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EBay-Google bonds strained

A tiff over competing online payment systems leads the auction site to kill ads and the search engine to cancel a party.

June 14, 2007|Alex Pham | Times Staff Writer

EBay Inc. didn't take kindly to Google Inc. crashing its conference.

The online auction house pulled its ads from Google's U.S. search engine this week because it was mad about Google's encroaching on its turf -- both literally and figuratively.

EBay is one of Google's biggest advertisers. The search engine funnels millions of Web surfers to the auction site. But the two companies have grown increasingly competitive as Google has stepped up promotion of its Checkout online payment program, which targets a market similar to EBay's PayPal service.

What peeved EBay enough to yank its ads? A party.

Google invited attendees of EBay's big sellers conference in Boston to come to a shindig tonight, scheduled to start shortly after EBay Chief Executive Meg Whitman gave her welcoming address. Google offered trolley service to bring conference-goers to its "Let Freedom Ring" event at the historic Old South Meeting House -- and rally against EBay's refusal to let sellers advertise in their listings that they accept Checkout payments.

"When we heard of their plans to have their party and the way they were marketing it, we were disappointed," said Hani Durzy, spokesman for San Jose-based EBay. "We felt that wasn't an appropriate way for one partner to act toward another."

Durzy wouldn't say whether the decision to shift ad dollars away from Mountain View, Calif.-based Google was related to the party, stating only that EBay often "experiments" with its ad spending to gauge its effectiveness in drawing traffic to its site.

But analysts believe there's a direct connection. Deutsche Bank analyst Jeetil Patel, called EBay's move "truly retaliatory." Martin Pyykkonen at Global Crown Capital, called it a "soap opera."

Google backed down Wednesday and canceled the party. "EBay Live attendees have plenty of activities to keep them busy this week in Boston, and we did not want to detract from that activity," a Google executive wrote on the company's blog.

In a statement, Google said, "We don't comment on individual advertiser relationships or spending. EBay has been a longtime partner and we look forward to continuing our positive relationship."

But the spat may carry financial consequences for both companies.

Patel estimated that EBay gets between 10% and 20% of its Web traffic from Google, particularly by buying ads to run when Google users type in certain search queries. Google users saw more ads from EBay than from any other company in the first quarter, according to Nielsen/NetRatings.

Meanwhile, analysts believe Google gets tens of millions of dollars a year in advertising revenue from EBay. The two also have a partnership to share revenue from advertising on EBay's auction sites outside the U.S.

The source of tension is their competing online payment businesses. EBay owns PayPal, which handles close to 80% of all online transactions in the U.S., according to Pyykkonen. EBay last year generated $1.4 billion -- about 23% of its revenue -- from PayPal fees. Google's Checkout, on the other hand, was launched just a year ago and is trying to gain a foothold.

Greg Sterling, principal at Sterling Market Intelligence, said Google and some of EBay's own sellers have lobbied EBay to add Checkout to its auction site, with no success.

"EBay certainly has the prerogative to block Checkout on its own site," Sterling said. "But if EBay truly feels PayPal is a better product, it shouldn't feel threatened by competition."

Meanwhile, analysts expect EBay's boycott of Google to be short-lived.

"I just don't see that EBay can sustain it for very long," Pyykkonen said. "The reality is that EBay is too dependent on search to bring traffic to their site, and Google is the No. 1 player in search.... They may have a few more angry words, but at some point, they'll start doing business again."

Google shares rose 47 cents to $505.24, while EBay shares gained 52 cents to $31.48.

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alex.pham@latimes.com

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