EBay Fails to See Fun In Google's Party Plan

A spat that erupted this week between eBay and Google over dueling celebrations might presage more tension in one of the Internet's budding rivalries.

EBay and Google have been close partners -- at least until this week, when eBay pulled its keyword ads from Google's U.S. site.

Google had been feeding the text ads that appear on eBay's international sites, a role Yahoo handles for eBay's U.S. site. And the companies had been working on integrating aspects of the Google Talk voice-messaging software and the eBay-owned Skype Internet calling service.

EBay also is one of Google's largest advertisers, spending tens of millions of dollars a year on search-related ads that generate links to eBay listings when Google users type certain search terms.

But now eBay seems to be protesting a party the Google Checkout online payment service had planned during this week's "eBay Live" event in Boston for about 9,000 of the auction company's buyers and sellers. Google called its affair "Let Freedom Ring" -- a reference to the fact that eBay, which owns rival PayPal, does not allow Google Checkout as a payment method.

Although Google canceled the party after eBay pulled its ads, eBay has not relented. Officially, eBay described its move as a test to see whether it could get more bang for its buck if it increased its spending on other search engines, including Yahoo, IAC/InterActive's Ask.com and Microsoft's MSN.

"We were not pleased by this notion of the Google Checkout party and the marketing around it, I will tell you that," eBay chief executive Meg Whitman said. "But you don't [deploy] these kind of tests with no planning. You can't. Because you have to know how you're going to redeploy these dollars."

Even if eBay is likely to return to advertising on the Internet's most popular search engine, the tiff indicates just how much is at stake in the fast-growing market for Internet payment processing.

PayPal, which eBay acquired in 2002, is by far the leader, with 143 million user accounts around the world. Google debuted Checkout only last year, though Google claims it is accepted by more than a quarter of the top 500 online retailers.

PayPal, which had $1.4 billion in revenue last year, is vital to eBay because it is growing faster than eBay's older auction and shopping business. In fact, Rajiv Dutta, the former eBay chief financial officer who now oversees PayPal, said he was "convinced PayPal is one day going to be bigger than eBay."

Whitman said she was not worried about Google Checkout's ability to make serious inroads. She said eBay has a huge advantage because PayPal is such a deep part of eBay, while payments are a sidelight for Google. She compared the situation to the way eBay demolished Yahoo and Amazon.com in Internet auctions.

"We're defending ourselves aggressively with PayPal," she said. "That is one of our core businesses. We're not going to let that go away to someone who'd kind of like to be in the business."

A Google spokesman declined comment.