GenuineVC David Beisel's Perspective on Digital Change

June 14, 2006

Though its stock price is has been downtrodden over the past six months, I like a lot of the things which eBay has done recently. First, the introduction of the eBay Express, which further expands the company’s merchandising platform beyond the auction model. Then, the announced partnership with Yahoo will push the two companies in joint efforts in advertising, online payments, a co-branded toolbar, and the testing of a click-to-call functionality. Third, as I blogged about last week, eBay is making moves towards social commerce, with the addition of wikis and blogs to their platform toolset.

However, the company’s most recent announcement to launch AdContext, at last places them in a crowd with the other big Internet players (MSN, Yahoo, Google) by adding a contextual advertising network to their services. This key move is a final admission that the distribution of the eBay content shouldn’t be limited to their site itself, but rather throughout the web as a whole. Moreover, it extends the range of the buying process where the company captures value – from the matching of buyers and sellers with transaction processing to the role where advertising acquires the individuals to transact these offers. (It will be interesting to see where the role of Shopping.com further incorporates into this process over the long term.)

Didn’t eBay already have a solution for web publishers to monetize their sites by sending web traffic to their site? Isn’t the successful eBay affiliate program just that? Yes, the eBay affiliate program gives publishers many ways to earn revenue though the syndication of eBay’s content. Other than the repackaging and PR spin, my perception of the fundamental difference is that the serving of “ads” will now be done contextually – automatically – via a scrape of the corresponding publisher web page. This addition allows publishers to effortlessly more accurately target appropriate eBay offers to their audience, thus driving more transactions and therefore higher effective CPM rates.

Similarly, Amazon’s once-ground-breaking affiliate program, dubbed the “Associates” program, also extends syndicated product content to publisher sites for revenue sharing. Utilizing Amazon’s rich API, entrepreneur developers have figured out numerous ways to monetize on their own sites. However, with eBay’s launch of AdContext, I would expect Amazon to respond in kind and launch its own “AmazonContext” network very soon.

The key differentiation between eBay’s AdContext and a potential pending AmazonContext network vs. the Google/Yahoo/MSN’s networks is that the ads themselves are product-centric vs. offer-centric. Ads contain individual products themselves, as opposed to just offers about the type of information a user will receive upon clickthrough to the advertiser’s website. This distinction is both a strength and a weakness for them. I would expect for one set of publishers (especially those with an e-commerce focus), their web real estate will be more highly monetized with a product-centric system. On the other hand, sites with content less applicable to products will likely to continue with monetization from a network with broader-based generalized offers. Afterall, save strategic reasons for larger publishers, most publishers further down the long tail are purely going to go with whatever network consistently delivers the highest effective CPM for a given real estate.

The good news here for emerging web startups is that there is an increasing number of self-service contextual advertising networks which offer low-cost/low-barrier-entry into revenue generation mode. Depending on the payout rates, the addition of eBay’s adContext into the mix should be a benefit for many web publishers with product-focused content.

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