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Saturday, May 27

Yahoo! and eBay Join Forces

Speculation has been rife for months that the world's largest online shopping website eBay was going to forge a partnership with one of the major search engines. After rumors have been rampant, a formal announcement was made recently that Yahoo! has secured the illustrious deal which is sure to cause some concern for the other major players Google and MSN.

When you consider the strategic direction that the other two players have taken recently with the emergence of Google Base and Google Wallet, and MSN's release of the new Windows Live Shopping portal, the result isn't that surprising really.

In a point that was made very clear at the time of the announcement, this deal is not an acquisition, but rather a partnership around advertising, e-commerce and search. As Terry Semel, CEO of Yahoo! put it: "The deal offers great opportunities for both companies to share great assets with each other...It's all about creating more value and a better experience for users as well as for advertisers."

So what does the deal really mean:

1. Yahoo! becomes sole provider of advertising on eBay site
2. Paypal becomes Yahoo!'s main payment gateway
3. Co-branded Toolbars
4. Collaborated research into Click-to-Call advertising

1. The main short term gain for Yahoo! is the ability to offer their graphical and text advertising across the eBay website, which means increased exposure to the 75 million eBay users. This is the first time Yahoo! ads will be featured outside their network, but considering the active nature of eBay users, this a great expansion of their advertising reach.

2. Yahoo! will now use PayPal as the main payment gateway for all their customers, merchants and publishers. This removes the need for them to explore other payment options like Google did with Google Wallet, and with the high awareness and adoption of PayPal already, why reinvent the wheel.

3. The two companies will be featured on each others existing toolbars, with eBay already having 4 million users in place. This will probably mean that Yahoo! search will be offered on the eBay toolbar, while eBay sites will be searchable via the Yahoo! version.

4. In a move that could really enhance the existing search advertising models, both companies will leverage their VoIP services to push the Click-to-Call model across their networks. I am a strong supporter of the click-to-Call model, especially for small to medium sized businesses due to the direct nature of the response. Considering the market penetration of eBay's recent free VoIP acquisition Skype, and the existing capabilities of Yahoo! messenger, their efforts could really drive forward the Click-to-Call advertising model.

It is obvious that this new partnership will place enormous pressure on Google and MSN alike. Whilst it was surely not unforeseen, the deal will make eBay's e-commerce mega store even more powerful, creating greater barriers to success for both Google and MSN's efforts.

eBay will still be heavily reliant on Google for traffic, as almost all web sites are, but the partnership with Yahoo! is a better strategic move in the long term. Considering the Yahoo! portal's existing traffic and usage volumes and their efforts to innovate (or at least follow quickly) in areas such as social networking and web 2.0 development, their direction is more closely aligned to eBay's path.