Yahoo and eBay alliance presents a problem for Google

Stan Beer
Thursday, 25 May 2006 22:20

Opinion and Analysis

The rumour of yesterday is today's reality, with the announcement of web giants Yahoo and eBay teaming up to battle the dominance of Google and the threat to Google is significant. Yesterday speculation was doing the rounds that the two companies were holding merger talks. The alliance, in which Yahoo will provide the ads on eBay and search in its toolbar, while eBay's PayPal online payment system will be used on Yahoo, could well be a precursor to a merger.

As we reported yesterday, both Yahoo and eBay have equally high profile brands and businesses that are complementary and synergistic. eBay has nearly 100 million users, which will be a lucrative market for Yahoo search and advertising, while the alliance will give eBay exclusive access to all online transactions on Yahoo, the highest traffic site on the web, through its PayPal system.

Both companies are reportedly also exploring the implementation of click-to-call ads, which allows users to place a direct call to advertisers by clicking on ads. While it has not been mentioned, is quite possible that eBay's internet telephony system Skype could be involved in the implementation of click-to-call. Skype currently has more than 100 million users.

The alliance between Yahoo and eBay presents a formidable challenge to Google which has largely pursued a go it alone strategy, prefering to use its search engine advertising cash cow to build its online information portals, communications services and marketplace.

However, Yahoo and eBay are the two leading marketplaces on the web and dwarf Google in their respective fields. Yahoo, the most visited site on the web, is the leading marketplace for news and information content, as well as having the leading web-based email product. EBay, ranked number 9 in internet traffic, is the leading marketplace for products, and also owns Skype and PayPal, themselves very strong online brands with strong user bases.

Google by comparison basically makes all of its money through search advertising and has double of yahoo's share in that market. However, Google is trying to use the considerable cash generated from search to build competitive products in the portal space but so far has not been able to put a dent in Yahoo's dominance.

Google has also found it difficult to gain traction in the media, email and messaging areas, where Yahoo, Microsoft, AOL and eBay's Skype are all established players. If Google goes ahead with plans to create its own online products market place, it would find eBay an incredibly tough competitor.

As previously noted, in the event of a more far reaching alliance, in the instant messaging and internet telephony area, the fast growing Skype, which has more than 100 million users would instantly propel Yahoo into the major league of online voice and messaging communications, nicely complementing its strength in email.

While Google has clear dominance of the search space, its inability to build a strong presence in other markets to date leaves it vulnerable in the event of a downturn of its search business. It will be interesting to see how Google's market is affected when Internet Explorer 7 is released with Windows Live Search as the default search box.