eBay, AOL, Amazon, Yahoo, and MSN
Chances are most of us use eBay, Amazon, and Yahoo, but they seem to have become non-players at the moment with respect to internet advertising. EBay and Amazon have long had strong affiliate programs and a large mind share of either internet spend or reach, and Yahoo used to occupy the seat that Google now does as top internet advertising company. But all have stumbled some, both with respect to the buzz being generated and certainly their stock prices. Two articles do a great job of presenting the current landscape of the original internet giants, each in their own way. This week, rather than discuss my bringing the wrong charger on vacation and my struggles with a non-QWERTY keyboard in the smokey, cybercafe Utopie, we take a look at the broader battle that has and will continue to shape our space as told by “The Not-So-Fantastic Four” from Slate and “The alliance against Google” found in the Economist.
As Daniel Gross writes in his “The Not-So-Fantastic Four,” at a time when online advertising and e-commerce are enjoying strong growth, all four [Yahoo, eBay, Amazon, and AOL] have pulled up lame.” All survived the dot com bomb as well as any, especially eBay, but they have not seemed to take full advantage of the growth today. Is Google to blame? Daniel Gross doesn’t think so. He uses Q2 numbers along with some of the recent decisions the four market leaders have chosen to explain their current situation. For example, with Amazon, he points out from a financial perspective that with Amazon, its revenues rose but the cost of the revenue rose even more. Perhaps more worrisome strategically, is that the company announced diversification plans by opening an online grocery store and new online baby and toy stores. Ditto Mr. Gross who says, “Because it worked so well for Webvan and eToys?”
Similar to Amazon, eBay saw core revenue growth but a decline in income due to increased expenses. It brings back scrutiny of their decision to buy Skype for several billion when the free software company contributed, according to the Slate piece, only $44 million in revenue. eBay has all the makings of the next contextual / behavioral ad network with tens of millions of keywords they can match products and auctions too. Yahoo also seems to have taken longer than they should to enter the contextual / behavioral display market, i.e. showing their ads on third party sites. They keep seeing increases in advertising money on their inventory, but unfortunately, much of their future growth becomes dependent on a product, already delayed, that must compete with Google. This is not a fun position to be in.
The Economist piece adds color to what has been said by Slate Gross, but rather than paint Google as a non-issue, who is growing, and doing its thing, it has Google as the internet’s version of Napoleonic France. Yahoo, eBay, and MSN along with Amazon and AOL (the last two not discussed), have certainly made some poor decisions and spent more to earn proportionately less in a maturing market, but their growing neighbor plays a less than silent role in that decline, and should be viewed as a definite threat. One example given for Yahoo, and this is something about which I was not really aware, references Piper Jaffray analyst Safa Rashtchy’s estimate that for every advertising dollar that Google makes on a search query, Yahoo! makes only 60-70 cents. Market share reports paint a challenging enough picture, but that Google could earn so much more per query should come as a surprise, especially to me and my arbitrage, bent where each engine has its strengths and weaknesses.
Viewing the landscape from a Google threat level again, eBay should stand at Code Red. Google for a while seemed like eBay’s partner in crime. The auction house has long been one of the engine’s largest advertisers and publishers, but the Economist points to a study that casts this relationship as a one-sided one, that is definitely not in eBay’s favor. The study claims eBay earns 12% of its revenue from Google (directly and indirectly) but accounts for only 3% of Google’s. Assuming the numbers have some validity, we see eBay relying on the engine to get customers, and a decent amount of them at that. It’s enough where Google has every reason to disintermediate their one time best client and see limited downside. With Google building its own classifieds engine that leverages its own core technology, that seems to be just what is starting to happen. In the end, the merchants will go where the buyers are, so the real loser in the end could be just eBay. Who knows, maybe Skype will save the day here and prove a genius decision.
As the Economist article suggests, these companies could try and pool their power to fend off Google if indeed the company represents the threat suggested. And to some degree we see this currently. EBay and Yahoo have already announced a strategic alliance; Yahoo and MSN have historically had one, but it remains in doubt as MSN looks towards its own technology and advertiser base. As for a merger, that remains probable but perhaps not advisable. Any form of merger between the three might only end up being Web 2.0’s version of AOL/Time Warner. Whether we view Google in terms of a threat or a stress that had others making mistakes, we come back to the point already belabored countless times. Google’s success has had an impact on the face of the internet, and every company be it eBay, AOL, Amazon, Yahoo, and MSN to those in our space have changed as a result. If there is one thing that the big guys can learn from the little guys, it is that opportunity exists and that once you get good enough, expect Google to change the rules on you.
Links: http://www.economist.com/business/displaystory.cfm?story_id=7277064
http://www.slate.com/id/2146541/
