April 24, 2006, 9:50 AM — Industry experts are split on the wisdom of the alliance eBay Inc. is reportedly seeking to form with Microsoft Corp. or Yahoo Inc. to combat Google Inc.
EBay's top executives are alarmed at Google's recent launch of a product-listings service with an online payment system, which they view as a potentially dangerous threat to their company's core business, according to a Wall Street Journal story published Friday.
The Google Base service, introduced in test form in November 2005, lets users feed content to the company's search engine index, including items for sale. Google added an online payment system to Base in February of this year.
As a result, according to the Journal, eBay is discussing ways to establish stronger ties with Microsoft or Yahoo, both of which compete with Google in the search engine space and in the broader Web portal market.
Analysts disagree on whether eBay's reported reaction to Google Base is warranted.
"EBay is exposed. A lot of people are getting to the eBay properties through search engines, and Google is the leading one. All Google would have to do is intercept at the front end those people who are searching for things to purchase and redirect them to Google properties," said Rob Enderle from Enderle Group.
With Base, Google is clearly positioning itself as an eBay-like marketplace, a strategy that meshes well with Google's goal of linking users with information, in this case about products, Enderle said.
Others don't feel Google Base significantly threatens eBay's marketplace and PayPal online payment unit, and say that challenging eBay is difficult and costly, even for Google.
"You need a critical mass of people for that type of eBay marketplace to work, and there are considerable barriers to enter eBay's core business," said Philip Remek, a financial analyst with Guzman & Co.
Google is probably very aware that such a herculean effort could distract it from its core search business, where competition remains fierce, Remek said.
Google executives have denied in the past that Google Base is intended to compete head-to-head against eBay in marketplace listings and online payments.
Meanwhile, an eBay spokesman declined to comment on the Journal story but said eBay is constantly communicating with Yahoo, Microsoft and Google, because it spends millions of dollars advertising on their networks and because their search engines drive traffic to its marketplace.
Another analyst cautioned against reading too much into the reported discussions. "Companies talk all the time, even about mergers that never happen, and word about most of those discussions never gets out," said Joe Wilcox, a Jupiter Research analyst. "Just because this one leaked out doesn't indicate the earnestness of the discussion."
Should eBay team up with Microsoft or Yahoo, it should ensure the deal is for the long term and that the partner doesn't plan to launch its own eBay-like service later, Enderle said. "It's pretty clear both Microsoft and Yahoo are also looking to this [online marketplace] space," he said.
Some reported scenarios being discussed include eBay opening up its markeplace pages to third-party ads, which would be attractive for Microsoft and Yahoo, and would yield ad commissions for eBay.
The Journal also reports there have been talks about eBay gaining special access to either search engine, and integrating its PayPal online payment system and its Skype VOIP (voice over Internet Protocol) service with Yahoo or Microsoft systems and software.
Meanwhile, talks are preliminary and could fall apart, and Google has also sought to appease eBay by offering a closer relationship, the Journal reported.
