http://news.yahoo.com/s/ap/20060525/ap_on_hi_te/yahoo_ebaySAN FRANCISCO - Internet powerhouses Yahoo Inc. (Nasdaq:YHOO - news) 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.
Ebay's PayPal service will become the preferred payment provider for purchases made on Yahoo's site, which provides a wide array of shopping, auctions and subscription services.
EBay's Skype Internet telephone service will be used to explore building another marketing vehicle that would allow advertisers to connect with prospective customers on the phone instead of through their Web sites. If the experiment works, it would mark Yahoo's entrance into "click-to-call" advertising, something that AOL already offers and a service that Google has been exploring, too.
Yahoo and eBay said they will begin testing some of their joint services later this year, but all the benefits are unlikely to be available until next year.
"We are very excited because it allows us to provide the best of class in so many services," Susan Decker, Yahoo's chief financial officer, said during a Thursday interview.
Neither Yahoo nor eBay projected how their alliance might affect their respective financial outlooks, but some analysts already are expecting big things.
Before the deal was even announced, J.P. Morgan analyst Imran Khan released a research report predicting a Yahoo-eBay alliance would enable the two companies to generate combined revenue of $13.85 billion next year, up from a projected $10.65 billion this year.
Even before teaming up, Yahoo and eBay shared a common interest ? thwarting Google's rapid expansion.
In recent months, Google has invaded eBay's turf by offering a free classified listing service as well as a payment service. Despite those moves, Google has stressed it has no plans to trample eBay, one of the largest advertisers on its network.
EBay will continue to buy ads through Google's network while also exploring ways to spend more money on Yahoo's, said John Donahue, who runs eBay's marketplace division. "Google continues to be an important business partner," Donahue said.
Google shares fell $7.17, or 1.9 percent, to $374.08 in Thursday's late morning trading on the Nasdaq.
Mountain View, Calif.-based Google also has been widening its lead in Internet search over Yahoo. Through April, Google held a 43.1 percent U.S. market share, up from 36.5 percent at the same time last year, according to comScore Media Metrix. The same report pegged Yahoo's April market share at 28 percent, down from 30.7 percent a year ago.
Microsoft ranks third in search at 12.9 percent, but has vowed to invest heavily to improve its position and build a better online advertising platform during the next year. As part of its push, Microsoft will stop running ads from Yahoo's search engine in July.
Even as that business relationship wound down, Microsoft approached Yahoo about possibly teaming up, Yahoo Chairman Terry Semel publicly acknowledged earlier this month. Semel said the talks broke off, indicating that he wasn't interested in selling a stake in Yahoo's lucrative search technology.
Microsoft and Yahoo are continuing to collaborate on an effort to make their instant messaging services compatible so users can communicate between the two systems.
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