eBay sends Google a message: The fallout will linger

Google plans a stupid marketing stunt at eBay Live. eBay pulls its ads on Google. Google flinches and cancels its stunt--designed to promote the use of Google Checkout on eBay. Now let's look beyond the initial headlines to the fallout.

In the Google Checkout blog, Google's take was comical.

eBay Live attendees have plenty of activities to keep them busy this week in Boston, and we did not want to detract from that activity. After speaking with officials at eBay, we at Google agreed that it was better for us not to feature this event during the eBay Live conference.

Google forgot a line: And oh by the way eBay got bent and pulled its ads.

Here's a look at the key takeaways from this spat:

You can diversify away from Google advertising. eBay's move to pull ads will be quite an experiment. Can eBay get the same results by using Microsoft, Ask and Yahoo? This eBay move could have long-term consequences for Google as it could set a precedent. eBay is playing the life without Google game with real dollars.

eBay has its second quarter in the bag. eBay wouldn't give itself a self-inflicted wound just to make a point to Google.

Merrill Lynch analyst Justin Post outlines the financial impact for eBay:

eBay is very focused on the efficiency of its marketing and we assume eBay’s search spending is ROI positive; therefore we believe pulling ads would have a negative impact (which could be minimal during the summer). Per recent ComScore data, traffic direct to eBay from Google represented 6% of eBay visits, so it is possible that pulling Google ads could impact eBay’s US transaction revenues by ~6%. However eBay could increase spend on other search platforms, on affiliate network incentives, or offline to help replace lost traffic. Also, on a short-term basis, marketing savings could offset potential lost revenues.

The real tell on how much eBay needs Google will come when the third quarter starts July 1. It's highly likely eBay will start spending again on Google.

Coopetition has its limits. Google tries to play this "we're not competing" game and it's just bunk. It's clear Google Checkout competes with PayPal and now its mock protest has iced its relationship with eBay.

Post also outlines the financial hit to Google:

While ad spending estimates by customer are not disclosed, assuming 60-70% of Ebay’s marketing spending is variable and 40-50% of variable spending is on search, we estimate ~9% of eBay’s total marketing spending is on Google Ad Words in the US, which would represent about $170mn annually or $450K/day (1% of total gross Google revenues). We believe the majority of spending pulled by eBay could be replaced by clicks to other retailers. Bigger long-term impact could be negative effect on the International partnership with eBay, and potential backlash by other partners.

You can punch Google in the mouth--if you're big enough. eBay's move sets a very interesting precedent. What happens if other partners and Google advertisers decide the best way to counter their fear of Google is to hit back?