The behemoth partnership between Yahoo Inc. and eBay Inc. may have been announced in Silicon Valley, but much of the alliance will be executed in the Burbank offices of Yahoo Search Marketing.
The deal makes Yahoo the exclusive advertising engine on eBay, which means that only companies who place ads through Yahoo’s network will have their ads appear on eBay’s site, with exposure to the online auction’s nearly 200 million monthly users.
The partnership also takes on the buzzing area of sponsored search results the idea that companies can pay for more “relevant” ad placement. When a user is searching for an item to buy on eBay, for example, companies whose products might be related to that search get first crack at placing their ads on the page. And in the reverse, Yahoo has agreed to provide current links to eBay items that might be related to terms plugged into Yahoo’s search engine.
The careful screening and placement of these ads on eBay’s site falls on the shoulders of Yahoo’s search marketing operations in Burbank, about 1,000 employees who eat, sleep and breathe Internet advertising.
“It directly impacts our business here,” said Yahoo Search Marketing spokesperson Gaude Paez. “It’s just a matter of teams being dedicated to make sure the ads placed on eBay are appropriate, matching ads carefully to search listings.”
The company has been expanding, and just moved to new headquarters in Burbank from Pasadena. Formerly Overture Inc., an Idealab company, it was acquired by Yahoo in 2003 for $1.6 billion.
Yahoo Search Marketing is often overshadowed by the flashier Yahoo units that have set up shop in L.A. Yahoo Media moved to Santa Monica last year and hired former Warner Bros. Studios head Terry Semel, and Santa Monica-based Yahoo Music created a stir when it tried to take on iTunes and Napster Inc. last year. But its search marketing unit has been quietly battling Google’s AdWords program and bringing in much of the company’s revenues.
The eBay deal is the first time Yahoo will go outside its own network to place ads, and analysts see its potential to generate more ad revenue the cash cow that has everyone chasing Google’s success in that area.
“I view it as an incremental positive for Yahoo,” said Derek Brown, analyst with Pacific Growth Equities. Deutsche Bank’s Jeetil Patel called eBay a “key distribution outlet” to increase Yahoo’s ad revenues.
Yahoo’s search engine still ranks second to rival Google Inc., which has become so ubiquitous that the word “google” has become a verb meaning, “to search for information on the Internet,” according to Webster’s New Millennium Dictionary.
The partnership is widely seen as a defensive move.
“We certainly believe that this is a response to the threat that Google presents to both companies,” Brown said. Google has become the platform for any individual or merchant to meet, or match up with, or get in contact with a consumer interested in any product or service at a critical moment: when the consumer is interested, Brown explained. “And that, at its broadest sense, is exactly what eBay does.”
Their deal has a few more bells and whistles. Though both companies have said it does not involve cash or stock, it puts them “one step closer to a potential merger,” according to William Morrison, analyst with JMP Securities.
eBay’s PayPal online payment system will get an exclusive deal to provide Yahoo’s online wallet service, and the payment system will get preferential positioning on other Yahoo properties. It will let customers purchase items using a credit card or bank account already assigned to their PayPal account, so they don’t have to enter credit card information every time they make a purchase.
The companies will launch a co-branded search toolbar that will include eBay search results and Yahoo’s paid search results as well as the general results when a user initiates a search. The companies mentioned the possibility of bringing eBay’s Skype Internet phone service into the deal as well, enabling searchers to place a phone call to advertisers with a click of their mouse.
But all of this integration will take time. Analysts and the companies don’t expect the announcement to have an impact on 2006 financials, and the companies will spend the rest of the year and much of next year on technical issues.
Yahoo Inc. (Nasdaq:YHOO)
Business:
Internet portal operator
Headquarters:
Sunnyvale
CEO:
Terry Semel
Market Cap:
$45.3 billion
Dividend Yield:
N/A
Total Liabilities:
$2.4 billion
P/E Ratio:
25.75
Long-Term Debt:
$750 million
YEAR (Dec. 31) 2005 2004
Revenue (billions) $5.3 $3.6
Total Expenses (billions) 4.1 2.9
Operating Income (billions) 1.1 0.7
Net Income (billions) 1.9 0.8
Earnings Per Share $1.28 $0.58
Quarterly Net Income (millions)
113 253 373 205 755 254 683 160
6/04 9/04 12/04 3/05 6/05 9/05 12/05 3/06
