SAN FRANCISCO -- Internet powerhouses Yahoo Inc. and eBay Inc. arejoining forces in an alliance that further defines the battle linesin an online showdown with rivals Google Inc., Microsoft Corp. andAOL.
Under the multiyear partnership announced Thursday, Yahoo and eBaywill draw upon each other's strengths in online advertising, paymentsand communications so they can connect with even more Web surfersthan they already do.
Shares of both companies jumped on the news.
Sunnyvale, Calif.-based Yahoo operates the world's most traffickedWeb site with 402 million unique users and ranks second in thelucrative search advertising market behind Google. It earned $1.9billion on revenue of $5.3 billion last year, primarily throughonline ads.
San Jose, Calif-based eBay is the e-commerce leader, with nearly200 million users of online auctions and another 73 million U.S.accountholders of its payment service, PayPal. It earned $1.1 billionon revenue of $4.6 billion last year, mostly by taking a slice of theauction sales on its site.
Thursday's announcement follows several weeks of rampant WallStreet speculation about the mating dance among the Internet'sheavyweights. At one point, there was even talk that Microsoft wantedto buy Yahoo.
Although it's not expected to have a financial impact until nextyear, the deal between Yahoo and eBay seems likely to shake up thecompetitive landscape.
Coupled with Google's recent $1 billion investment in Time WarnerInc.'s AOL, the Yahoo-eBay partnership also figures to intensify thepressure on Microsoft to find an ally as it tries to become a moreformidable player in Internet advertising.
Microsoft is believed to be competing against Google to providesearch ads on MySpace.com, an increasingly popular teenage hangoutowned by News Corp.
Unlike the Google-AOL deal, Yahoo and eBay aren't swapping anymoney. Instead, they are pooling together in their resources in aneffort to boost their revenue beginning next year -- a tantalizingprospect that provided a lift to their recently slumping stocks.
EBay shares surged $2.14, or 7.1 percent, to $32.34 in Thursday'slate morning trading on the Nasdaq Stock Market, where Yahoo's sharesrose 82 cents, or 2.6 percent, to $32.61.
Under their partnership, Yahoo will become the exclusive providerof graphical advertising throughout eBay's Web site and will providesome search-generated ads, as well. Yahoo's brand and search enginewill also be blended into an eBay toolbar that has been downloaded by4 million users so far.
Ebay's PayPal service will become the preferred payment providerfor purchases made on Yahoo's site, which provides a wide array ofshopping, auctions and subscription services.
EBay's Skype Internet telephone service will be used to explorebuilding another marketing vehicle that would allow advertisers toconnect with prospective customers on the phone instead of throughtheir Web sites. If the experiment works, it would mark Yahoo'sentrance into "click-to-call" advertising, something that AOL alreadyoffers and a service that Google has been exploring, too.
Yahoo and eBay said they will begin testing some of their jointservices later this year, but all the benefits are unlikely to beavailable until next year.
"We are very excited because it allows us to provide the best ofclass in so many services," Susan Decker, Yahoo's chief financialofficer, said during a Thursday interview.
Neither Yahoo nor eBay projected how their alliance might affecttheir respective financial outlooks, but some analysts already areexpecting big things.
Before the deal was even announced, J.P. Morgan analyst Imran Khanreleased a research report predicting a Yahoo-eBay alliance wouldenable the two companies to generate combined revenue of $13.85billion next year, up from a projected $10.65 billion this year.
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 afree classified listing service as well as a payment service. Despitethose moves, Google has stressed it has no plans to trample eBay, oneof the largest advertisers on its network.
EBay will continue to buy ads through Google's network while alsoexploring ways to spend more money on Yahoo's, said John Donahue, whoruns eBay's marketplace division. "Google continues to be animportant business partner," Donahue said.
Google shares fell $7.17, or 1.9 percent, to $374.08 in Thursday'slate morning trading on the Nasdaq.
Mountain View, Calif.-based Google also has been widening its leadin Internet search over Yahoo. Through April, Google held a 43.1percent U.S. market share, up from 36.5 percent at the same time lastyear, according to comScore Media Metrix. The same report peggedYahoo's April market share at 28 percent, down from 30.7 percent ayear ago.
Microsoft ranks third in search at 12.9 percent, but has vowed toinvest heavily to improve its position and build a better onlineadvertising platform during the next year. As part of its push,Microsoft will stop running ads from Yahoo's search engine in July.
Even as that business relationship wound down, Microsoftapproached Yahoo about possibly teaming up, Yahoo Chairman TerrySemel publicly acknowledged earlier this month. Semel said the talksbroke off, indicating that he wasn't interested in selling a stake inYahoo's lucrative search technology.
Microsoft and Yahoo are continuing to collaborate on an effort tomake their instant messaging services compatible so users cancommunicate between the two systems.
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