Yahoo, eBay link to take on Google

CALIFORNIA - Yahoo and web auctioneer eBay yesterday said they agreed to form a broad alliance designed to boost their positions amid growing competition from Google and Microsoft.

Under the partnership between Yahoo, the world's largest internet media company, and eBay, the biggest e-commerce player, Yahoo will be the exclusive provider of graphical, branded advertising throughout eBay's auction site.

In return, Yahoo has chosen eBay's online payment system PayPal to allow its own customers to pay for Yahoo services.

The alliance is a competitive response to the in-roads that Google's popular web search system has made in both companies' businesses, which is forcing every major internet player to consider joining forces instead of trying to go it alone.

The deal stops short of an outright merger. But it reflects the growing need for the biggest internet companies to consolidate their various operations in the face of a mounting four-way competition and slowing growth rates.

For Wall Street analysts, the word of the day was "monetisation", which internet industry insiders use as a shorthand for finding ways to make more money out of a property or asset, such as placing more ads on a web page.

"It's a very positive move for both, since eBay gets to monetise its traffic with advertising," Susquehanna analyst Marianne Wolk said.

"For Yahoo, it significantly broadens their search" audience.

Under the pact, which gives Yahoo access to eBay's vast base of online shoppers, the companies will begin to roll out their joint initiatives this year.

"Google and Microsoft, I assume, would have liked this business but Yahoo has more assets to leverage in a partnership with eBay," said Mark May, an analyst with Needham & Co.

"Yahoo picking up the eBay advertising business doesn't mean that Google is going to lose share."

eBay shares jumped US$2.24, or 7.4 per cent, to US$32.44 on Nasdaq in morning trade, while Yahoo was up 92c, or 2.9 per cent, to US$32.71.

Microsoft had been in talks in recent weeks with both Yahoo and eBay on strengthening their ties.

Late last year, Microsoft lost out in a bid to woo Google's biggest customer, Time Warner's AOL, which renewed a pact with Google.

- REUTERS