A report in the Wall Street Journal (subscription only) today talks about how eBay is looking for partners to defend against the growing threat of Google. Specifically, Google Base and the payment system in the works in Mountain View are seen as possible dangers to eBay's auctions and PayPal payment operations, says the report. Google Talk just throws some salt in the wounds by looking for a toehold in Skype's turf.
"After years of working closely with the search giant, eBay last year became alarmed as Google started assaulting its turf in multiple ways," the report said.
The multitude of ways to infringe on eBay's core business makes Google look dangerous. With an ally like Yahoo! or Microsoft, eBay hopes to stave off the threat and prevent Google from making any significant inroads to the auction and private payment markets. eBay may be doing the right thing if it hitches its wagon to someone other than big G, though it remains to be seen how much damage Google could inflict on Meg Whitman's crew. eBay has an impressive lead in mindshare and expertise when it comes to selling people's old trinkets online.
Whether it's Yahoo! or MSN, the WSJ reports that advertising through the chosen partner could be boosted significantly, and in return for favorable advertising rates, eBay could provide access to consumer data collected over the years. But it won't be easy to make a major change. The two companies have come to rely on each other rather heavily:
The auction giant gets about half of its traffic from some form of online advertising, making it very dependent on Google.
"If eBay reduced its spending on Google, revenue at eBay would take a hit," says Jim Friedland, an analyst with Cowen & Co. "If eBay stopped spending on Google, the revenue decline would be dramatic and it would be disastrous for the stock. For better or for worse, eBay needs to continue to spend and grow its relationship with Google."
On the other hand, the eBay revenue is very significant to Google as well. "Most" of eBay's annual US$400 million marketing budget goes to Google, and shareholders would surely notice the loss of that large a sum. So the two giants are locked into a dance neither one necessarily wants to dance; eBay needs Google to drive traffic, and Google needs eBay dollars. Even if eBay does form a partnership of some kind with another big online player, the advertising cash will continue to flow to the online advertising market leader.
Google hasn't trumpeted a desire to muscle eBay out of business or anything like that, but online auctions represent yet another method for Google to extract a few pennies from us consumers. Give Google a finger and it might rip you to pieces and mulch its petunias with your remains. If anybody still thinks of Google as a mere search engine, that impression isn't likely to last much longer:
Industry observers have also noted that Google, which has a cash pile of $10 billion, has recently begun to act as a venture capital firm, investing in a string of projects and placing bets in a number of areas. Julie Meyer, chief executive of technology VC firm Ariadne Capital, said: "Google is undertaking the biggest landgrab the world has ever seen. We are seeing it exercise its market power, its cash and its brand. It probably would take a coalition of major players, a kind of super-union, to stop it and I would not be surprised at all to learn of a whole host of discussions behind the scenes."
Such is the power of a strong brand name backed by a lot of cash. There's really no reason why Microsoft couldn't do what Google is doing, apart from a couple of decades of bureaucratization and a brand people think of as ruthless and old school rather than progressive and "not evil." Somebody will eventually mount a serious effort to challenge the power of Google, and a confederation of Google's peers would probably stand a better chance than one company going it alone. Why not eBay; why not now?
reader comments