Yahoo and eBay team up online against Google

GDO Reports

The multiyear alliance will put Yahoo's search bar in front of 200 million eBay users. EBay's PayPal easy-to-use payment service will be featured to shoppers on Yahoo's shopping and other channels.

Image ads sold by Yahoo will appear on eBay auction pages, and eBay's Skype Internet phone calling program could ultimately give Yahoo's 402 million users the ability to click on an ad and talk to a merchant.

Google's search-advertising success has outpaced Yahoo's, and it has been elbowing its way into eBay's comfortable flea-market community through recently unveiled online classified and payment services.

San Jose-based eBay and Sunnyvale's Yahoo hope the alliance will shake up the way millions of people now search and shop. Yahoo has consistently come in a distant second to Google for Internet advertising dollars, while eBay's online growth is slowing.

``Everyone thinks Google will win at anything it tries,'' said Forrester Research analyst Charlene Li. ``But it can't. And Yahoo is hungry. Nobody can do it all themselves. It will be important to partner. You'll see more `co-opetition' happening, competitors working together.''

The Yahoo-eBay partnership could, in fact, hasten a relationship between MySpace and Google or Microsoft. Both Internet companies would like to get direct access to MySpace's online community of 80 million people, analysts say.

``It looks like an arms race, at least on the search side of the business,'' said American Technology Research analyst Rob Sanderson. ``Are they natural allies? Their services can be complementary. Time will tell.''

How it'll work

Any changes to the Yahoo or eBay sites won't be made until later this year or early 2007. In addition, no money is being exchanged in the deal -- both companies hope the partnership will lead to higher revenues overall.

Yahoo becomes the sole provider of image ads on eBay's site (as opposed to text-only ads), as well as some search ads. A person searching for a new camera on eBay's site, for example, might see image, or banner, ads on the site, along with eBay's usual results. EBay must work a balancing act to make sure it doesn't send too many buyers to Yahoo's ads.

Meanwhile, if a person wants to buy a camera through Yahoo's shopping site -- which will still exist -- eBay will give them access to its PayPal payment system. While Yahoo has its own payment service, PayPal is the biggest online payment service.

And a person who wants to call a seller before making a purchase could be able to use eBay's Internet phone calling service Skype, which already boasts 100 million users.

Dan Rosensweig, Yahoo's chief operating officer, said Yahoo's Messenger and eBay's Skype divisions will explore the creation of a ``click-to-call'' service, in which consumers will be able to speak to a seller using either Skype or Yahoo Messenger. The companies will spend the rest of the year working out the details of the new relationship with product rollouts expected in 2007, Rosensweig said.

In addition, Yahoo's links will become part of a co-branded version of eBay's popular toolbar, which has been downloaded by 4 million eBay users.

``It's a great deal for Yahoo users, eBay users, Yahoo merchants, Yahoo advertisers and eBay merchants,'' Rosensweig said. ``It's a great opportunity for consumers to get access to the things they want on eBay and Yahoo.''

Investors responded favorably to the partnership. Shares of eBay jumped 12 percent, or $3.68, to close at $33.88; Yahoo shares rose 3.5 percent, or $1.13, to close at $32.92.

``The most fundamental thing it does is strengthen both eBay's and Yahoo's core business,'' said John Donahoe, who oversees eBay's marketplace division. He was quick to note that eBay will continue to purchase ads through Google's network. ``To be clear,'' Donahoe added, ``Google is an important business partner and will continue to be an important business partner with eBay.''

Other partners?

There had been speculation that eBay was considering a similar partnership with Google and Microsoft. Donahoe would not comment on other potential suitors. Yahoo, he added, has a ``unique set of assets and a management team and a culture that was compatible'' with eBay. ``We both are user-generated companies that are innovative.''

The relationship could help each Internet company expand its global reach. Yahoo is strong in Asia, whereas eBay has a powerful presence in Europe.

For Yahoo, the partnership underscores the company's efforts to be something of a hip downtown for the Internet, a place where people go to be entertained, communicate and shop. It is working to offer consumers and advertisers search experiences that draw on the context of its community -- not just providing a list of, say, restaurants, but a rating of the best eateries, said Yankee Group analyst Matthew Del Percio.

``Yahoo wants to steer its search product away from purely algorithmic results to community-oriented and personal search results,'' Del Percio said.

The deal will cause Samir Patel, founder and CEO of San Mateo-based SearchForce, which buys search keywords for advertising for retail customers, to switch some of his purchases from Google to Yahoo.

``If you are a Google advertiser, you are at a disadvantage, you just got locked out of eBay,'' he said. ``If my ad only shows up on Google, it's interesting, but it's not that interesting. The more partners a network has, the better.''

Yahoo, which earlier this month announced a new advertising software it hopes will help it compete more effectively with Google in the area of search ads, is trying to position itself as the one-stop everything for Internet users.

Building community

During a shareholders meeting Thursday at the Santa Clara Convention Center, Yahoo Chief Executive Terry Semel said the company has been focused on building its online community.

Though the model for making money on some of its services, such as its photo-sharing site, hasn't been perfected, it's still early in the Internet's evolution, Semel said.

``We think the Internet is still in the early days,'' he said. ``We think search may change. We think many things may change. I look at this as early innings. We don't know if it's the third inning or the second inning. But it's definitely not the ninth inning.''

Google sees closer ties to eBay despite Yahoo deal
 
Google Inc. Chief Executive Eric Schmidt said on Thursday that the Internet industry benefits from a healthy eBay, and sees closer ties ahead between the online auctioneer and his own company.
"Our relationship with eBay is only going to get closer over the next year or two," Schmidt predicted during an interview at a Goldman Sachs investor conference in Las Vegas.
The top executive of the world's leading Web search provider said the alliance between eBay and rival Yahoo Inc. was healthy for the industry and not necessarily a loss to Google.
"The Yahoo-eBay deal is a very good deal and I think all of us benefit from having a stronger eBay," Schmidt said, adding that: "EBay is one of our largest customers and partners."
The press was barred from attending the event but the speaker presentations were available via Webcast.