Merchants say eBay ad programs drive buyers away

EBay Inc. has significantly boosted its advertising revenue since last year, but some sellers worry that the company's efforts in this area are driving potential buyers away from the online marketplace.

Last year, eBay signed deals to run ads from the Google Inc. and Yahoo Inc. networks in order to better capitalize on the massive traffic it draws to its Web sites, primarily its core eBay.com marketplace.

The strategy seems to be working: In 2007's second quarter, ended June 30, eBay's advertising revenue almost doubled compared with the same period in 2006.

The very influential Professional eBay Sellers Alliance (PESA), a group of large eBay sellers, has been watching from the sidelines with increasing concern and skepticism.

"Having those ads on the Web site we view as very negative. Encouraging people to leave eBay can never be good for the seller who is paying to be on the marketplace," said Jonathan Garriss, PESA's executive director.

While eBay has had advertising on its Web site for years, sellers generally hadn't perceived it as a major threat, for a variety of reasons.

For instance, the advertising program that the Yahoo deal replaced in May of last year was run in-house by eBay and was designed to let eBay sellers promote their products in the marketplace. In other words, the ads didn't link outside of the eBay Web sites.

Also, whenever eBay has allowed external ads in its sites, as it did in the late 1990s and early 2000's via a deal with AOL LLC, the ads weren't as precisely targeted as is possible with the current ad-matching technology from Google and Yahoo.

Now, with Google and Yahoo delivering ads that are contextually relevant to the eBay pages on which they run, eBay sellers feel that the barbarians aren't just at the gates, but inside the marketplace's walls, luring buyers away.

The deal with Yahoo made it the exclusive provider of pay-per-click (PPC) text ads and banner ads for eBay sites in the U.S., while the Google deal, signed a few months later in August 2006, is for PPC text ads in eBay sites internationally.

In the second quarter of 2007, eBay reported $76 million in advertising and "other non-transaction revenue," an increase of 96 percent from the same period in 2006. An eBay spokesman acknowledged that most of that revenue came from advertising.

Making some rough calculations, Garriss believes that eBay visitors clicked about 250 million times on the Yahoo and Google ads during the second quarter. "The biggest issue is seeing ads that compete with products already on eBay," Garriss said.

Hani Durzy, an eBay spokesman, acknowledges that the company has fielded concerns from sellers about this issue, but he argues that the worry is unwarranted.

"Our first priority is always to encourage buyers to transact on the site and click on our sellers' listings. If our sellers aren't successful, they're not paying eBay fees, and then we're not successful," Durzy said.

In an ideal world, every visitor to eBay would end up buying something in the marketplace, but research has shown visitors don't always come to buy. Often they do research or browse, he said.

Thus, eBay can potentially monetize those visits and improve those users' experience by showing them relevant, targeted ads, Durzy said.

"Our strategy is to serve ads differently based on what we think you're most likely to do, in order to ultimately give you as a buyer the best experience," he said.

An increase in buyer satisfaction ultimately benefits sellers. "Serving relevant, compelling ads in certain situations makes for a better buying experience," Durzy said.

Still, eBay is considering reactivating the in-house ad program for eBay sellers that it cancelled last year, because it recognizes that it had some value. "We're examining parts of that [program] that we can reconstitute within the context of our deal with Yahoo," he said.

What's not negotiable is the existence of external ads on eBay. "We continually test what's the best mix and how to improve our targeting so that we serve the right ads to the right people and avoid that thing which sellers legitimately fear," Durzy said.

Recently, Steve Hartman, eBay's director of on-site advertising strategy, addressed these issues in a blog posting. "We want buyers to transact on eBay," he wrote. "But we also want to offer alternatives when we believe it will improve the buying experience."

EBay won't claim that the ads have never driven a potential buyer away from the marketplace, but those situations would be exceptions, not the rule, Durzy said.

"Our initial testing period shows no significant impact to our core transaction business, which means no significant impact to our sellers' revenue, because the two are inextricably linked," Durzy said. "We feel very confident that our strategy is working."

Garriss, also CEO of Gotham City Online, an apparel store on eBay that also has its own site, isn't convinced.

"We think it hurts the sellers, while eBay benefits from the ad money," he said. "This is one of our fastest-growing concerns."