November 2, 2007

Google is NOT eBay.

Posted in Category: Work — Amr Awadallah @ 7:32 pm | link | | comment (0)
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Recently I saw a number of analysts claiming that the Google/Adwords is analogous to eBay, and that positive network externalities will prevent competitors from ever dethroning Google, same way that eBay is protected today, i.e. the advertisers will always advertise on Google [only], in same way that the auctioneers only list their items with eBay.

That is simply not true, here is why:

  1. eBay auctions are for a limited inventory of items, it is wrong for the auctioneer to list their item on more than one exchange since what will they do if it gets sold in all the auctions?

    This is not true for sponsored clicks, it is the opposite actually, the advertisers want to get as many [good] clicks from as many exchanges as they can.

  2. Competitors were not able to dethrone eBay since they did indeed exhibit a strong positive feedback loop: the more buyers bidding on a product, the higher the auction closing price of that product, thus de-incentivizing the sellers from listing in the other marketplaces even if they had extra inventory (since the items would sell for less).

    The opposite effect happens for Adwords, the more the advertisers on Adwords, the higher the price they have to pay for each click, the more the incentive for them to look some where else to buy that click for cheaper (this is why Advertisers want Yahoo and MSN to survive).

Cheers,

— amr

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