Yahoo, eBay in alliance that will challenge Google
MENLO PARK, California (Reuters) - Yahoo Inc. (YHOO.O: Quote, Profile, Research) and Web auctioneer eBay Inc. (EBAY.O: Quote, Profile, Research) on Thursday said they agreed to form a broad alliance in the United States designed to boost their positions amid growing competition with Google Inc. (GOOG.O: Quote, Profile, Research) and Microsoft Corp. (MSFT.O: Quote, Profile, Research).
EBay shares soared nearly 9 percent and Yahoo rose more than 3 percent on news of the partnership.
Yahoo, the world's largest Internet media company, will become the exclusive provider of graphical advertising on eBay, the biggest e-commerce player and provide some search services within eBay's site to connect buyers to items they seek.
In return, Yahoo will promote PayPal, EBay's popular online payment system, as a way for Yahoo's hundreds of thousands of affiliated Web sites and small business owners to conduct transactions online.
The deal -- rumblings of which were widely known in Silicon Valley and on Wall Street -- stops short of an outright merger. But it reflects the growing need for the biggest Internet companies to consolidate their various operations in the face of a mounting four-way competition and slowing growth rates.
When asked in an interview whether the alliance could lead to further ties between the two companies, John Donahoe, the president of eBay's marketplaces unit responded: "We will see. We think there is so much opportunity right in front of us. That's where our focus will be in the next six to 12 months."
Chief Financial Officer Susan Decker declined to comment on whether the possibility of an outright merger was involved.
The companies said the alliance will not have a material impact on 2006 results for either.
The agreed alliance is a response to inroads by Google's popular Web search system in setting the terms of where consumers go to shop, entertain or inform themselves. This competitive dynamic is forcing every major Internet player to consider joining forces instead of trying to go it alone.
Executives at eBay and Yahoo said the deal builds on many cultural similarities that bind two of Silicon Valley's biggest employers.
The current deal covers partnerships in the United States between the two companies. Depending on how these initiatives work, further relationships could develop, Donahoe said.
In addition to the search and PayPal aspects of the deal, Yahoo Web search features also will be offered through a co-branded version of a browser toolbar for eBay users, and the companies said they would explore developing "click-to-call" Internet advertising that could take advantage of eBay's Skype Web telephone service and Yahoo's messaging.
UNCOVERING WAYS TO MAKE MORE MONEY
For Wall Street analysts, the word of the day was "monetization," which Internet industry insiders use as a shorthand for finding ways to make more money out of a property or asset, such as placing more ads on a Web page.
"It's a very positive move for both, since eBay gets to monetize its traffic with advertising," Susquehanna analyst Marianne Wolk said. "For Yahoo, it significantly broadens their search" audience, she said.
Under the pact, which gives Yahoo access to eBay's vast base of online shoppers, the companies will begin to roll out their joint initiatives this year.
The tie-up seeks to make it easier for buyers to search for items for sale on eBay, while being careful not to offend sellers with competing ads. Now, when an eBay customer fails to locate what he or she wants, a Yahoo search ad could appear.
"The very new part is for eBay to really leverage Yahoo advertising onto eBay properties," Donahoe said. "We think this can both enhance our business and build a better experience for users," he said.
"Clearly Google and Microsoft, I assume, would have liked this business, but Yahoo has more assets to leverage in a partnership with eBay," said Mark May, an analyst with Needham & Co.
Shares of eBay jumped $2.70, or 8.9 percent, to $32.90 on Nasdaq, while Yahoo was up $1.11, or 3.5 percent, to $32.90.
Shares of Google fell about 1 percent to $377.98 and Microsoft was up 1 percent at $23.74, also on Nasdaq.
While the deal calls for Yahoo to act as search provider for eBay in certain circumstances, the partnership steps gingerly around eBay's dependence for a big chunk of traffic to its auctions from Google's search.
EBay depends on paid search advertising to drive bidders to its auctions and sales. Officials say the company bids on up to 15 million keyword search terms at all three of the major Web search advertising suppliers -- Google, Yahoo and Microsoft -- making it one of the world's biggest customers for search ads.
The deal comes amid slowing growth and rising competition among the biggest companies -- Google, Yahoo, eBay and Microsoft's MSN. Before Thursday, EBay's stock had been down 30 percent on the year, while Yahoo was off 20 percent and Google was down 10 percent.
Yahoo and eBay said they do not expect the partnership to have a material impact on their financial results this year.