By their brief descriptions – “online auction website” and “Internet searching and online advertising company” – it does not sound like eBay and Google are rivals for the same business. But behind the boilerplate company descriptions, many experts claim that as these giants seek to grow even larger, they are going after the same types of acquisitions, which is exacerbating tensions that already exist between them.
In June, Google planned to throw a “Freedom Party” in Boston for users of Google Checkout. The event, which was to protest the exclusion of its Checkout service from the list of accepted payment providers on eBay’s sites, was to coincide with eBay Live, a conference for users of eBay.
Irked by the timing and the name, eBay pulled all of its U.S. ads for a week from Google. Later eBay reinstated “limited” ads on Google but reallocated ad dollars to Google rivals Yahoo, AOL and MSN, a move that industry watchers say served as a proof point of the simmering tensions between the two Internet powerhouses.
To date, eBay has been one of the biggest buyers of keyword ads on Google AdWords – financial analysts estimate eBay has spent just shy of $25 million per quarter on it. It is believed that eBay has been Google’s single largest advertiser, responsible for nearly 5 percent of Google’s revenue. Despite pulling its ads, eBay claimed that its traffic actually went up that week – inferring that the ads were meaningless to their business. eBay Power Seller Skip McGrath says eBay’s decision “woke a lot of people up” – causing those who spend money on AdWords to rethink their spending – in fact, he moved his spending from Google to Yahoo PPC, Miva and Seven Search after disappointing results.
Greg Sterling, founder of Sterling Market Intelligence, notes that tensions between Google and eBay existed before June. He says that eBay has long considered Google to be a rival – more so Google considering eBay to be a rival. In fact, a popular sentiment among experts is “eBay needs Google more than Google needs eBay,” Sterling says.
Matt Hulett, CEO of MPire, an online meta-shopping service, points out that eBay is a marketplace without a search engine – making it dependent on Google. It is estimated that 15 to 20 percent of traffic generated for eBay starts at Google and that 60 to 70 percent of online shoppers start at search engines. Marketing Pilgrim founder Andy Beal notes there are few companies that can say, “If I don’t get any traffic from Google, it won’t matter.” Beal agrees that eBay, like most other companies, needs Google for revenue and users.
That seems confirmed by Google’s second-quarter earnings report showing that the pulling of eBay’s ads did not hurt Google’s business. Beal says that the amount of revenue from eBay is pocket change to Google – it’s the perception of losing eBay that could potentially damage Google’s brand, he says. “It’s more a fear of a domino effect. The last thing that Google wants is for other large companies to think there is life beyond Google.”
Scott Wingo, CEO of ChannelAdvisor, explains that Google and eBay’s relationship can’t be described in black-and-white terms – Google and eBay have areas of competition and areas of partnership (e.g., Google powers links for eBay in non-U.S. countries). He says it is new to both parties and they are feeling it out but that it has created a complex relationship that goes beyond “friend or foe.”
With its clear lead in the search market, Google is focused on determining which high-margin online business to try next. As Google looks for new areas of monetization, it has gone into some very similar businesses as eBay.
Some say this is intentional – Google wants to beat eBay specifically in its core areas. Others believe it was inevitable that Google and eBay bump into each other as each expands its empire. “When two 800- pound gorillas are in the same cage, they eventually are going to step on the same banana,” Kevin Ryan, vice president of global content at Search Engine Strategies and Search Engine Watch, says about the companies going into overlapping/competing areas.
Google Checkout vs. PayPal
One such area of contention is online payments. eBay owns PayPal, which generated a fourth of the company’s revenue in 2006. PayPal has become more important to eBay as auction sales growth has slowed. Second-quarter revenue for PayPal grew 34 percent to $454 million. It shows little sign of slowing down.
In June 2006, Google introduced the alternative payment system Checkout. eBay President and CEO Meg Whitman claims she is not worried about Checkout’s ability to make serious inroads, and says that eBay does not offer the use of Checkout because it is an unproven service. According to a J.P. Morgan Securities survey of 1,000 consumers in January, 44 percent of PayPal users reported “Good” or “Very Good” service experiences; only 19 percent of Google Checkout users said the same.
But most everyone agrees that Google has the strategy, talent and programming needed to catch up to eBay. Google has attracted users to Checkout by offering cash incentives and it is very visible at many high-traffic online retailers such as Buy.com. Checkout is putting its icons next to their paid listings and Ryan says that, “Studies show there is increased click activity ” that’s a big advantage over PayPal.”
However, PayPal has others also vying for its top spot. In early August, Amazon.com opened its payment system, called Amazon Flexible Payment System – to other websites – a move that pits it squarely against PayPal. Market analyst Scott Devitt of Stifel Nicolaus wrote in a note published August 6 that he anticipates alternative payments to be one of the most active areas in the online retail sector for the next several years.
“In the long term, we believe that the card companies and certain categories in the traditional retail channel have the most to fear about the activities by technology-driven online innovation,” Devitt wrote.
Another area where Google could steal eBay’s thunder is its comparison shopping offering, Google Products, which was previously named Froogle. Sterling says that last year Google took down Froogle on its home page in favor of video but predicts that once Google starts promoting Products, it will be a top shopping site.
According to David Rodnitzky, vice president of advertising at Mercantila, for those selling products online, it doesn’t make sense not to use Google Products because it is offered for free, as opposed to CPC pricing for eBay’s Shopping.com. Google monetizes Products through AdSense, and (ironically) Shopping.com generates some of its revenue through Ad- Words, he says. “With this in place, Google can give Products away forever and cause Shopping.com’s margins to compress as a result,” Rodnitzky notes.
SES’ Ryan agrees that Google Products can make a run at eBay’s Shopping.com because shoppers do a tremendous amount of research. When users shop for electronics, for example, they go from comparison engine to brand site to dozens of product pages across many sites.
Another potentially big battleground for Google and eBay is the arena of off-line advertising, where both companies have made moves in the past year. Google offers radio ad inventory to advertisers using its AdSense platform, and in April struck a deal with Clear Channel to sell ads across its 675 stations. In June, eBay began auctioning radio spots – providing advertisers the ability to buy unsold radio inventory from 2,300 radio stations in the top 300 media markets.
In April, Google got into TV advertising by announcing it will
sell ads for the 125 national satellite channels on the Dish Network of EchoStar Communications through Spot- Runner. In March, eBay launched its media auction system designed to allow buyers of national TV ad time to bid for slots via the Internet.
The motivations behind Google and eBay’s move into off-line advertising efforts are very different. eBay may ultimately be trying to persuade its huge base of online sellers to promote their goods off-line – like on the radio. ChannelAdvisor’s Wingo says that eBay’s foray was put together to try and auction off TV ad time by large advertisers – the buyers would be Toyota, Wal-Mart and Microsoft and the sellers would be the networks such as ABC, NBC and CBS.
On the other hand, Marketing Pilgrim’s Beal says Google is diversifying into off-line channels as additional ways to serve small companies. By streamlining the off-line advertising model, Google enables small companies to tap in to radio, print and TV with the same efficiency and ease as signing up to advertise with AdWords.
Wingo predicts that because eBay has a team of only two or three people doing some experimentation and Google is spending hundreds of millions on their initiatives – Google will likely win this battle. But Mercantila’s Rodnitzky says it will be quite some time before we see an impact.
Skype vs. GrandCentral
Telecom is ripe for another turf battle between the powerhouses. In July, Google acquired GrandCentral Communications (for $50 million), which allows users to combine all of their phone numbers and voice mail into a single number. There is buzz that Google could build the unified communications and call-handling functionality of GrandCentral into Google Talk, its computer application for VOIP and instant messaging.
If Google successfully integrates these features with both its Gmail and Google Apps and offers them for free, Skype will be unable to compete, according to Rodnitzky. He also notes that this tact by Google could be a very effective way to reduce eBay’s ability to monetize Skype, which the company purchased for $2.5 billion in late 2005.
Lately Google has been making headlines because company officials say Google wants to spend billions to build a new, open network that would loosen the grip telecom operations have over how consumers use their cell phones. To do so, Google plans to extend its tools, which include email and video, to the rapidly expanding mobile phone market.
Wingo says that with the exception of Skype, eBay has focused on acquisitions that enhance their core offerings. For example, eBay recently bought StubHub.com, which expands its marketplace of ticket sales. And eBay also just acquired StumbleUpon, which gives users a way to bypass search engines – it’s an alternate means of finding information online. Rodnitzky says this could be a very smart move considering Google has won the search engine war.
Speculations about eBay’s next purchase run the gamut – some say eBay could acquire advertising network ValueClick so it can compete as an ad network. Others speculate that eBay may buy a video site and compete with YouTube.
MPire’s Hulett says it could be likely that eBay forms deeper partnerships with Google’s direct search rivals – such as Yahoo. Wingo agrees that long term, it makes a lot of sense for eBay and Yahoo to merge to form a supersized entity that provides balance to Google’s rapid ascension.
And Marketing Pilgrim’s Beal speculates that Google is going to acquire companies that will achieve its goal of dominating as many advertising channels as possible. ChannelAdvisor’s Wingo agrees and notes that, “If you look at their acquisitions from that point of view, they make a lot of sense.” Google also wants to serve small to medium-sized businesses and has made acquisitions in those areas to help it do that.
Google made nine major acquisitions in 2006, and as of July had already acquired 11 companies in 2007. So far they have been comfortable paying large sums to explore uncharted territory, but some people point to YouTube when they talk about an acquisition that has yet to turn a profit. Still, most experts say it’s almost impossible to figure out the next company that Google will buy – anything from a software developer to a network to a hosting company.
The one thing that most industry observers agree on is that the turf wars between Google and eBay are only going to get more heated as each jockey for the powerhouse position online.