The two companies unveiled a partnership Thursday morning that could bring more advertising revenue to Yahoo, whose market share losses to Google brought angry words from shareholders at the portal giant's annual stockholder meeting later in the day.
eBay approached Yahoo to discuss working together more closely on advertising, said Yahoo Chief Executive Terry Semel. But the multiyear partnership centered on advertising, e-commerce and search will benefit both companies, he told CNET News.com following the shareholder meeting.
"The deal offers great opportunities for both companies to share great assets with each other," Semel said. "It's all about creating more value and a better experience for users as well as for advertisers."
Neither Yahoo executives nor shareholders mentioned the deal at the meeting, but several shareholders complained that Yahoo hasn't done enough to compete.
"It seems like you're being outsmarted by a couple of Stanford dropouts at Google," Edward Abramczyk said in addressing Yahoo's management.
"Google's business has boomed. We lost billions of dollars in revenue to Google and others," said another shareholder.
Semel reminded shareholders that although search advertising is the leading way to make money, Yahoo is ahead of its rivals in providing services, such as e-mail, instant messaging, news and music, which people spend more time using.
"We think the Internet is still in the very early days," he said. "We have a leadership position in a number of the most heavily used things on the Internet."
As, under the deal with eBay, Yahoo will become the exclusive third-party on eBay and will also provide new text ads on some search results pages. Yahoo search and site links will be integrated into a co-branded version of the eBay toolbar.
Meanwhile, eBay's PayPal service will be the online payment method used by Yahoo customers, merchants and publishers and will be integrated into product offerings. 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.
"It's a unique partnership. It's the first time we've gone off (our) network with graphical ads" said Yahoo Chief Operating Officer Dan Rosensweig. eBay is a "huge, fertile, relevant environment" for advertisers.
Specific financial details were not released, but both companies said 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 those periods.
The companies plan to begin releasing the new products this year, starting with a several-month-long trial phase, and they hope to complete the launch next year.
Both Yahoo and eBay have seen increasing competition in their core markets, most notably from big hitters Microsoft and Google., for instance, which launched last year, lets people 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.
Analysts said the partnership was a big win for eBay in particular.
"This deal should improve the position of an already very strong PayPal franchise," Citigroup analyst Mark Mahaney wrote in a research alert. "But what's potentially most needle-moving/thesis-changing here is eBay tapping into display advertising."
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.
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 undermonetized 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."
Alexia S. Quadrani of Bear Stearns said the main concern that has weighed on Yahoo's stock has been the increased competitive marketplace online.
"We believe a partnership with the No. 5 destination site on the Web helps bolster Yahoo's competitive position," Quadrani wrote in a research note. "This deal may also weaken competitor MSN's position given speculation by newspapers such as The Wall Street Journal (4/21/06) that MSN might partner with eBay."
Safa Rashtchy of Piper Jaffray said the deal gives eBay the ability to monetize its huge amount of traffic and allows Yahoo to reach the 75 million or so users within the eBay network. "The partnership is a loss of potential partnership for Google and as such it is a negative, but we believe it is unlikely to undermine Google's position," he wrote in a research note.
Yahoo had a 69 percent active reach among Internet users in April, with 105.9 million unique visitors, and eBay's active reach was 39 percent, with 60 million unique visitors, according to Nielsen/NetRatings.
News of the deal pushed the stock prices for the companies up. Yahoo's stock rose 3.5 percent to close at $32.92 and eBay's rose 12 percent to $33.88.Also at the shareholder meeting, Yahoo co-founder Jerry Yang declined a request by stockholder activist Amnesty International USA that the company ask the Chinese government to release Internet dissidents jailed in China. Yahoo has been on users that led to the arrest of several people in China.