What the eBay-Yahoo Deal Means to Google

By Ben Charny  |  Posted 2006-05-25 Print this article Print

Google's CEO Eric Schmidt thinks everybody's getting it wrong about the recently announced blockbuster ad deal between Yahoo and online marketplace eBay.

Schmidt argues it isn't a blow to Google, as many others believe it is.

Rather, it's good for everybody on the Internet, he said May 25 during a public appearance.

What he's commenting about is how Yahoo is now the exclusive provider of graphical ads that appear on eBay, and will provide some of the search gut work so potential buyers can window-shop. Yahoo's also to promote PayPal, the online checkout feature eBay owns.

Many consider the deal to be a blow to Google, which will miss out on what is potentially a huge revenue trove.

To paraphrase Schmidt, what, me worry?

To understand where Schmidt's coming from, one must first realize that Google, Yahoo and other top Internet destinations earn most of their revenues by placing advertising on their Web pages.

So that means that in the world according to Schmidt, there are some companies like eBay that are so important, as in, spend a lot of money on ads, that an entire industry may collapse in their absence.

Judging from Schmidt's comments, another pillar is AOL, the online unit of Time Warner, which is so important that Google bought a 5 percent share of the firm to ensure future business deals.

Another Schmidtism to consider is he thinks there's enough money being spent on Internet advertising now to support Google, and every other advertising-supported Internet site. And the ad pool is only going to get bigger.

So, to get back to his reaction to the Yahoo/eBay deal, every Google competitor wins if eBay, AOL and other important Internet companies are healthy. And judging from Yahoo's new deal, eBay's doing fine.

To agree with Schmidt's assessment of the situation, he says one must cast off the commonly-held notion that there's a pitched battle between Google, Yahoo, Microsoft et al. for advertising dollars.

Rather, there's no need, according to Schmidt. There are "lots of advertisers that use lots of different people," meaning they always spread the wealth, Schmidt said.

Not everyone is buying what Schmidt is selling.

As to the non-combative nature of Internet search, despite Schmidt's assurances otherwise, business is business. There's got to be some kind of fight-reaction instinct encoded into the DNA of any company when its main source of revenue is being challenged by a competitor.

Yet, Schmidt says, visions of search executives at war with each other is a "fundamental misunderstanding. Advertising is about reaching people."

To back up his point, it seems, he added during the May 25 appearance that he expects Google's relationship with eBay will "get closer in the next year or two" as well.

Nonetheless, analysts at Tier 1 Research believe the Yahoo/eBay deal is a "missed opportunity for Google."

"This could have been a meaningful loss if eBay would have said they will only be purchasing keyword ads," which are a major source of Google's ad revenues, the firm adds.

It'll be interesting to see how, and if, Google responds. Perhaps it'll seek an exclusive deal with eBay to provide keyword advertising, in which businesses vie to have their ads placed alongside the search results for certain search terms.

Or perhaps it'll buy a chunk of eBay, as it did with its AOL share purchase.

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