Just one day after being forecasted, two giants of the Internet have announced their alliance in the battle against competitors Google, Microsoft, and AOL.
According to a multi-year contract announced last night, Yahoo and eBay will combine their strengths in payment processing, online advertising, and communications to attract even more users.
Following this announcement, the stock prices of both companies surged. Clearly, investors have high hopes for the new revenue opportunities that this partnership between two of the oldest and most successful companies in the Internet space will bring.
Specifically, Yahoo operates the most visited website in the world, with 402 million users and only falls behind Google in attracting online advertising. Last year, the company generated $5.3 billion in revenue and a profit of $1.9 billion, mainly due to online advertising.
Meanwhile, eBay is the leader in e-commerce, with nearly 200 million customers having participated in auctions and another 73 million using its online payment service, PayPal. Last year, eBay earned $1.1 billion out of total revenues of $4.6 billion.
According to Nielsen/NetRatings statistics, in April alone, nearly 113 million Americans visited either Yahoo or eBay, or both sites.
The Anticipated Move
However, the announcement last night from Yahoo and eBay did not surprise anyone. For several weeks, Wall Street had been abuzz with speculation about a potential “super merger” or alliance among the giants. At one point, there were even rumors that Microsoft wanted to buy shares in Yahoo.
While they may not create any financial impact this year, the contract between Yahoo and eBay will undoubtedly shake up the fiercely competitive Internet landscape.
Unlike the Google-AOL deal, Yahoo and eBay are not pouring money into each other. Instead, the two parties will “share resources” and optimize their assets to maximize their revenues.
According to analyst Imran Khan from JP Morgan, this alliance will help eBay increase its revenue by an additional $350 million next year, while Yahoo’s revenue will grow by $150 million in 2007.
What Do Yahoo and eBay Gain?
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| Source: AP |
Under the agreement, Yahoo will become the exclusive video advertising provider across all of eBay’s websites. Naturally, search result ads will also not be overlooked. Furthermore, Yahoo’s branding and search tools will be integrated into eBay’s browser toolbar, which is used by over 4 million people.
Moreover, thousands of small and medium-sized businesses entrust their e-commerce platform to eBay. Convincing local businesses to invest more in online advertising is a top priority for all major search engines. Thus, gaining access to these businesses through eBay gives Yahoo a competitive edge over its rivals. Perhaps they will consider offering a percentage discount for eBay users?
Before Google emerged, Yahoo! dominated the search market. Now, with this deal, Yahoo at least has a chance to regain some of its market share.
In return, eBay’s PayPal service will become the “preferred payment provider” for all transactions on Yahoo. It’s worth noting that Yahoo is a popular destination for shopping, auctions, and numerous subscription services.
Additionally, eBay’s Internet phone service, Skype, will be utilized to create a new marketing model that allows advertisers to connect directly with users via phone, rather than through the website.
One important note: This alliance will not extend to China, a rapidly growing market that has become a top priority for both Yahoo and eBay.
Finally, eBay may lower the transaction fees for payments made through PayPal on Yahoo, helping Yahoo save a significant amount of money.
Targeting Google
Even before they joined forces, Yahoo and eBay shared a common concern: stopping Google’s rapid expansion.
In recent months, Google has encroached upon eBay’s territory by offering free classifieds along with a newly developed online payment service. It’s important to note that eBay has a very peculiar relationship with Google. “They hate Google, fear Google, but can’t live without Google,” said analyst Matthew Del Percio of the Yankee Group.
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| Source: AP |
With $2.25 billion in revenue in the first quarter and a 43% market share in web search, Google is undeniably the king of this market. Therefore, at worst, Google may see the Yahoo-eBay deal as merely a minor inconvenience.
While losing exclusive advertising rights on eBay to Yahoo, Google’s position is not significantly shaken. In fact, although known for text-based ads (with both AdWords and AdSense services), Google has traditionally lagged behind Yahoo! in graphic and image advertising. Thus, it seems Google doesn’t have much to lose.
Furthermore, if successful with Google Base, an online classifieds “marketplace” clearly aiming to compete with eBay, Google has even less reason to be concerned about last night’s deal.
Microsoft – A Slow Mover
Microsoft is notoriously slow to act in such matters. This marks the second time in six months that the company has missed an opportunity to enhance its presence in the online advertising market. Last year, Time Warner rejected Microsoft’s proposal to purchase a stake in AOL. To add insult to injury, Time Warner sold 5% of its shares to Google for $1 billion shortly after that.
Now, Microsoft’s desire to partner with either Yahoo! or eBay has once again evaporated.
With Google’s recent $1 billion investment in AOL, the Yahoo-eBay alliance is putting pressure on Microsoft, forcing the company to urgently seek allies if it wants to compete for online advertising market share.
Analysts suggest that Amazon.com, the number one retail website on the Internet, and MySpace.com, a popular destination for teens, are the most logical candidates.
Thien Y
