This morning Google Inc. (NASDAQ: GOOG) and eBay Inc. (NASDAQ: EBAY) announced a deal. On a slow news day in August, this announcement is sucking up a lot of business media oxygen. But it looks to me like a sign of industry maturity rather than a buy signal for either stock.
The terms of the Google/eBay deal are fairly complex. eBay will allow Google Web search advertising for eBay's non-US listings. eBay and Google will also develop click to call -- a search function that lets Web surfers launch Internet phone calls or instant messaging sessions to eBay merchants or Google advertisers -- via eBay's Skype and Google's Talk service, respectively -- by clicking on ads. The two companies will share the resulting revenue.
The deals highlight the weaknesses in eBay's auction and telecommunications businesses and are not likely to make much of a difference to Google's revenues.
Let's look at the implications for eBay first. eBay already has a search advertising deal with Yahoo! Inc. (NASDAQ: YHOO) for its U.S. listings. When U.S. bidders can't find what they're looking for on an eBay auction search, they can use Yahoo search ads. Under the deal with Google, eBay sellers will be able to use Google search ads for non-U.S. searches.
I am not sure what percentage of bidders can't find what they want from an eBay auction search. But if that percentage is growing then it highlights a fundamental weakness of eBay's flagship business -- it is charging too much money for a service that is angering market participants. This is driving buyers and sellers to places like Google that are offering competing auction services. eBay might be better off trying to cure what is driving buyers and sellers away from its site.
The click to call deal highlights the challenge that eBay faces as it tries to make a return on its Skype acquisition. eBay appears to have overestimated the amount of revenue that Skype could generate. Today's announcement is an effort to increase demand for Internet calling for which customers will actually pay. I doubt that the deal will generate enough revenue to make the Skype deal look good to eBay investors.
I think it's worth noting that the financial terms of the deal were not made public. However, eBay did say that the deal would have no financial impact in 2006 or 2007.
From Google's standpoint, this deal is one of many. For example, it already has similar deals with Dell Inc. (NYSE: DELL), News Corp.'s (NYSE: NWS.A) Fox Interactive, and Time Warner's (NYSE: TWX) AOL.
In pre-market trading at 9:10 am, eBay was up 2.9% and Google showed a 0.7% uptick (some of which may be related to Google's launch of tools to compete with Microsoft office).
Overall these announcements are interesting on a slow news day in August. But that doesn't mean I'm going to load up the truck with shares of either company.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College. He has no financial interest in eBay, Dell, Google, Time Warner or Yahoo securities.
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Reader Comments (Page 1 of 1)
8-28-2006 @ 10:08AM
Ann Lambert said...
What is blogging your myopic.
This deal may not rattle you but is call FREE CASH FLOW for EBay SKYPE, geared ad revenue for Google.
At what stock price would this deal make sense to you?
8-28-2006 @ 11:43AM
Gary E. Sattler said...
Just sounds like eBay bowing to pressure to me.
Perhaps particular of your commenters could avail themselves of the home school materials eBay has banned from their site.
Have you heard, eBay merchants in Australia are preparing class action against the site... with backing by their government.
France is angered by the subsidised sale of bootleg Chinese DVD's on eBay world wide.
We warned you. You're just about on your own now.
Gary
8-28-2006 @ 11:58AM
Graham said...
I was under the impression many traditional businesses embraced the internet and built an online presence to reap the cost benefits of low cost, efficient remote selling. So now we go back to VOIP (internet telephony) call centres all of a sudden?
I can't help think there is a technology here that everyone is trying to find a use for without much success. Ebay integrated the ability to use Skype calls in its auction listings a while back now. That said, I've yet to see a seller using it. Thinking purely as a small business in the US using eBay as an outlet channel, why would I want Skype enabled listings? Do I want calls at 4am from a possible buyer in London? Calls at 11pm from an Australian? No, need my sleep, I want an email thanks to deal with on my time frame (and preferably in my first language).
So, sorry, I don't see an immediate return in the near future from Skype or any other similar technology. By the time a viable use is found (other than teenage chatrooms) the technology itself may well have been overtaken.
8-28-2006 @ 11:58AM
Randall said...
Peter, thanks for your comments, although I worry your voice is similar to a prophet crying in the wilderness. The eBay lemmings (it appears Ann is a member) keep moving toward that cliff while voices of reason like yours fall on deaf ears.
Keep up the good work.
8-28-2006 @ 1:39PM
Dan said...
http://www.dealscart.com/count/ebayWorldwideCountGraph.html
I believe this deal may be a diversion of what’s really happening out there. I’ve been watching the worldwide auction counts since the fee hike announcement. Worldwide the auction counts have set new lows for this time period on 8-08, 8-24, 8-25, 8-26, 8-27-2006. There is a big worldwide fallout from the fee hikes if Dealscart’s numbers are correct. This has to be troubling for Ebay and investors if true.
8-28-2006 @ 2:08PM
DD said...
Sounds more like eBay bowing the knee and Google creating a do-nothing portal for large, NON-US merchants. Hey, there's an idea...another snoozing Alibaba.
8-28-2006 @ 3:04PM
Steve said...
what a garbage post - nothing more than childish reasoning.
8-29-2006 @ 7:42AM
Florence said...
So eBays foolish purchase of Skype needs the help of Google to bring in some cash. It may have escaped some peoples attention but not everyone is going to want to phone, either with Skype or any other message system when they are looking at auctions!
This seems a bad move and will only further drive buyers and sellers into the arms of Ebid and other competitors. Google now seemingly having put paid to any rumours of starting its own site as a competitor to eBay, will only accelerate the process.