eBay Enters Contextual Ad Business

You have to wonder when two companies who both say they are emphatically not competing with each other seem to be explicitly entering each other’s fields. First, we hear the most reliable rumors yet that Google is setting up a system to rival eBay’s PayPal. Now, straight from eBay, we hear that the auction giant is entering the contextual ad business. What’s going on? Keep reading to find out.

The announcement was made at the recent eBay Developer’s Conference in Las Vegas by Michael van Swaaij, eBay’s chief strategy officer. The program is supposed to go into beta mode this month. It’s called AdContext, and if you want to try it out, you need to be an eBay affiliate and sign up for the program. As near as I can tell, though, you don’t need to have been an eBay affiliate for any particular length of time before applying for the AdContext plan.

The new program almost sounds boring on the face of it. Basically, certain code goes on the pages of your site that you want to display eBay ads. AdContext then uses proprietary eBay data and eBay’s keyword selection technology to match contextual eBay ads to the web pages in question. The ads are updated based on both eBay’s content, which changes daily, and the content on the web page displaying the ads. After all, if you’re engaging in good web practices, you’re keeping the content on your web site updated regularly; when that content changes, you’d want the ads you display to change with it, so you can keep monetizing that content effectively.

So far, it sounds very much like the kind of ad program that Google, Yahoo, MSN, or even Amazon runs. But looks can be deceiving. For one thing, eBay’s network isn’t generic; links go to eBay auctions. So if you own a web site for juggling enthusiasts (maybe you publish information on doing certain tricks, have forum pages, run juggling-related news and reviews, and so on), you can set yourself up to link to eBay auctions of juggling books and equipment. Or, more precisely, AdContext can do it for you automatically. The differences between eBay’s AdContext and Google’s AdSense run deeper than this, however, as I’ll show you in a moment.

As everyone knows, Google’s advertising program works on a cost per click basis. That means advertisers pay Google every time someone clicks on their ad, and likewise Google pays the ad publisher a commission for each click. That common model has helped many a site owner earn some money on the side while working a regular job (and even supported quite a few people all by itself). Unfortunately, it’s also vulnerable to click fraud, which involves web surfers or automated programs clicking on ads with no intention of making a purchase or otherwise converting. That hurts advertisers, who pay for useless clicks.

eBay’s model, on the other hand, is cost per action, with no cost per click component to it whatsoever. As one observer pointed out in a forum thread on the subject, “You could have one million clicks, but if no purchases have been made, you won’t make a penny. But, looking at it another way, when purchases are made your commission will often be very much higher than you would be paid for a click.”

That brings us to the second difference between the two programs. Google does not disclose its AdSense compensation schedule to its partners. The search engine giant receives the money for the clicks, but it doesn’t tell you what percentage of that money you receive for running the ads.

eBay, on the other hand, is refreshingly upfront to prospective affiliates about the percentages involved. Affiliates using the AdContext program can receive between 40 and 70 percent of eBay’s revenue (not the item’s sale price) on winning bids or Buy It Now transactions. Also, for every person who registers with eBay as a result of an ad driving them to the site, site owners can earn between $12 and $20.

Google allows webmasters a certain amount of control over the kinds of ads that display on their web sites, and so does eBay. eBay already has an affiliate program in place that lets users provide their own keywords for the auctions they believe would be most relevant to their site’s content. Affiliates can continue to pass in their own keywords, or choose automatic mode to let the system figure out what would be most relevant in context.

The AdContext program offers a nice variety of ad types. You can use text only, text and image, or even flash ads. eBay’s information page about the program (which you can find here) noted that many sizes and color schemes are available, so it’s likely you’ll be able to find something that suits your site.

So before you sign up for that monthly check from eBay, how do you know AdContext will be right for you? Well, a number of observers have noted that the program is designed to help the little guy make a better living online. If you’re running an online store, it’s probably not for you, but if you’re trying to monetize content rather than sell goods, that’s another story.

So in that sense, if you’re a blogger, you might want to take a look at this program. But you probably have some questions. If you’re already using Google ads or other context-based search engine ads on your blog, you know that they can be, well, jealous. When is the last time you saw a site running both Google and Yahoo ads?

If you want to run eBay ads on your site, but don’t want to stop running Google ads, you’ll obviously need to ask Google about it first. But at least one person who claims to have checked with Google “three times just to be positive” received a good answer: “Google says it is permitted to have these ads on the same page as AdSense ads. While they are contextual ads, Google views them as eBay ads due to the nature of their content, and eBay ads are permitted on the same page as AdSense ads.” My guess is eBay really did its homework on this before getting the program ready for launch, precisely so it would be able to target the same people who are already Google AdSense users.

Developers will also benefit from the program. They’ll be able to create applications different from traditional contextual ad serving thanks to a new API call. This new call returns ranked eBay keywords and categories for a specified web page. In fact, there are a total of four new APIs, all of which will be free for developers to use. In addition to the one I just described (“Get Contextual Keywords”), there will be one called “Get Product,” which lets developers do queries of eBay’s product database; “Get Search Results Express,” which will let developers search the eBay Express site and show those results to their own users; and finally, “eBay Express Shopping Cart,” which, as you would expect, opens access to the eBay Express shopping cart, so users can actually buy the items they find.

From the sounds of it, Google doesn’t seem to think that eBay’s AdContext is in direct competition with AdSense. Indeed, as it currently stands, it can be argued that it isn’t. On the other hand, keep in mind that eBay owns Shopping.com, so surely AdContext could be extended to advertise other commercial sites. If eBay starts signing up advertisers who offer specific items for sale through eBay ads, suddenly the two programs start looking very similar.

On the other hand, it’s worth emphasizing the element that is, at least in my opinion, the biggest differentiator between AdContext and AdSense. AdContext is cost-per-action, not cost-per-click. It has the potential to be the largest scale application of a CPA program yet. That means a lot of people are going to be watching the results. Given that eBay’s affiliate program is one of the largest and longest-running on the Web, if anyone has a chance of making it a success, it’s eBay. And if it is successful, as always, you can expect other large web companies who make their money from advertising (read: major search engines) to institute their own CPA programs.

Another interesting point is that eBay’s stated goal with this program is to help affiliates convert users (and thus earn money) by driving them to the products they want. eBay plans to do this by “studying user behavior, activation patterns, affiliate performance and onsite activity.” In short, eBay will be mining buyer behavior to improve ad targeting. This is interesting because one of the alleged motivations behind Google’s rumored and as-yet-unlaunched GBuy program is gaining more customer data to mine so that Google can improve ad targeting.

Finally, I’d like to point out that this move will clearly lessen eBay’s dependence on Google. Anyone who searches regularly on Google knows that eBay heavily invests in search ads. Even its recent wide-ranging agreement with Yahoo isn’t likely to change that, because Google casts such a long shadow over the Web; if you’re looking for something on the Web, no matter what and no matter where you live, there’s a 60 percent chance you’ll start your search at Google. And let’s face it, eBay is all about looking for things you want too. If you can find something you’ve been looking for while you’re doing something else you enjoy, though (like reading your favorite blogger), so much the better for eBay.

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