Yahoo, EBay Join Forces in Partnership

In this Oct. 18, 2005, file photo, an exterior view of Yahoo Inc. headquarters in Sunnyvale, Calif., is shown. (AP Photo/Paul Sakuma) (Paul Sakuma - AP)

"This is a great deal for eBay in particular," said Standard & Poor's analyst Scott Kessler.

In a Thursday research report, J.P. Morgan analyst Imran Khan predicted the deal will increase eBay's revenue by $350 million next year and boost Yahoo's 2007 revenue by $150 million.

Neither Yahoo nor eBay projected how their alliance might affect their respective financial outlooks.

Under their partnership, Yahoo will become the exclusive provider of display advertising throughout eBay's Web site and will add some search-generated ads, as well.

Although eBay has done relatively little advertising so far, its site has the potential to become a major marketing magnet with 60 million unique U.S. visitors last month, according to comScore Media Metrix.

In another new twist, Yahoo's brand and search engine will be blended into an eBay Web browser toolbar that has been downloaded by 4 million users so far.

Ebay's PayPal service will become the preferred payment provider for purchases made on Yahoo's site, which provides a wide array of shopping, auctions and subscription services.

And eBay's Skype Internet telephone service will be used to explore building another marketing vehicle that would allow advertisers to connect with prospective customers on the phone instead of through their Web sites.

"We are very excited because it allows us to provide the best of class in so many services," Susan Decker, Yahoo's chief financial officer, said during a Thursday interview.

The relationship, however, won't extend to China, a rapidly growing market that has become a top priority for Yahoo and eBay, as well as its major rivals.

Even before teaming up, Yahoo and eBay shared a common interest _ thwarting Google's rapid expansion.

In recent months, Google has invaded eBay's turf by offering a free classified listing service as well as a payment service. Despite those moves, Google has stressed it has no plans to trample eBay, one of the largest advertisers on its network.

"Google was dipping into eBay's honey pot and that (irked) eBay," said Yankee Group analyst Matthew Del Percio. "Now, eBay needs to tread carefully so it doesn't damage its existing relationship with Google."

EBay will continue to buy ads through Google's network while also exploring ways to spend more money on Yahoo's, said John Donahue, who runs eBay's marketplace division. "Google continues to be an important business partner," Donahue said.

Speaking at a Las Vegas investment conference, Google CEO Eric Schmidt told analysts Thursday that he wasn't concerned, calling the Yahoo alliance "a very good deal for eBay. I think all of us benefit from a stronger eBay." He predicted Google's business ties with eBay will continue to strengthen during the next two years.

Google shares rose $1.74 to end at $382.99 Thursday on the Nasdaq. The shares slid by $8.94, or 2.3 percent, earlier in the session before rebounding on news reports of a deal that will install Google software on Dell Inc. computers.

Yahoo's ties with eBay nevertheless represent a blow for Google, Kessler said.

Mountain View, Calif.-based Google has been steadily widening its lead in Internet search over Yahoo since last summer, according to comScore Media Metrix. Through April, Google held a 43.1 percent U.S. market share compared with Yahoo's 28 percent share.