EBay-Google bonds strained

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.