More on YahooBAY

Thursday, May 25, 2006 | 3 comments

WSJ reports on the just announced eBAY-Yahoo partnership. In early trading on the Nasdaq Stock Market, Yahoo shares rose $1.14, or 3.6%, to $32.93 and eBay jumped $2.50, or 8.3%, to $32.70, clearly indicating that the market likes eBAY’s moves closer to Yahoo.

There are two exclusive components to this deal : Yahoo will be the exclusive provider of all graphical search ads on eBAY sites, indicating that eBAY’s forays into online contextual advertising are likely to now go somewhere. Also, Paypal as the exclusive payment solution for Yahoo’s online wallet efforts bode well for eBAY.

This is clearly a deal that eBAY needs much more than Yahoo, but the benefits to Yahoo must not be overlooked. Here are two:

Putting a check on the search advertising revenue flow from eBAY to Google and channeling a large percentage of that revenue into Yahoo itself is equivalent winning one of the Internet’s largest accounts against the largest competitor. eBAY’s search really sucks. I am sure, Yahoo can add some throttle into that effort. For example, in looking for clothes, I only want to see inventory / listings in Petite sizes (0,2,4). If Yahoo can tie-in MyYahoo with eBAY, and make the search capability really precise, that would be fantastic for MyYahoo users. Clickthrough rates are likely to get wildly higher.

Also, from the point-of-view of eBAY PowerSellers, by and large, they should also have Yahoo! Stores to up-sell and cross-sell their merchandise to existing customers, while using eBAY to acquire new customers. The complaint from eBAy sellers today is that it has become a very expensive channel. If eBAY could address some of these concerns, become a lead generator for Yahoo! Stores, and work out some sort of a revenue sharing arrangement that makes sense for all concerned, it would be a good idea. This will cause eBAY to cannibalize their own auction business. However, if they don’t pay attention, PowerSellers will automatically set up independent shops on the web, advertise on Google via Adwords, and bypass eBAy altogether, as they become more sophisticated web merchants.

However, if eBAY and Yahoo team up on Stores, and acknowledge the PowerSeller concerns, while augmenting Seller incentives by making Yahoo Search Marketing and Stores a part of the offering, they could together make the long term look a lot more exciting.

Finally, here is a thought: the piece of the equation that has made the Internet such a powerful ecommerce vehicle is efficient drop-ship capabilities offered by Fedex, UPS, et. al. Just like Paypal is an essential part of the eBAY foodchain, Fedex is too!

So what about Fedex+eBAY?

To me, it makes a great deal more sense than Skype!

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