GenuineVC David Beisel's Perspective on Digital Change

June 10, 2005

It’s been a week since the announcement of the $620M acquisition of by eBay. And now that the dust has settled, I wanted to offer my quick thoughts on why eBay made this move.

Businessweek says it’s to relieve the company’s “dependence on mostly small merchants.”

Motley Fool suggests that the acquisition gives eBay “new customers, a sophisticated community platform, and a large merchant base. What’s more, eBay now has two more strong brands — and”

The Clickety Clack blog offers a thoughtful alternative explanation: “Ebay bought partly to get rid of a major CPC competitor on Yahoo (Overture) and Google (Adwords).”

Yes, I think that the acquisition was about all of the above reasons. But I wanted to emphasize the importance of search, namely paid search, in the deal (as Clickety Clack suggests). At the heart of eBay’s troubles right now is how and if users find the appropriate product on its site. Do consumers automatically go to eBay to look for a product that they want to buy? Or do they go to a comparison shopping engine instead? Or do they just go to Google or another search engine first? The difficulty is that many people do start at the latter two, and eBay pays a referral fee directly or indirectly (through affiliates) to acquire the user if a shopper begins his search at another destination. Or worse yet, consumers are heading from Google or comparison engines straight to merchants’ sites that have “graduated” from the eBay platform. In these cases, eBay is cut out of the process entirely.

For many, eBay is merely the end-transaction site, but it wants to climb up the value chain in the shopping process. Google is reaching further from the other side in offering product information on Froogle, along with other efforts. I would argue that eBay’s acquisition of was partially a defensive power play against Google, as a way to capture searching shoppers before the traffic is sent elsewhere.

  • Barrett

    Given the news today that Google is going to start its own payment service to compete against Paypal, I wonder if eBay had heard about this new service and bought to better compete against Google.

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    @vcparty that statement is true. FRC's LP base looks pretty similar to Sequoia's though
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    @vcparty agree. some LPs have to bend their model, though best LPs don't care much about concentration - they focus on accessing best funds
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    @vcparty thx - would slightly disagree trad'l LPs & smaller funds are misfit… best seed funds have trad'l LP base (albeit concentrated)