eBay to dial down spending with Google

The recent squabble between Google and one of its biggest customers, eBay might have seemed like a catfight, but it also hinted at a new eBay strategy to shift their advertising dollars to non-Google destinations and networks.

As background, the eBay-Google hostilities spilled over into press after Google scheduled a Checkout Freedom Party in Boston, right when eBay was hosting its developer conference in Boston. eBay threw a hissy fit and temporarily suspended buying Google keywords. Google worried about lost revenues canceled the party.

The auction giant will slowly turn back on Adwords based advertising over next few days, but the volume of spending will decline from historical levels, according to an eBay spokesperson we chatted with earlier today.

The company recently experimented with non-Google networks and destinations and found that non-Google traffic sources could make up for Google-driven traffic. EBay worked with Yahoo, Microsoft, AOL and scores of smaller Internet properties to drive traffic to its auctions. It is a smart move – the desperation of Yahoo and Microsoft to compete with Google would prompt them to give better terms to eBay, which can thus streamline its margins.

According to Citibank analyst Mark Mahaney, eBay accounted for perhaps 2% of Google’s gross revenue and profits in 2006. Google has been one of eBay’s largest provider of leads, currently accounting for 5% of its traffic, he estimates.

Ebay’s decision would be a set-back for even Google, given the large amount of dollars eBay spends with the search giant.

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