hopes, its paying for merchants' discounts to customers and listing fees on auction sites will lead those merchants to divert funds to paid-search listings.

"It's a way to incentivize more merchants to join our network," Benjamin Ling, a product manager for Checkout, says of the discounts. "We want everyone who sells online to be a Google advertiser."