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After spat between rivals, eBay returns to Google advertising

Monday, June 25, 2007

SAN FRANCISCO -- After a spat between two of the world's largest Internet companies, online auctioneer eBay Inc. resumed running advertising through Google Inc. on Friday.

EBay pulled ads from the world's most popular search engine late June 11 in what the auction company billed as an experiment to determine the most effective means of getting customers to visit the shopping site. The move, however, had smacked of blatant retaliation as it coincided with a June 14 party that Google had been planning to siphon attention from eBay's annual user celebration in Boston.

In the past week, eBay -- one of the biggest buyers using Google's AdWords marketing program -- increased advertising on Google rivals, including Yahoo Inc., IAC/InterActiveCorp.'s Ask.com and Microsoft Corp.'s MSN.com.

EBay spokesman Hani Durzy said the experiment proved that eBay didn't need to spend as much on Google ads, which generally run to the right of Google's regular search results.

Durzy wouldn't provide dollar or percentage figures but said that eBay's pullback from AdWords in the United States would be "significant."

"Overall the takeaway for us was that we weren't as dependent on AdWords as some out there may have thought," Durzy said.

He said traffic to the site was higher during its 10-day experiment compared with the same time a year ago, and eBay sales don't appear to have been dampened.

"Other partners -- Yahoo and AOL and MSN -- really stepped up and provided a lot of value," Durzy said. "And natural search continues to drive a lot of valuable traffic to the site."

Google spokesman Brandon McCormick confirmed that eBay returned to AdWords on Friday afternoon.

"Over the last seven years, we have worked closely with eBay to drive customers to their site and build value for their business and the business of their sellers," McCormick wrote in an e-mail. "We look forward to a continued partnership."

Analyst David M. Garrity applauded what amounted to eBay's snub of the search leader, noting that the 12-year-old auction company is older and more established than Google, which was founded in 1998.

"EBay can live without Google," said Garrity, director of research at New York-based Dinosaur Securities LLC. "EBay already has an established brand. People know what eBay does and where to go to find stuff there. If Google pretends to want to organize all the information relevant to Internet users, then it will be difficult to ignore eBay."

EBay executives have insisted that pulling ads off Google was in the works for months, but the move came just as Google was planning "Let Freedom Ring" -- a reference to the fact that San Jose, Calif.-based eBay, which owns transaction service PayPal, does not allow rival Google Checkout as a payment method.

Google canceled the gala after eBay pulled its ads and eBay CEO Meg Whitman -- considered one of Silicon Valley's most diplomatic and unflappable executives -- said she was "not pleased" with Google's plucky party.

The spat highlights the complex relationship between two of Silicon Valley's most high-profile companies, which depend on each other for traffic and revenue but increasingly compete.

PayPal, which eBay acquired in 2002, is by far the most popular online transaction service, with 143 million user accounts around the world. PayPal, which had $1.4 billion in revenue last year, is vital to eBay because it is growing faster than eBay's older auction and shopping business.

Google debuted Checkout only last year, though Google claims it is accepted by more than a quarter of the top 500 online retailers.

Despite the complex business relationship and the blue chip status of Google and eBay, neither company has displayed much maturity over the past two weeks, said technology analyst Roger L. Kay, founder and president of Endpoint Technologies Associates Inc.

"Google has a ton of money and should have thrown its own party that didn't coincide with the eBay event, which was simply a guerrilla warfare attempt to draw attention on the cheap," Kay said. "And for eBay to cut ads from Google -- the old-fashioned metaphor is 'cutting off your nose to spite your face.' It was all very childish."

EBay shares rose 63 cents, or 2 percent, to $31.76 in trading Friday, while Google was up $10.87, or 2 percent, to $524.98.

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