Friday, May 26, 2006

Yahoo/eBay vs. Google/Dell Deals: Keep Your Eyes on the Prize

The world of online pundits seems to have focused far more on the recently announced deal between Yahoo and eBay than the news that Google will be paying Dell Computer to load key components from its growing desktop suite of software on their PCs. The Yahoo/eBay deal is certainly significant in its own right: eBay takes in Yahoo ads, Yahoo will promote transactions via PayPal, eBay's Skype internet phone service will probably be used for Yahoo pay-per-call advertising services and a common toolbar widget will make it easier for people to shop and search online. Lots of "win-win" talk from analysts, and rightfully so, but it's important to note that these are somewhat defensive moves for both players. eBay has been facing a notable decline in visits in recent months as search engines and other user-driven content venues start to nibble away at their market share (mySpace comparison), even as Yahoo looks to get a solid top-ten client for its ad network to replace Microsoft's exiting from their ad relationship. So "win-win," yes, but there are losses that needed to be covered in the process of forging the win.

The real wins are probably going to be for PayPal, which will benefit from the broader transaction exposure, and Skype, which needed a far broader outlet to be paired with its telephony capabilities. For the main eBay portal there are possible wins from synergies emerging from Yahoo's alliance but these synergies are not necessarily going to replace the migration of younger users to the next movable feast of online coolness. Who owns the community coming out of this alliance? eBay is not likely to want to give up its relationship with its community of buyers and Yahoo will probably only extend their own users' profiles into eBay after a full acquisition. So the key factor that both of these players needed to amplify the most - a common community - will have to wait until some of the basic plumbing is in place to test out whether and how the two communities could blend effectively. Lots can happen in the meantime.

The somewhat ad-hoc announcement of the Google-Dell deal looms as a far more important development in the long run, as it promises to offer Google better positioning in both consumer and enterprise markets in the desktop arena in which it has everything to gain and little to lose. In comparison with Yahoo, Google seems intent on bridging the work-personal gap in content and related services in a way that focuses on users as creators of content on an increasingly equal footing with traditional publishers, be they in personal or enterprise roles. The focus is on getting Google's search services integrated as default desktop and browser elements but there is noise about elements of Google's nascent office suite making their way into the package also. Google seems to have picked a good moment to position itself more effectively against Microsoft's multi-pronged efforts against Google and Yahoo. Getting to users before they even think about a Web destination is a key factor in developing the broadest revenue base possible, a goal which Google has helped to advance significantly with the Dell deal. So let's call this whole thing "win-win-win" - for now.
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