Yahoo, eBay team up on e-commerce

Internet heavyweights work out a deal focused on advertising, search and online payments.

Yahoo and eBay are teaming up as the Internet search and commerce markets grow even more competitive.

The two companies said Thursday they are forming a multiyear partnership centered on advertising, e-commerce and search. As part of the deal, Yahoo will become the exclusive third-party provider of all graphical ads on eBay and will also provide new text ads on some search results pages, a Yahoo representative said.

Specific financial details were not released, but both companies said that the deal would not be material to 2006 results and that any financial impact for 2007 and beyond would be detailed when the companies issue their outlooks for that period.

Yahoo will make eBay's PayPal service the exclusive third-party provider of its online wallet, allowing customers to pay for Yahoo services from bank accounts, credit cards or balances associated with their PayPal accounts. PayPal will also be integrated into product offerings for Yahoo merchants and publishers, including the Yahoo Publisher Network, Yahoo Search Marketing and Yahoo Merchant Solutions.

The two companies will also explore co-developing their respective voice over Internet Protocol (VoIP) services. That project will look at releasing "click-to-call" ad technologies on their Web sites, using both Yahoo Messenger with Voice and eBay's Skype service.

Yahoo search and site links will be integrated into a co-branded version of the eBay toolbar, the companies said.

The companies plan to begin releasing the new products this year, starting with a several-month-long trial phase, and hope to complete the launch next year.

"This partnership with eBay provides us with a great opportunity to further extend our sponsored search and graphical advertising reach to one of the largest and most active communities on the Web," Yahoo CEO Terry Semel said in a statement.

Both Yahoo and eBay have seen increasing competition in their core markets, most notably from big hitters Microsoft and Google. Google's Base service, for instance, which launched last year, allows people to post and search for information ranging from apartment listings to recipes.

Earlier this week, Wall Street analysts speculated that a tie-up between eBay and Yahoo would make sense, explaining that pooling their resources would give the companies more leverage in search, advertising and customer breadth.

Reports had surfaced earlier this year that eBay was in talks with both Microsoft and Yahoo to form a partnership to fight off Google.

Scott Devitt, an analyst at Stifel Nicolaus, said the deal should boost both companies' bottom lines but this doesn't necessarily mean either one will start taking market share away from Google as a result.

For Yahoo, Devitt noted, the deal brings a "massive ad client" in the form of eBay. And for PayPal, "the ability to cross-sell a payment platform on the largest traffic network on the Internet is significant to and very beneficial to the market value of the PayPal piece of eBay," he said.

"It's not so much about shifting query share as taking under-monetized components and filling holes with partners," he said. "Unless there's something over time which shifts query share, it's not that big of a strategic move (in relation) to Google."

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