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Google And EBay: The MBA Analysis

By - June 08, 2006

Haas1

I had the pleasure of being interviewed a few times by the authors of “eBay and Google: A Coopetition Perspective,” a term paper of sorts written by two Haas School of Business 2006 MBAs (they both graduated this year). Despite my participation, Julien Decot and Steve Lee have written an insightful and data-packed paper – 44 pages in all – that exhaustively details how Google and Ebay depend on each other, and what stresses the two companies’ relationship will suffer as they increasingly find themselves in competition.

In fact, as they researched the paper over the course of the year, the authors came to the conclusion that eBay had no choice but to ally with either Yahoo or Microsoft. Then the Journal reported as much, and the Yahoo/eBay deal went down.

If you love data (they estimate 12% of all eBay traffic comes from Google, for example), financial analysis, and competitive scenarios, this paper is for you. There is an entire section on “next moves” which I also recommend. The authors have allowed me to post it here (PDF). They would very much like to hear your take on it. Remember, this is the work of students, not industry experts, but it’s quite valuable nonetheless.

Some typical analysis from the paper:

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“(the) main takeaway from our analysis: assuming the profit margins from their current businesses remain similar to their current level, or worse, if they face increased margin pressure, it is pretty likely that eBay will consider seriously entering the online advertising market at this point….

…Based on our high level projections, we can foresee a mismatch between demand and supply

that could possibly induce some price pressure on Google’s core ad market. Moreover, in order to

reach revenue levels built into Google’s valuation, Google will have to enter markets outside of online ads.”

Sure, you could argue that’s obvious, but it’s sure nice to see the data laid out, and the arguments made, and there’s a lot more to the paper than just that. The authors did a lot of original research (like the graphs above showing customer segmentation), and peer into markets where both companies might logically strike next.

The best part about this? After graduation, the authors are going to work in the Valley – one for eBay, the other for … Google.


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13 thoughts on “Google And EBay: The MBA Analysis

  1. vinnie says:

    I find it strange the way everyone seems to have forgotten about Amazon in all this. In the end, Amazon win the lot.

  2. Greg Linden says:

    Interesting article, John. Thanks for pointing it out.

    There seems to be an odd disconnect in the article, though, between the analysis and the conclusions.

    In the abstract, they say Google and eBay should avoid competing against each other. In the conclusion, they say Google should just maintain its current relationship with eBay.

    However, in the analysis, they say Google can easily chip away at eBay’s core business (e-commerce) without any realistic threat of retaliation by eBay (in ads and search). They also claim eBay is much more dependent on Google than Google is on eBay (12% of eBay’s traffic from Google vs. 3% of Google’s revenues from eBay).

    Seems to me that the conclusion should be that eBay is vulnerable and that Google is not. It seems to me that the conclusion should be that eBay needs to scramble to protect itself while Google is largely free to do whatever it wants.

  3. if ebay is somewhat dependant on Google – Amazon is even more so

    They have a top 30 listing for virtually every competative SERP that they have a optimized keyword/ title for.

    It had gotten so extreme last year, that they were on Page ONE for HUNDREDs of moderately competative search terms

    If ebay used server side friendly URLs they would probably get even more organic traffic

  4. Julien Decot says:

    One extra note from the author of the paper. It was written under the supervision of prof. Michael Katz. Here is his bio :
    http://www.haas.berkeley.edu/faculty/katz.html

    Happy reading !

    Julien

  5. guidezone says:

    yes, that’s right,ebay and yahoo together,how about amazon,who will choose!?

  6. lyononline says:

    Nice paper. I think that ebay with its partnership with Yahoo can resist to Google…for the moment. Last news, Google plans to release its payment plateforme Gbuy to fight Paypal (according to Forbes.com) at the end of the month. To be continued…

  7. Gee! It seems to me that almost everyone’s business depends largly on Google search traffic. Why? More people use and trust the Google Search Engine and volume and Search Engine market share of Google is at least, triple, it’s nearest competitor, Yahoo, esp in the United States and Canada.

    Almost every site I look at, including large corporations, get the the large majority of their search traffic from Google.

    Many online companies, get most of their traffic from search – and most of that search traffic is from Google.

    Online Retailers (like EBay and Amazon)also get a good deal of their traffic from Google both from natural search queries and affilate traffic -the paper gives you that data (but I did not see how the data was derived – maybe I need to really read the paper rather than skimming through it).

  8. Jarid says:

    …it is pretty likely that eBay will consider seriously entering the online advertising market at this point

    Looks like that point has come:
    “eBay to test advertising auctions on other sites”
    http://news.yahoo.com/s/nm/20060610/wr_nm/ebay_advertising_dc_2

  9. In my Web Metrics blog I displayed a picture, that I just painted, deplicting one aspect of the “Search Engine Wars” at http://www.webmetricsguru.com/2006/06/the_search_engine_wars.html (maybe it’s just healthy competition)- maybe it’s an idea I got while reading The Search.

  10. Andreas Ramos says:

    1) Quite a few of the numbers are seriously wrong. But that’s not their fault; Google is very secretive. It also doesn’t matter for their conclusion.
    2) The paper has a deeper problem. The authors state that Eric Schmidt’s goal is $100B in revenues, so they set about to see how Google can reach that goal. The authors lock themselves into a model in which the only way Google can reach its target is by capturing revenues from other companies. They look around, find eBay has large revenues, and thus conclude that Google must compete with eBay. By setting up a situation with a narrow set of possible solutions, they end up with a conclusion that they had predetermined.
    3) Schmidt is very conservative when he talks about numbers. When he says $100B, that’s a low number. Google could very well reach $200 billion in annual revenues from the US market alone. And then there’s the rest of the world, which is 66% of Google’s traffic. Google can reach this without attacking eBay. How?
    4) The answer is in Google’s numbers and their strategies. But the public (incl. the WSJ and most journalists) doesn’t understand Google. There are a number of projects that haven’t rolled out yet. These are coming.

  11. James McDermott says:

    How does one take advantage of this knowledge?

    Buy Yahoo because it has the most to gain in this cooperative venture.

    Google will stager then rise far beyond expectations…So you would have to go long with Google

    Currently many large sellers are having problems with all the ebay search engines ever since they launched express stores which is formated to fit the yahoo search engines…It has infected the whole site because the google search engine reads the script as an attachment and kills the search… Therefore Ebay will have strong problems until the contract runs out with google in November..The release of googles on line payment service will be the big killer for ebay….and who knows ?? when google will perfect it’s own on line auction service…Ebay has been scrambling since Feburary,The sellers are very un happy and would love ,and jump on any viable service being offered by any competition,,Ebay’s largest mistake was not taking care of it’s core sellers,There will be no loyality in this area.
    With Regards

    Uncle Jimmy

  12. That’s an interesting article. Definitely the competition has suffered their relationship with the recent incidence of Ebay banning Google checkout.

  13. Victor Luan says:

    Good article. The competition and cooperation can be co-exist for some certain period in between EBay and Google, since they knew what they can do the best. However, Google will have to line themself outside of online ads business due to vulnerable position being a platform rather than a value chain controller. Google may not be necessary to enter EBay’s territory, what about a personal consultant!!! I believe the new role will equip Google with better control and benifit. To be continued..