Merchants: eBay ad programs drive buyers away

eBay has significantly boosted its advertising revenue since last year, but some sellers worry that the company's efforts in this area are driving potential buyers away from the online marketplace.

Last year, eBay signed deals to run ads from the Google and Yahoo networks in order to better capitalize on the massive traffic it draws to its Web sites, primarily its core eBay.com marketplace.

The strategy seems to be working: In 2007's second quarter, ended June 30, eBay's advertising revenue almost doubled compared with the same period in 2006.

The very influential Professional eBay Sellers Alliance (PESA), a group of large eBay sellers, has been watching from the sidelines with increasing concern and skepticism.

"Having those ads on the Web site we view as very negative. Encouraging people to leave eBay can never be good for the seller who is paying to be on the marketplace," said Jonathan Garriss, PESA's executive director.

While eBay has had advertising on its Web site for years, sellers generally hadn't perceived it as a major threat, for a variety of reasons.

For instance, the advertising program that the Yahoo deal replaced in May of last year was run in-house by eBay and was designed to let eBay sellers promote their products in the marketplace. In other words, the ads didn't link outside of the eBay Web sites.

Also, whenever eBay has allowed external ads in its sites, as it did in the late 1990s and early 2000s via a deal with AOL, the ads weren't as precisely targeted as is possible with the current ad-matching technology from Google and Yahoo.

Now, with Google and Yahoo delivering ads that are contextually relevant to the eBay pages on which they run, eBay sellers feel that the barbarians aren't just at the gates, but inside the marketplace's walls, luring buyers away.

The deal with Yahoo made it the exclusive provider of PPC (pay per click) text ads and banner ads for eBay sites in the United States, while the Google deal, signed a few months later in August 2006, is for PPC text ads in eBay sites internationally.

In the second quarter of 2007, eBay reported $76 million in advertising and "other non-transaction revenue," an increase of 96 percent from the same period in 2006. An eBay spokesman acknowledged that most of that revenue came from advertising.

Making some rough calculations, Garriss believes that eBay visitors clicked about 250 million times on the Yahoo and Google ads during the second quarter. "The biggest issue is seeing ads that compete with products already on eBay," Garriss said.

Hani Durzy, an eBay spokesman, acknowledges that the company has fielded concerns from sellers about this issue, but he argues that the worry is unwarranted.

"Our first priority is always to encourage buyers to transact on the site and click on our sellers' listings. If our sellers aren't successful, they're not paying eBay fees, and then we're not successful," Durzy said.

In an ideal world, every visitor to eBay would end up buying something in the marketplace, but research has shown visitors don't always come to buy. Often they do research or browse, he said.