Yahoo, eBay to join forces in partnership

SAN FRANCISCO — Internet powerhouses Yahoo Inc. and eBay Inc. are joining forces in an alliance that further defines the battle lines in an online showdown with rivals Google Inc., Microsoft Corp. and AOL.

Under the multiyear partnership announced Thursday, Yahoo and eBay will draw upon each other's strengths in online advertising, payments and communications so they can connect with even more Web surfers than they already do.

Shares of both companies jumped on the news.

Sunnyvale, Calif.-based Yahoo operates the world's most trafficked Web site with 402 million unique users and ranks second in the lucrative search advertising market behind Google. It earned $1.9 billion on revenue of $5.3 billion last year, primarily through online ads.

San Jose, Calif-based eBay is the e-commerce leader, with nearly 200 million users of online auctions and another 73 million U.S. accountholders of its payment service, PayPal. It earned $1.1 billion on revenue of $4.6 billion last year, mostly by taking a slice of the auction sales on its site.

Thursday's announcement follows several weeks of rampant Wall Street speculation about the mating dance among the Internet's heavyweights. At one point, there was even talk that Microsoft wanted to buy Yahoo.

Although it's not expected to have a financial impact until next year, the deal between Yahoo and eBay seems likely to shake up the competitive landscape.

Coupled with Google's recent $1 billion investment in Time Warner Inc.'s AOL, the Yahoo-eBay partnership also figures to intensify the pressure on Microsoft to find an ally as it tries to become a more formidable player in Internet advertising.

Microsoft is believed to be competing against Google to provide search ads on MySpace.com, an increasingly popular teenage hangout owned by News Corp.

Unlike the Google-AOL deal, Yahoo and eBay aren't swapping any money. Instead, they are pooling together in their resources in an effort to boost their revenue beginning next year — a tantalizing prospect that provided a lift to their recently slumping stocks.

EBay shares surged $2.14, or 7.1 percent, to $32.34 in Thursday's late morning trading on the Nasdaq Stock Market, where Yahoo's shares rose 82 cents, or 2.6 percent, to $32.61.

Under their partnership, Yahoo will become the exclusive provider of graphical advertising throughout eBay's Web site and will provide some search-generated ads, as well. Yahoo's brand and search engine will also be blended into an eBay toolbar that has been downloaded by 4 million users so far.