400m internet users. But how to reach them?
400m internet users. But how to reach them?
A new web of strategic alliances between the US internet giants started to take shape on Thursday as Yahoo!, the biggest online portal, and Ebay, the world’s leading ecommerce company, announced plans to tap into each other’s large online audiences.
For now, it seems, full mergers are not on the cards. But as the internet companies grapple with tying their services more closely together and learning more about each others’ user bases, the impetus towards deeper links could accelerate, according to analysts.
In the early days of the internet, alliances between big online firms took the form of traffic deals with ecommerce or media companies typically paying portals like AOL for the privilege of advertising their brands and linking to their sites.
Those links generally proved ineffective in driving traffic. AOL’s inability to renew the partnerships was a big reason for the drop-off in its revenues after the dotcom bust. Now a new network of more coherent commercial relationships has started to form, as the internet companies look to profit from each others’ traffic without the disruption and potential loss of momentum big mergers would entail.
The most fundamental driving force has been the rise of search advertising, a form of advertising that is expected to generate $10bn for Google alone this year.
As the largest supplier of graphical, or “branded�, advertising, Yahoo is also looking to extend the reach of its advertising network more broadly across the web. Along with Microsoft, which has just entered the business, Google and Yahoo are rushing to sign up the remaining big untapped audiences on the web while forging ties to new users coming online.
Ebay’s audience remains one of the most attractive under-utilised communities on the internet.
To power its sites, which let buyers trawl for goods to buy from millions of different sellers, it has built a search engine to compare with those of the big web search firms, at least in terms of scale.
According to Ebay executives, the 350m searches a day carried out on its sites rivals the number of searches on Google.
However, for Ebay, “monetising� those searches by placing ads in front of shoppers raises some difficult questions.
Sellers pay listing fees for the privilege of having their goods displayed on Ebay and included in its internal search results. Putting ads on these pages could frighten buyers away, creating a form of competition that would weaken the value of an Ebay listing.
Executives of both Ebay and AOL made clear yesterday that they would tread carefully. While Yahoo will supply graphical, or “branded�, advertising to all Ebay sites, the search ads will be limited.
Meanwhile, new audiences are quickly emerging online, such as those created by MySpace and other social networking sites.
It will not be easy to build an advertising business around these new audiences, which are converging around communications services like email and instant messaging, as well as user-generated content like personal blogs and photographs.
As Steve Ballmer, chief executive officer of Microsoft, pointed out this month, MSN has one of the biggest user bases online, thanks largely to its role as the world’s largest instant messaging service.
Yet it has yet to find a way to serve up ads to these people.
Also, many advertisers may hesitate before linking their brands to the burgeoning user-generated content on the web – a point made by Yahoo, which questions how much of the traffic on a site like MySpace is susceptible to advertising.
While search advertising has been the most significant factor, other chances to cash in on their mutual audiences are also driving the new online alliances.
Through its ownership of the PayPal online payments system and the Skype internet voice service, Ebay owns two of the Web’s best-known brands. Linking with Yahoo may give it the chance to extend the reach of those services to a community of users that now numbers more than 400m people.
Wall Street has turned a sceptical eye of late on Ebay’s claims for the broader potential in these services, making the Yahoo alliance the first potential validation of its strategy.