eHoo/yBay - one step closer!

Today's WSJ has an article that hints eBay is seeking some strategic options as it looks down the barrel of the Google 80 ton guns.  This further strengthens my argument that eBay and Yhoo need to merge FAST before it's game over.  Microsoft is interesting, but makes no sense, it has to be yhoo.   Q1 results really paint this picture:

• eBay - stuggling, growing slower than ecommerce (losing share - guess to who), listing revenue is erroding.
• Yhoo - doing well in branded, ok in search, losing search share to google rapidly (although they deny this, they themselves are in denial).
• Google - well, watch what the stock does today and you'll get an idea of how their Q went.

My favorite part of the article:

Few at eBay initially saw reason to fear Google, say people at the company, in part because of a 2003 study it commissioned from McKinsey & Co. McKinsey concluded that Google wouldn't use its search capabilities to break into e-commerce. That made Google a manageable threat, say people familiar with the study. EBay's dependence on Google increased as it shifted ad dollars to online ads from traditional media throughout 2004.

So you run a $10b company and you hire a wet behind the ears MBA to figure out your Google strategy?  Wow, this is really VERY VERY scary if true.

I wonder if they'll get their money back they spent on that analysis?

Another snippet is interesting:

Through the fall, groups of Yahoo executives, including Chief Operating Officer Dan Rosensweig and Chief Financial Officer Sue Decker, considered ideas, including making PayPal an integral part of Yahoo's shopping business as well as a back-office payment system for Yahoo's advertisers. Yahoo would syndicate its ads on eBay's site. The pair also talked about embedding a link to eBay's Skype phone service within Yahoo's ads, enabling consumers to immediately call the retailer in question over their PCs, say people familiar with the matter.

So since I'm getting good at these predictions :-)  here's take II:

• eBay will partner in some way with Yahoo! and Microsoft - probably some skype and paypal stuff and some ebay listings here and there.  Also they need to get adwords off shopping.com - why help google there?
• These partnerships will get lots of press, yet do nothing to stop google's rampage through the search, ecommerce, payment world.
• eBay has to get their market cap pummeled to be at least 75% of yhoo if not 50%.
• Egos will finally be put aside the two firms will merge (Meg retires)
• The street fighters of the two cos have to come to the front - Dan, Weiner and JJ
• Then if that entity can work with MSN and ASK you have something that could at least slow down the goog juggernaut.

As the chinese proverb says - may you live in interesting times!

Comments

[Steve D]

just want to post a few more thoughts on eBay/Yahoo merger I am running through in my mind:

I view both companies as in the business of helping sellers. There are many things manufactured and sold on this planet and both Yahoo and more obviously eBay are building and running platforms to help sellers - Yahoo through search and brand building and eBay through marketplace listings. All three ways (search, brand building, and listings) are just different ways to help sellers. Currently, each company has in its arsenal one way to help sellers, but none of them has all three ways. To me, it's plain obvious that as a combined company, YahooBay will have extremely scalable offering being able to help from occasional guy trying to sell his used iPod to small business and all the way to Fortune 500 companies.

[Steve D]

Just some of the thoughts I am running through in my mind:

1. Business Model - sellers find buyers either through a search or through marketplace listings – both are powerful ways to find buyers and currently each company has only one part of the equation. The business model of the combined company is helping sellers to acquire buyers through search, marketplaces, and brand building by building and running the platform. The platform itself is juiced up with user created content and social networking.
2. R&D - With Google raising the bar in capital and R&D investments, it’s becoming increasingly expensive to maintain competitive position and innovate. By merging, the combined company will be able to spend more on R&D.
3. Laser Focus - Yahoo Search, eBay Marketplaces, PayPal, and Skype – each doing the best they can in a laser focused way. Yahoo currently is big conglomerate of tools and services one mile broad and one inch deep. They are not a leader in any of the specific categories, though combined their properties bring the highest traffic. By becoming laser focused on search and underlying content, they will be able to do a better job. Let eBay take care of marketplaces, PayPal of payments, and Skype of communication.
4. Brand – Yahoo should re-brand itself as ‘The Search Company” and put ‘The Search Company’ just below ‘Yahoo’ on its logo. Yahoo should be all about making it simple and convenient to find things – either through 1) ad-hoc general purpose search query or through 2) a pre-organized special purpose tool like Y!News, Y!Finance, Y!Sports, Y!Maps, Y!Travel, Y!YellowPages, Y!Jobs etc, etc, while ecommerce and communication should be given to eBay and Skype, who are laser focused on those areas.
5. Synergies – eBay and Yahoo are excellent standalone businesses. But they also have so many ways to take advantage of synergies to improve competitive position. Opportunities are really big here. I can break down this item into more than 20 bullet points.
6. Ego and power struggle – it’s not a big secret that top management of almost all big companies has ego and ambitions bigger than life. I just hope eBay and Yahoo put aside their imperfections of human nature and do what makes sense to better compete against Google
7. Ads on eBay and Shopping.com - eBay is the last untapped major property on the planet which does not display ads in a meaningful way. If Ebay started to display pay-per-click ads on every auction (like Yahoo did), that would upset a lot of sellers because they pay listing and final value fees and want to control content and layout of their auctions. However, Ebay could introduce this optional feature or devise some other clever scheme to share pay-per-click revenues with sellers- if a seller decides to include pay-per-click ads into his auction, Ebay would split 50%-50% of all proceeds with that seller up to the amount of fees a seller owns to Ebay - thus preventing abuse of submitting auctions just for the sake of generating clicks. Furthermore, clicks from IP address from which an action was submitted, would not count and all counter fraud measures could be implemented. This would be a very substantial revenue source for Ebay and Yahoo by itself and as an extra benefit, encourage sellers to post even more listings in hope listing fees will be subsidized by pay-per-click. The sheer size of eBay’s untapped and highly shopping specific traffic makes this extremely lucrative opportunity.

[Steve D]

eBay and Yahoo should do a merger of equals. If they are smart and do not go into power struggle, but do what makes very perfect sense, they will become a much stronger as a combined company.

Why Yahoo should do it?
- Yahoo should focus more attention and resources on search and content. Yahoo should re-brand itself as Yahoo ‘The Search Company’. The logo should change to add ‘The Search Company’ just below ‘Yahoo!’. Yahoo should clean up the front page and make search more prominent
- By consolidating and leaving other areas like ecommerce and communication to the laser focused eBay and Skype, Yahoo can become laser focused on search to win market share back from Google.
- Further diversify advertising revenues to transaction fees.
- Gain access to PayPal, which is the missing link for Yahoo to implement pay-per-sale scenarios.
- Gain access to eBay’s knowledge of consumer behavior data (what’s selling at which prices, etc, etc) to integrate that into search marketing.
- Being able to switch more of eBay spending on advertising from Google and MSN to it’s own platform

Why eBay should do it?
- Gain access to #2 search leader in terms of technology and market share to become one-stop provider of tools to help sellers. Sellers find buyers either through a search or through eBay listing – both are powerful ways to find buyers and currently each company has only one part of the equation.
- Seamlessly integrate eBay Stores and ProStores to bid for search keywords.
- Gain access to Yahoo’s mapping technology. A lot of information is better when presented as a map – for example for Rent.com or eBay Local.
- Gain access to Yahoo Email and Calendar to complete feature set of Skype offering
- Integrate Yahoo Messenger with Skype to further solidify the combines network effect. Yahoo Messenger is very strong in US and internationally it’s second to MSN Messenger, while Skype users are mostly international. Combining Skype and Yahoo messenger will help Skype in US and help Yahoo Messenger internationally.
- Make Yahoo Shopping as distribution channel for eBay Express. eBay sellers will be very happy to get additional exposure – just list once on eBay and your listing will show up on eBay itself + eBay Express + Yahoo Shopping. It’s also possible to strike partnership with let’s say MSN Shopping for them to distribute eBay Express listings for a cut of transaction fees.
- Gain Yahoo Auctions in Japan

Yahoo must do something to better compete with Google on the one hand and with Microsoft on the other hand. They need more focus and innovation. In the combined company, Skype will take care of communication in a laser focused way. Ebay will take care of marketplaces and ecommerce in a laser focused way. Yahoo management will have fewer worries about how to grow and innovate in those areas – they will have clearer mind to think of search and content.

[Paul]

Scott: you seem to imply that Google is already making inroads into ecommerce. Do we have figures on their GBase revenue? Our own experience with Base has been very disappointing.