Google Gets It on (with) eBay

A couple of months ago, eBay and Google were the Paris Hilton and Nicole Ritchie of e-commerce, supposed enemies thanks to fears that Google was poaching on eBay’s auction turf with Google Base and on PayPal’s online payment model with one of its own. And eBay seemed to make a point of looking elsewhere than to Google for search-ad services for its U.S. Web pages, considering Microsoft before finally settling on Yahoo!’s offering in May.

But if they were indeed at odds, Google and eBay made up big time this week, with a deal that will put Google sponsored links onto the overseas eBay pages. It also seems to team the world’s largest online advertising seller with one of the world’s largest IP voice calling platforms, Skype, to develop a “click to call” product that could be used in search ads.

With no financial details released, the deal was still good enough to give a boost to share prices of both companies. But analysts have suggested that the alliance could match or even overshadow the multi-year deal Google struck early this month with MySpace. In that pact, Google made a $900 million payment guarantee to News Corp. in return for the chance to deliver search ads to the social network’s expanding user base of more than 100 million, along with some other News Corp. properties.

In this case, eBay has about 203 million users worldwide, and about half of those are outside the U.S., which is also estimated to be the area of its fastest user growth. And since they’re more likely than MySpace members to be visiting with intent to buy, access to them probably commanded a premium from Google, observers say.

The prospect that eBay users will now find both eBay content and big-brand search ads—from Yahoo! on these shores and from Google overseas—is a win for search marketers, according to iProspect CEO Fredrick Marckini. “It’s always of interest to be placed near relevant content,” he says. “And if you’re advertising a competing item to whatever someone came to eBay to buy, you’ve taken one step closer to the purchase intent. In a way, I’d rather have a text ad appear in a search for laptop computers on eBay than I would on Google because eBay users are already further along in the buying cycle.”

“EBay really is a search engine for people looking to buy something, so you’d expect the audience metrics to be pretty good both domestically and globally,” says Kevin Lee, founding chairman of search marketing firm Did-It.com.

Lee also finds it “interesting” that eBay has decided it can supplement its two main revenue sources—listing fees from sellers and transaction fees for goods sold—with ad revenue from the search engines. “I can see [eBay] merchants getting concerned that eBay is now leading people away to their off-site competitors with clickable ads,” he says.

In fact, there has apparently been some complaining among eBay sellers about the Yahoo! pay-per-click ads, which started appearing at the top of some eBay product pages in July. They’ve objected not only to the diversion of traffic to non-eBay sites but to the apparent occasional delivery of competitors’ ads on results pages. When the Yahoo! deal was announced in May, eBay CEO Meg Whitman said the ads delivered would be complementary rather than competitive—for example, featuring camera cases when a user searched on “digital camera”—or would only appear when users searched for products eBay did not offer.

But Lee points out that Amazon also has a merchant program and also serves up Google sponsored links for some product searches. “Both Amazon and eBay may have done similar analyses and determined that from a user perspective, a certain balance [between on-site search results and ads] is possible,” he says. “The idea of advertising within a commerce environment seems to be catching on.”

Late last week, in fact, eBay notified sellers that it was closing the doors on its own on-site keyword ad program, in which merchants could bid to run ads on the site’s product search pages that linked to their eBay stores, auctions or profile pages. The closure notice said that only a very small percentage of eBay sellers had made use of the ads, launched in 2003.

The deals eBay struck with Google this week and with Yahoo! last spring both have a second major component: harnessing Skype, the IP calling service eBay acquired last September for $2.6 billion, with the Yahoo! and Google divisions that have been working on IP calling functions for more than a year now. The aim of these joint development efforts is to arrive at a click-to-call function that can be smoothly deployed over eBay’s product pages and the search ads the engines deliver to those pages.

While the deals call for collaboration from both Google and Yahoo!, the Google support seems to have caught particular attention. The search engine has been running limited tests of an ad-related click-to-call integration of its Google Talk IP calling function since November; Yahoo! has focused more on adding IP voice to its Yahoo Messenger instant messaging product.

In terms of promoting IP voice calling, the eBay-Google deal teams up the largest ad seller on the Web, Google, with one of the largest installed customer bases of IP voice services, Skype, which is estimated to have about 4.7 million registered users worldwide. So in addition to promoting each other’s calling services via toolbar buttons, the pairing should have an impact on adding IP calling capabilities to Google’s search ads and eBay’s product listings. EBay already offers its sellers the use of a “Skype Me” button for their listings, but takeup by either merchants or users is presumed to be small.

The ability to set up a quick voice connection with prospective buyers should be particularly effective for complex sales of products that people may not be willing to buy online. That would then make online advertising and selling of those items more attractive to advertisers. “From a 50,000-foot perspective, both Google and eBay are in the same business of linking up buyers and sellers,” says Ben Perry, paid search director at iProspect. “[Click-to-call connectivity] broadens the ability to sell things that Google can’t easily sell through its AdWords and that eBay can’t sell on its product pages, like insurance or B-to-B services with a long buying cycle. That would give them a way to monetize all that ad inventory out there that they’re not touching right now.”

Adding voice to ads could also add value by enhancing conversions. “Study after study has shown that if you focus on online conversions alone, you’re missing a big part of the opportunities,” says Marckini. “A significant amount of conversion activity is happening across channels. The fastest way to facilitate that is by making a phone number available. And when that phone number can be immediately tied to the advertising source, you have a killer application.” (IProspect offers its own call-tracking service, SearchTalk that integrates online ads with call data to track phone conversions.)

And beyond making existing search-ad products more attractive to a wider array of advertisers, the Google and Yahoo! deals with eBay could result in something new: a pay-per-call product that uses IP voice. To date, most pay-per-call ads use switched connections and toll-free numbers from voice carriers, because those are needed to bill advertisers for connecting with customers.

But a company with the technological chops of a Google might be able to crack the problem of putting a meter on IP voice calls, making a pay-per-call product could be deployed for an advertiser at Internet speed. If so, that could open a lucrative new ad revenue stream for Google; other pay-per-call platforms have shown that advertisers are willing to bid much more for calls than for clicks.

“I see this as Google’s official announcement that they are now getting into this [pay-per-call] market, adopting calls as an advertising vehicle with both their Google Talk client and with Skype,” says Greg Sterling, founding principal of Sterling Market Intelligence. “This adds momentum to the whole pay-per-call market. Google and Yahoo! are the two biggest players in terms of search volume, and this is all about lining up enough ads for consumers to see and then potentially act on.”

But what led eBay, which seemed so set against working with Google last spring that rumors abounded of a merger with Yahoo! or Microsoft, to hand over half of its global search ad inventory?

Apart from any unspecified financial considerations, sheer realism may be the key. EBay spends about $260 million a year on search engine advertising for its auctions, and about 60% of that goes to Google AdWords. On the inbound side, about 12% of eBay’s traffic is referred through Google.

Splitting its ad business between Google and Yahoo! may give eBay more insight into how ads work on its pages, Lee points out. “As a large-traffic site, eBay has to be thinking, ‘If I’m going to create this mix of advertising and product inventory on my site, what works best for me? I’ve only got a limited number of page views to monetize every day through a combination of sales and ads, so who performs best?’ Thinking like a direct marketer, it’s sort of like an A/B test.”