EBay-Google Dispute Hints at Larger Tension

A spat that erupted this week between eBay and Google after Google tried to siphon attention from the online auctioneer's grand user celebration might presage more tension in one of the Internet's most interesting new rivalries.

EBay and Google have been close partners. Google feeds the text ads that appear on eBay's international sites. (Yahoo handles that for eBay's U.S. site). And the companies have been working on integrating aspects of the Google Talk voice-messaging software and the eBay-owned Skype Internet calling service.

EBay also is one of Google's largest advertisers, spending tens of millions of dollars a year on "keyword" ads that generate links to eBay listings when Google users type certain search terms.

At least until this week, when eBay pulled all its keyword ads from Google's U.S. site.

EBay seemed to be acting in protest of a party planned by the Google Checkout online payment service during this week's "eBay Live" event for about 9,000 of auction company's buyers and sellers. Google called its Boston affair "Let Freedom Ring" -- a reference to the fact that eBay, which owns rival PayPal, does not allow Google Checkout as a payment method.

Partners Turned Rivals

EBAY

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Although Google canceled the party after eBay pulled its ads, eBay has not yet relented. Officially, eBay described its move as a test to see whether it could get more bang for its buck if it increased its spending on other search engines, including Yahoo, IAC/InterActiveCorp.'s Ask.com and Microsoft's MSN.

"We were not pleased by this notion of the Google Checkout party and the marketing around it, I will tell you that," eBay CEO Meg Whitman said in an interview. "But you don't (deploy) these kind of tests with no planning. You can't. Because you have to know how you're going to redeploy these dollars." Even if eBay is likely to return to advertising on the Internet's most popular search engine, the tiff indicates just how much is at stake in the fast-growing market for Internet payment processing.

PayPal, which eBay acquired in 2002, is by far the leader, with 143 million user accounts around the world. Google debuted Checkout only last year, though Google claims it is accepted by more than a quarter of the top 500 online retailers.

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. In fact, Rajiv Dutta, the former eBay chief financial officer who now oversees PayPal, said in an interview that "I am convinced PayPal is one day going to be bigger than eBay." Whitman professed not to be worried about Google Checkout's ability to make serious inroads. She said that eBay has a huge advantage because PayPal is such a deep part of eBay, while payments are a sidelight for Google. She compared the situation to the way eBay demolished Yahoo and Amazon.com in Internet auctions.

"We're defending ourselves aggressively with PayPal," she said. "That is one of our core businesses. We're not going to let that go away to someone who'd kind of like to be in the business." A Google spokesman said he could not immediately comment.