The Biz of Coding

Dot Com War 2.0 - Is Yahoo & eBay partnership a Google buster?

by Ujwal Tickoo on May 26th, 2006

This post is a continuation of my previous 2 posts:

• Yahoo Inc. & eBay Inc. Alliance — How will Google, AOL, & MSN respond
• Dot Com War 2.0 — eBay Inc. & Yahoo! Join Forces

Most media and financial analysts see the Yahoo Inc. (YHOO) and eBay Inc. (EBAY) alliance a win-win for the 2 partners. It is not entirely seen as a threat to Google. I agree that in the short-term the alliance is not a threat. Google has ample momentum in its Online Search business. CNet news reports on the Yahoo - eBay deal:

Scott Devitt, an analyst at Stifel Nicolaus, said "It’s not so much about shifting query share as taking undermonetized components and filling holes with partners. Unless there’s something over time which shifts query share, it’s not that big of a strategic move (in relation) to Google."

Alexia S. Quadrani of Bear Stearns said the main concern that has weighed on Yahoo’s stock has been the increased competitive marketplace online. "We believe a partnership with the No. 5 destination site on the Web helps bolster Yahoo’s competitive position….This deal may also weaken competitor MSN’s position given speculation by newspapers such as The Wall Street Journal (4/21/06) that MSN might partner with eBay."
 
Safa Rashtchy of Piper Jaffray said…. "The partnership is a loss of potential partnership for Google and as such it is a negative, but we believe it is unlikely to undermine Google’s position," he wrote in a research note.

I believe that this is only a short-term analysis of the Yahoo Inc. - eBay Inc. partnership’s implications.

Long term the Online landscape will change — squeezing Google entirely into a pure-Search player. That is the threat that Google would perceive. For whatever its worth, I feel that Google should actually focus on just Search and its various avataras — instead of portalizing or becoming an eCommerce player. The reason is Search is Horizontal. When you position yourself as Search company — then doing eCommerce and Content — bothers the rest of your potential alliance partners.

Burt Helm in his BusinessWeek article Tech Titans Take Sides quotes some analysts:

Analysts say the Yahoo-eBay deal is a win for both companies. For Yahoo, it means a chance to get ads in front of eBay’s estimated 76 million U.S. users. The deal gives eBay a bigger slice of the red-hot online ad market. It will also be a "big boost" for PayPal, says Scot Wingo, CEO of ChannelAdvisor, a North Carolina company that provides services to eBay sellers and other merchants. Because Yahoo has many paid services, Wingo says, the partnership will give users the opportunity to use PayPal for many more of their online transactions.

On its face, the move would also appear to buttress Yahoo against Google. For instance, Google would miss out on the portion of ads on eBay’s site that will be earmarked for Yahoo. But analysts say in practice Google won’t be hurt much at all. eBay will continue to be one of Google’s biggest customers.

Currently eBay and its subsidiary, Shopping.com, are the two largest buyers of Google ads. According to Nielsen NetRatings, ads purchased through Google by the two companies were viewed a total of 1.4 billion times — 38% more times than ads purchased with Yahoo from the two. That huge amount of spending from the company only furthers Google dominance in search and, indirectly, its ability to build new businesses that can compete with eBay and Yahoo.

Merrill Lynch (MER) analysts in a research note called the arrangement a "good strategic fit" that could mean as much as $200 million in additional revenue for the Yahoo affiliate network in 2007. But it doesn’t change the securities firm’s outlook on Google at all. "We do not expect Google to lose traffic based on this announcement and are not changing estimates at this time," writes Merrill Lynch’s Justin Post.

Google continues to focus on Microsoft as its core competitor. It has annonced a deal with DELL to bundle Google Toobar on millions of Dell PCs. Microsoft recently failed in its attempt to woo Yahoo into a partnership in its attempt to kill Google. However, it is too late for Google to try to build any kind of alliance with Yahoo and eBay in a bid to kill Microsoft’s move to the online advertising model. Google now has to choose its next steps carefully. The more it anatagonizes eBay, Yahoo and other online players — the more threatening Microsoft will become.

POSTED IN: Google, MSN, Marketing, Microsoft, Strategy, Yahoo, eBay