Yahoo, eBay on a Quest for Scale

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In the vast scope of the Web, one thing remains in fairly limited supply: massive, scalable audiences. Yahoo and eBay's pact last week will help change that.

Buyers are confident the alliance will add more inventory to the in-demand online advertising market since eBay had yet to tap that revenue stream in a meaningful way. Under the terms of the deal, Yahoo will sell all graphical advertising and some search advertising to the eBay sites.
Yahoo and eBay will share advertising services of various sorts across their sites.
Yahoo and eBay will share advertising services of various sorts across their sites.

And it's not just the quantity increase that advertisers are cheering but also the quality of eBay as an advertising medium. Dan Rosensweig, Yahoo's chief operating officer, called eBay "one of the largest untapped communities on the Web, which is really a very fertile environment for advertising."

For Yahoo, the deal couldn't have come at a better time. The ad seller recently had lost distribution across Microsoft sites as Microsoft launched its own online advertising solution, adCenter. Yahoo had also lost out to its chief rival, Google, on another major online deal: the right to provide search advertising across AOL.

"It's more important than just a percentage of traffic," said Ellen Siminoff, CEO, Efficient Frontier, a Mountain View, Calif.-based search-marketing firm. "Microsoft was a very high-quality network and converted very well. It's hard to make that up by having lots of smaller or lower quality guys in your network."

MySpace has been bandied about as one of the last major online targets, with Google and MSN in the lead for such a deal. Beyond that, alliances become more of a zero-sum game, changing sellers but not increasing the overall share of the market.

Microsoft remains the dark horse in the search- and online-advertising race with its newly launched AdCenter. According to many search marketers who've used the company's search tool, the contextual matching and conversion rates are just as good, if not better, than those of its rivals, but it sorely lacks the distribution of the big players. And, because Microsoft is newer to the game, it might be harder to get that distribution. According to the JP Morgan report, Microsoft's lack of historical click-through data hurts its monetization and, ultimately, its ability to woo distribution partners.

Joshua Stylman, managing partner of Reprise Media, argues MSN shouldn't be worried about that-yet. Since AdCenter is so new, it doesn't have the backlog of advertisers to fill out new distribution channels like Yahoo and Google do.

"We will continue to see these kinds of alliances forming as the Internet space evolves and matures," a spokeswoman said. "Microsoft has been very clear about the investments we will make in this area. ... And we will also continue to partner with and find additional ways to work with both eBay and Yahoo."
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