Yahoo, eBay join forces in defense against Google
A broad alliance between Yahoo Inc. and eBay Inc., unveiled Thursday, signals the growing fear of Google Inc. and the lengths to which onetime rivals will go to defend themselves against the fast-growing search engine juggernaut.
The deal gives Yahoo and eBay extra ammunition -- namely, access to a vastly bigger audience -- that they hope will strengthen their positions in the highly competitive Internet industry.
Under the agreement, Yahoo, the world's most heavily trafficked Web site, will sell search and graphical advertising on eBay, the world's biggest e-commerce company. EBay in turn will offer its PayPal payment service, used to transfer money, on the Yahoo site.
The partnership takes to the next level the fight against Google, which hopes to extend a winning streak in online search to an array of new products. Instead of firing bullets, Google's competitors now are lobbing grenades.
"The reason why eBay and Yahoo were thinking about this was to do a defensive move against Google," said Sasa Zorovic, an analyst for Oppenheimer. He said that eBay likely considered Google for the partnership, but given the threat of several new Google products, among them a free classified listing service, GoogleBase, and a payment service, "Google didn't have a chance."
The agreement combines the strengths of both companies and places some of their most lucrative offerings in front of larger audiences. By doing so, the companies stand to generate additional revenues, although executives declined to offer any estimates.
Testing of the Yahoo-eBay initiative is expected to begin over the next few months, although no financial impact is anticipated for 2006. Full implementation is expected in 2007.
Technology industry insiders had said in recent weeks that a merger or partnership was likely among some major Internet companies, and Yahoo and eBay were prime contenders. Their services were seen as the most complementary among the potential suitors, particularly because they have the least overlap of existing services.
Such "co-opitition" is sweeping the Internet industry, significantly shuffling the landscape. "Co-opitition" describes the complex relationship many Internet companies have with peers that are simultaneously business partners and rivals.
Although Yahoo and eBay will join forces in many arenas, they will continue to compete in online auctions. Yahoo plans to continue its modest U.S. auction business rather than replace it with eBay's dominant marketplace.
"Clearly there has been an increasing level of co-opitition, shall we say, among the various major players in the Internet over the last two or three years, which has been increasing pace over the last few months," said Derek Brown, an analyst for Pacific Growth Equities. "Google has in a relatively short period of time dramatically changed the playing field for quite a few industry giants."
An example of the change came Thursday when Google said it had completed a deal to distribute its search toolbar and other software in Dell computers. The agreement kicks sand in the eye of Microsoft Corp., whose software traditionally has been bundled on computers without other companies being able to do the same.
Analysts said that combining forces in the Internet industry is especially important given the continued success of Google, which has introduced a flurry of new products, many outside its search-engine roots. The alliance between Yahoo and eBay could help those companies combat Google's threat.
"This is good for business and good for users," said Dan Rosensweig, Yahoo's chief operating officer. "I think it's a very important deal for both companies."
Until now, eBay has made only limited efforts to capitalize on Internet advertising, a lucrative business for other Web sites. The company generated $36.6 million in ad revenue in the first quarter, compared with $1.39 billion in total revenue.
Most of eBay's money comes from small fees collected in its marketplace and from commissions from the PayPal payment service. PayPal has proved to be a solid revenue contributor, netting eBay a percentage of each transaction it handles.
Yahoo will be the sole supplier to eBay of graphical ads, which include banner ads and other colorful kinds of marketing messages. In addition, Yahoo will supply eBay with search engine ads on some of eBay's search-results pages.
Search ads provide a big part of Yahoo's revenue. Much like Google, clients use Yahoo to distribute their ads across its network. Each time a Web user clicks on one of these ads, Yahoo is paid a fee. In the case of the ads appearing on eBay, Yahoo plans to share the revenue.
EBay executives have underscored that its users enter a huge number of searches on the Web site daily. But they have avoided adding much search advertising because the ads would encourage users to go elsewhere and therefore infuriate eBay sellers.
But John Donahoe, president of eBay Marketplaces, said the ads will be done in such a way as to offer little competition to sellers. For example, he said a search for shoes would turn up only pitches for complimentary products, such as socks.
Additionally, in the agreement, the companies plan to explore so-called click-to-call advertising that will be accessible to users of Yahoo's instant messenger with voice capabilities, and eBay's Skype Internet calling service. The technology would allow users to simply click on an icon to call an online advertiser about making a transaction.
The companies also plan to introduce a co-branded version of the eBay toolbar to include Yahoo search and links to Yahoo's home page.
Thursday's deal applies only to U.S. operations of both companies. However, analysts believe that the agreement may be expanded elsewhere -- and to other products -- if it proves successful.
"Yahoo isn't as strong in Europe; eBay isn't as strong in Asia," said Martin Pyykkonen, an analyst for Hoefer & Arnett. "From both sides, you'd want to partner in the same way in those markets."
Yahoo's shares were up $1.13 in trading Thursday to close at $32.92, or 3.6 percent. EBay's shares were up $3.68 to $33.88, or 12.2 percent.
The deal gives Yahoo and eBay extra ammunition -- namely, access to a vastly bigger audience -- that they hope will strengthen their positions in the highly competitive Internet industry.
Under the agreement, Yahoo, the world's most heavily trafficked Web site, will sell search and graphical advertising on eBay, the world's biggest e-commerce company. EBay in turn will offer its PayPal payment service, used to transfer money, on the Yahoo site.
The partnership takes to the next level the fight against Google, which hopes to extend a winning streak in online search to an array of new products. Instead of firing bullets, Google's competitors now are lobbing grenades.
"The reason why eBay and Yahoo were thinking about this was to do a defensive move against Google," said Sasa Zorovic, an analyst for Oppenheimer. He said that eBay likely considered Google for the partnership, but given the threat of several new Google products, among them a free classified listing service, GoogleBase, and a payment service, "Google didn't have a chance."
The agreement combines the strengths of both companies and places some of their most lucrative offerings in front of larger audiences. By doing so, the companies stand to generate additional revenues, although executives declined to offer any estimates.
Testing of the Yahoo-eBay initiative is expected to begin over the next few months, although no financial impact is anticipated for 2006. Full implementation is expected in 2007.
Technology industry insiders had said in recent weeks that a merger or partnership was likely among some major Internet companies, and Yahoo and eBay were prime contenders. Their services were seen as the most complementary among the potential suitors, particularly because they have the least overlap of existing services.
Such "co-opitition" is sweeping the Internet industry, significantly shuffling the landscape. "Co-opitition" describes the complex relationship many Internet companies have with peers that are simultaneously business partners and rivals.
Although Yahoo and eBay will join forces in many arenas, they will continue to compete in online auctions. Yahoo plans to continue its modest U.S. auction business rather than replace it with eBay's dominant marketplace.
"Clearly there has been an increasing level of co-opitition, shall we say, among the various major players in the Internet over the last two or three years, which has been increasing pace over the last few months," said Derek Brown, an analyst for Pacific Growth Equities. "Google has in a relatively short period of time dramatically changed the playing field for quite a few industry giants."
An example of the change came Thursday when Google said it had completed a deal to distribute its search toolbar and other software in Dell computers. The agreement kicks sand in the eye of Microsoft Corp., whose software traditionally has been bundled on computers without other companies being able to do the same.
Analysts said that combining forces in the Internet industry is especially important given the continued success of Google, which has introduced a flurry of new products, many outside its search-engine roots. The alliance between Yahoo and eBay could help those companies combat Google's threat.
"This is good for business and good for users," said Dan Rosensweig, Yahoo's chief operating officer. "I think it's a very important deal for both companies."
Until now, eBay has made only limited efforts to capitalize on Internet advertising, a lucrative business for other Web sites. The company generated $36.6 million in ad revenue in the first quarter, compared with $1.39 billion in total revenue.
Most of eBay's money comes from small fees collected in its marketplace and from commissions from the PayPal payment service. PayPal has proved to be a solid revenue contributor, netting eBay a percentage of each transaction it handles.
Yahoo will be the sole supplier to eBay of graphical ads, which include banner ads and other colorful kinds of marketing messages. In addition, Yahoo will supply eBay with search engine ads on some of eBay's search-results pages.
Search ads provide a big part of Yahoo's revenue. Much like Google, clients use Yahoo to distribute their ads across its network. Each time a Web user clicks on one of these ads, Yahoo is paid a fee. In the case of the ads appearing on eBay, Yahoo plans to share the revenue.
EBay executives have underscored that its users enter a huge number of searches on the Web site daily. But they have avoided adding much search advertising because the ads would encourage users to go elsewhere and therefore infuriate eBay sellers.
But John Donahoe, president of eBay Marketplaces, said the ads will be done in such a way as to offer little competition to sellers. For example, he said a search for shoes would turn up only pitches for complimentary products, such as socks.
Additionally, in the agreement, the companies plan to explore so-called click-to-call advertising that will be accessible to users of Yahoo's instant messenger with voice capabilities, and eBay's Skype Internet calling service. The technology would allow users to simply click on an icon to call an online advertiser about making a transaction.
The companies also plan to introduce a co-branded version of the eBay toolbar to include Yahoo search and links to Yahoo's home page.
Thursday's deal applies only to U.S. operations of both companies. However, analysts believe that the agreement may be expanded elsewhere -- and to other products -- if it proves successful.
"Yahoo isn't as strong in Europe; eBay isn't as strong in Asia," said Martin Pyykkonen, an analyst for Hoefer & Arnett. "From both sides, you'd want to partner in the same way in those markets."
Yahoo's shares were up $1.13 in trading Thursday to close at $32.92, or 3.6 percent. EBay's shares were up $3.68 to $33.88, or 12.2 percent.
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