eBay to dial down spending with Google

14 Comments

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.

14 Comments

Julia Shazzi

Google has been getting more and more arrogant due to their hyped up market value. EBay has enough users and does not depend on Google ads to survive.

EBay should get into search business too, and forget about GO-ogle.

The Southlander

Rather ironic that this incident happened in Boston. Instead of tea being thrown over the side of the ship, it’s now advertising dollars…

Chris

Ebay needs Google more than Google needs Ebay. With the huge share Google has in search, it will be stupid for Ebay to ignore that audience.

peter online marketing caputa

How ’bout a little analysis here?

Does google really lose revenue here? Don’t they run an auction for ad space? Isn’t the next bidder going to fill the space? They might lose a penny or two per click, but the market will adjust itself. It’s not like eBay is the only bidder for their keywords. In fact, I bet they are lower bidders for many of them. I am also sure they aren’t the only ones that bid on remnant inventory like “buy homelessness at eBay”, if that crap actually converts.

Also, I don’t buy the eBay experiment argument. Do they really need to stop advertising on google in order to experiment with other properties. I am sure they have a budget that is fairly fixed. But, if the advertising on other sites converts into sales, why not spend it? It’s not like eBay has cash flow issues where they have to wait to receive their money. It’s pretty damn instantaneous. What other excuse besides cash flow could they have for not spending on other properties? Ability to track conversions? I sure hope not. I would sure as hell hope that they can measure the effectiveness of every single ad they buy based on whether it converts into a sale. If they can’t, they deserve increased competition from google.

I could maybe buy your ‘bargaining’ for better rates argument. I can imagine Yahoo and MSN bending over (reducing their margins) for some increased spending. But, I don’t know. It seems like a zero sum game to me, in the end.

Here’s the bottomline: They were bullying google. Google backed down. Not because it matters to google financially. But, because google was just smart enough to let eBay think they won this round. Why pour salt on an open sore?

Alt. Search Engine

Lets just hope that other ‘big’ Google customers follow the trend (Ref – TanNg). Not much 5-10% will do:-p

Please try Alt. Search EngineS

Om Malik

TanNg,

you have hit the nail on the head and i think this is the key – more players in the market can add margin pressure.

TanNg

MS and Yahoo lost margin, but Google lost revenue and the risk that other will follow Ebay.

till

I wonder where eBay will spend all that money in the future…

Y!-search? Webcrawler? Altavista? There has to be another search engine! ;-)

sc

It’s possible that EBay conversions from Google Ads aren’t that great to justify the adwords spend.

For instance, if CPC was $.10 and conversion rates were 5%, then EBay would have to make at least $2.00 in revenues to justify paying for the click.

Having fewer bidders for keywords may mean lower bids and lower resulting CPC’s for a lot of keywords in Google’s inventory (EBay seems to bid on a lot of words on Adwords).

SEO Mash

We will all miss the ads such as:

Looking for Homelessness?
We’ve got what you are looking for.
Find it on eBay.
http://www.eBay.com

Before the Boston fiasco eBay had already changed their policy by not allowing affiliates to drive any PPC traffic through Google, Yahoo or MSN so this latest change, like you say Om, is part of a rebalancing of advertising on their part.

Ross

Huh. One of the first things I do when setting up an adsense blog is add ebay.co.uk, ebay.de, ebay.com.au etc to my Competitive Ad Filter. Not because they’re competition, but because they pay so poorly. I guess this is a bummer for Google, but not bloggers (or anyone that relies on Adsense revenue).

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