eBay Gambles on Google Partnership for Success of Skype, the Internet Phone Service

eBay is hoping its new partnership with Google will help it find new ways to make money from Skype,

its Internet calling service. But experts wonder if enough people are willing to make the switch from

traditional phones to talking through their computers.

A critical aspect of the deal announced yesterday is that Google will introduce a feature that allows users

to talk to advertisers by way of Skype, instead of just clicking through to the advertisers’ Web sites.

Users of this feature, called click-to-call, would also have the option of using Google’s own Google Talk

system or standard telephones.

Early tests by several companies indicate there is a group of advertisers, including mortgage brokers,

who are willing to pay $8 to $15 for each call from a Web searcher, roughly 10 times more than they

will pay for a Web site click. Under the Google- eBay deal, money paid by advertisers for calls

completed through Skype would be split between the two companies, although the proportion of the split

was not disclosed.

But most of these tests so far, including those by Google, are focused on calling using regular phones,

rather than calling by PC using services like Skype. Indeed, eStara, a company that provides pay-per-call

advertising technology to companies including Verizon’s SuperPages.com unit, offers both telephone

and PC calling options. It has found that only 10 to 15 percent of people choose to talk using their

computers, and that this proportion is not increasing.

“The vast majority of consumers want calls to be landline-based,” said John Federman, eStara’s chief

executive. PC calling requires computers that are equipped with microphones, and a change in customer

behavior.

Alex Kazim, the president of Skype, said an increasing number of computers now came with

microphones, and consumers were increasingly using them.

“We see a shift over time as users become more and more able to do voice calling on their PC’s,” Mr.

EBay Gambles on Google Partnership for Success of Skype, the Internet Phone Service - New York Times

Kazim said. He pointed out that Skype had 100 million users worldwide.

EBay bought Skype last year for $2.6 billion and additional payments based on its performance. It

expects Skype to generate $200 million in revenue this year, mainly from fees for connecting PC calls to

regular telephones and extra services like voice mail.

In an interview Sunday, Meg Whitman, eBay’s chief executive, said that the click-to-call system could

substantially increase Skype’s revenue, but she declined to say by how much.

Skype and Google will begin testing the system next year. So far, most pay-per-call advertising uses one

of two technologies. In some, the ads simply display a telephone number for users to call as they would

any business. But the number is used only for that advertising campaign, so each call can be tracked. In

others, users enter their phone number on the Web and receive a call moments later from the advertiser.

Google has tested the latter system because it can record exactly what path a user took before initiating a

call.

AOL, which is using pay-per-call in its Web search ads, uses the unique phone number approach,

because it is easier to understand.

“Consumers are more interested in what they are going to say to the mortgage broker than learning how

to change behavior,” said Marc Barach, the chief marketing officer of Ingenio, which runs the pay-percall

system used by AOL.

Matt Booth, an analyst with the Kelsey Group, said there was a large potential market for ads that

generate voice calls, especially among small businesses that do not do much business online.

“Sending someone to a Web site for a plumber is not as valuable as setting up a phone call,” Mr. Booth

said.

EBay is also exploring how to use voice communication on its own auction site. So far, it has allowed

sellers in some categories to add “Skype me” buttons that let potential bidders call them using Skype. It

does not charge for this service, as it is seen as an alternative to e-mail, the usual way sellers have

answered questions.

But eBay hopes to develop new services for marketers who are simply looking for contacts with

potential customers rather than simple transactions, charging them for every call completed.

“There is a class of goods and services where the eBay transaction model is struggling,” said Mr. Kazim

of Skype. “Real estate agents are not looking to sell a particular house. They want you to come in, and

figure out what you need and can afford, so they can show you five houses that are right.”

EBay Gambles on Google Partnership for Success of Skype, the Internet Phone Service - New York Times

The other part of the deal announced yesterday is more straightforward: Google will sell advertising that

will appear on eBay pages outside of the United States. In May, eBay struck a similar deal for Yahoo to

sell ads on its pages in the United States. Yahoo also agreed to use eBay’s PayPal unit as its main

payments system worldwide.

Ina Steiner, the editor of AuctionBytes, a newsletter, said many eBay sellers saw little benefit from the

deals with Yahoo and Google.

“It looks like eBay is milking its auction site as a cash cow to invest in PayPal and Skype,” Ms. Steiner

said. “People are already seeing the tests for the Yahoo ads, and they are not happy about them because

they compete with the eBay sellers.”

EBay is trying to minimize this competition by showing ads for what it calls complementary products,

like accessories, rather than for the products being auctioned.

Ms. Steiner said most sellers saw the Skype Me feature as an imposition.

“Most sellers don’t want to talk to buyers,” she said. “They can barely keep up with their e-mail

correspondence.”

Google’s shares rose $7.69 yesterday, to close at $380.95, while eBay’s shares rose 49 cents, to $25.79.