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Yahoo, eBay Sign on For More Exposure

UPDATED: Internet portal Yahoo and online auctioneer eBay announced a wide-ranging search and advertising pact designed to withstand Google's encroachment.

As part of a multi-year partnership set to begin testing over the next several months with a full roll-out later this year, Yahoo and eBay inked exclusive agreements on key technologies as well as co-branded tools enabling them to expand their reach.

Yahoo becomes eBay's exclusive provider of graphical ads, as well as sponsored search advertisements, which is key to competing with Google. In return, PayPal will be the exclusive payment service across Yahoo's e-commerce and advertiser networks.

Additionally, Yahoo will be added to eBay's toolbar, which the San Jose, Calif.-based auction service said 4 million users downloaded. Yahoo will examine "click-to-call" advertising, which would allow Yahoo Messenger users to directly contact advertisers via eBay's Skype Internet phone service.

The pact, which first undergoes several months of tests before a complete roll-out later this year, was hailed as extending advertising and exposure across the popular Internet destinations.

"EBay provides us with a great opportunity to further extend our sponsored search and graphical advertising reach to one of the largest and most active communities on the Web," Terry Semel, Yahoo's CEO and chairman, explained in a statement.

For the online auctioneer, Yahoo's audience "drives massive traffic through its rich consumer content and premium services," according to Meg Whitman, eBay CEO and president, in a statement.

For some time, the auction service has reportedly been in talks with Yahoo and Microsoft over a partnership that could wean eBay from its dependence on Google.

Yahoo will not discuss how the agreement may change the look-and- feel of its popular Internet brand, aside from saying the various components will undergo testing over the next several months, according to Kelly Delaney, a Yahoo spokesperson.

Delaney said while some co-branding will be evident, such as the new toolbar, the Yahoo brand will not be apparent when serving banner ads to eBay users.

While not providing details, the spokesperson said "there is a revenue-sharing component" to the partnership.

Although Yahoo sees the new pact as "a great fit," the deal "strains the relationship between eBay and Google," said Matthew Del Percio, a Yankee Group analyst.

After launching Google Base, a service allowing users to sell items, the Internet search company unveiled Google Payments, a PayPal-like product.

While eBay is Google's No. 1 advertiser, eBay needs Google to deliver targeted ads to "the most active eyeballs on the Internet," according to Del Percio.

"Ebay needs Google more than Google needs eBay," the analyst said.

But Google assures eBay is just as valuable to its future in light of the announcement.

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

Nevertheless, the Yankee Group analyst says partnerships such as the one between Yahoo and eBay are becoming a prime tactic needed by companies to compete.

A likely option for Google is pairing with Microsoft to serve ads to the 80 million users of Myspace.com, predicts Del Percio.