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Is 'Ya-bay' Gunning for Google?

Yahoo and eBay's agreement to share core technologies in a deal unveiled Thursday has delighted analysts and investors, who say the joint venture will bring big benefits to both companies.

The Yahoo-eBay partnership is also expected to present an interesting challenge to Google, since the alliance should give a big boost to Yahoo's search advertising business, a market where it directly competes with Google.

Google is the leader in the highly competitive search advertising space, which is expected to generate $10 billion for the company this year, according to the Financial Times.

"While I don't think you can point your finger to one specific product offered by Google that is causing fear to Yahoo and eBay , the combination of all Google's recent initiatives is causing both Yahoo and eBay to reach out to each other for support," said Andy Beal, CEO of Fortune Interactive, a search marketing consulting firm based in Raleigh, N.C.

The Yahoo-eBay deal has been the subject of happy gossip since the Wall Street Journal published a story on the impending alliance last month. Analysts now wonder whether eBay and Yahoo will merge their businesses outright over the next year.

"While the announcement today was not a merger, the partnership is extensive enough for both sides to test the waters and see how well they match up," said Beal.

Under the terms of the agreement, Yahoo will get the right to use PayPal, eBay's popular electronic payment system, and Skype, eBay's free VoIP service.

In turn, Yahoo becomes the exclusive third-party provider of graphical ads for eBay's Web site, and will also supply sponsored search results for some eBay.com auction offerings. And the eBay browser toolbar, which has been downloaded by roughly 4 million eBay users, will soon include access to Yahoo search, mail and other Yahoo sites.

On Thursday, eBay shares jumped nearly 9 percent and Yahoo rose more than 3 percent on news of the partnership, which also drew cheers from analysts who say the joint venture will bring big benefits to both companies.

Shares in Google dipped slightly Thursday, about 1%, highlighting investors concerns that the eBay-Yahoo partnership presents a challenge to Google. The alliance promises to be a big boost to Yahoo's search advertising business, a market where it directly competes with Google.

"In the near term eBay, which was actively shopping for such an alliance, may get more from this deal than Yahoo -- the company's stock price certainly did following the announcement," said Greg Sterling, lead analyst at Sterling Market Intelligence.

"But the deal has the potential to benefit both companies by better monetizing eBay's traffic and providing some incremental revenue to Yahoo in terms of ad distribution. It will also give a small potential boost to Yahoo search usage. And Yahoo is also reportedly going to push PayPal as the payment system of choice to its small business web hosting clients."

Spokespeople from both companies also said they will be developing services that combine their technologies. One joint project that has been discussed is click-to-call advertising. This would allow people to click on advertisements on eBay and Yahoo sites and be connected to the advertiser through either eBay's Skype or the voice calling feature of Yahoo Messenger.

"Click-to-call advertising is the only component that will be new for both sides of this partnership," said Beale. Yahoo brings to the table its auction model and paid ads, while eBay brings a robust communication system in Skype. It will be interesting to see how they can combine these two services to create a product that is predicted to become very popular among small local businesses."

But neither Yahoo nor eBay is saying their new relationship will be monogamous. Microsoft -- which recently made its own foray into search advertising -- and Google are far too important to ignore ... at least for eBay.

"We work closely with Google and have for some time and will continue to do so," said eBay spokesperson Catherine England. "We will continue to work with a variety of partners to optimize their services and bring people from across the Internet to the eBay platforms to trade and communicate."

Google spokesperson Steve Langdon echoed the sentiment

"EBay is a valued partner and has been for years," said Langdon. "We expect our partnership with them to grow as we find new ways to work together."



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