Michael Arrington reports on a yet-to-be released feature from PayPal called DropBox:

Techcrunch ?Ǭª Blog Archive ?Ǭª Exclusive: Mysterious Paypal Secure Storage

"PayPal is preparing a new feature on a select range of users that allows them to securely store files with the payments provider. The new service, called DropBox, creates a secure storage area that is associated with the account. What we are not sure about is if this is a service just for merchants, or if it is a service that will be open to every user - from what we have seen so far it seems this is more of a service for merchants."

While I don't know what this service is all about either, I'm going to speculate that it's an online storage service for digital inventory sold by PayPal merchants.

PayPal has been an amazingly popular service for small merchants, including Ebay sellers, who want to be able to easily accept credit cards for transactions. Another side of PayPal's business is providing tools to merchants that allow them to easily build online stores - often without any programming skills.

But one area where PayPal has underserved the market is enabling sales of digital media, such as ebooks, software, MP3s, and videos. While it could be done, it was much more difficult for merchants to accept a credit card payment through PayPal and automatically redirect buyers to a secure download page. Merchants, who likely chose to work with PayPal because their service is relatively easy to use, were put in a difficult position. Here's a real-world example:

I sell a list of negative keywords for Google AdWords advertisers that help improve the performance of AdWords campaigns by preventing ads from displaying on search phrases with low ROIs. It's a simple list of words that can be copied and pasted into an AdWords campaign. To efficiently sell this list, I want to be able to host the list in a secure location online, accept credit card transactions, and automatically direct buyers to the file for download. Ideally, I want the file to be only accessible a limited number of times by a buyer so they won't pass it on to all their friends or link to it from their blog.

So, how can I do this? A few years ago, doing this with PayPal was a pain because PayPal didn't offer an easy to use way to sell secure downloads. In fact, the easy way to use PayPal at that time wasn't secure at all. Merchants would create a Buy Now button in PayPal's merchant interface and set the "Thank You" page to the file's download URL: a URL visible in the page's source code. So anyone with a little technical know-how could easily rip you off.

Because of this, many digital publishers chose to use Clickbank rather than PayPal for this type of transaction. That, and Clickbank offered an integrated affiliate program, making it easy to incent other publishers to market your products on your behalf in exchange for a commission. And products popped up to address issues PayPal was missing, such as the PayPal Download Manager.

PayPal has since encryped the HTML merchants paste into their site, making it harder for people to borrow your digital media, but it still falls short of really doing this right. And DropBox may be the answer, allowing merchants to:

1. Securely host digital media at PayPal rather than on their own servers.

2. Create secure transactions using PayPal merchant accounts.

3. Set rules by product on how many times a consumer can access their purchased product online.

4. Let PayPal handle more of the customer service issues related to "I can't figure out how to download the product I bought."

5. Get better reporting on product purchases and downloads.

Will I be right about this? Time will tell. I'm confident that PayPal will eventually offer a way to do what I've outlined above, and DropBox seems to fit the bill based on what I've read about it so far.