Yahoo will become eBay’s exclusive third-party sponsored search provider

Yahoo Inc. and eBay Inc. have formed a multi-year strategic partnership that includes making Yahoo the exclusive third-party provider of sponsored search for complementary products on some eBay.com search results pages in the U.S.

Under the partnership, announced by the companies today, Yahoo also will be the exclusive third-party provider of all graphical advertisements for eBay. The two companies also will collaborate on online payments, a co-branded toolbar, and opportunities to explore click-to-call functionality.

According to the agreement, Yahoo and eBay will work to increase the quality and comprehensiveness of Yahoo web search results for eBay.com and to provide Yahoo search users with more up-to-date listings on the millions of products on the eBay.com marketplace. The goal is to make it easier for shoppers to find relevant eBay listings, the companies said.

The partnership will allow eBay to “finally join the ranks of search and advertising-based growth companies,” said Safa Rashtchy, senior research analyst at Piper Jaffray & Co. He characterized it as a “major financial win” for the online auction site because it will enable eBay to monetize its huge traffic.

The deal also is a plus for Yahoo, because it allows Yahoo to reach the more than 75 million users within the eBay network, Rashtchy said.

The partnership poses a limited threat to Google, but probably will not undermine Google’s leading position in the search engine market. “Google will likely continue to gain market share,” Rashtchy said. “The additional search volume that Yahoo would pick up should largely be incremental to the entire search universe.”

Under the partnership, eBay online payment-services subsidiary PayPal also will become the exclusive third-party provider of Yahoo’s online wallet. PayPal, which has 73 million accounts in the U.S., will be promoted to Yahoo consumers, merchants and publishers as Yahoo’s payment solution.

Yahoo’s web search functionality and Yahoo site links also will be integrated into a co-branded version of the eBay toolbar, according to the companies. Yahoo and eBay also will explore developing and deploying click-to-call advertising technologies on their sites.

Yahoo and eBay will begin testing the initiatives within the next several months, with a plan to achieve full implementation in 2007, the companies said.

"Yahoo and eBay have a combined reach of more than 80% of the U.S. Internet audience, so the potential consequences of this alliance are clearly significant," said Peter Daboll, president and CEO of comScore Media Metrix. "Their partnership will create a traffic funnel between the sites that should translate into more search queries for Yahoo, more customers for eBay -- and consequently more revenue for both.”

According to comScore Media Metrix, Yahoo Sites (#1 with 128 million unique visitors) and eBay (#5 with 76 million unique visitors) both ranked among the five most trafficked Internet properties in April 2006.

The combined unduplicated visitation to the two sites was 139 million unique visitors in April, which covered 81 percent of the total U.S. Internet audience, comScore said. Yahoo (37 billion page views) and eBay (13 billion page views) combined for 50 billion page views in April.