Within the next few months the two companies will begin to test a variety of services, including integrating more eBay products into Yahoo search results.
Yahoo will be the exclusive provider of graphical ads within eBay.com and will offer sponsored search results on some eBay search-results pages. The companies have agreed to increase the relevancy of Yahoo search results for eBay.com; Yahoo will provide its search users with more up-to-date eBay listings.
The companies will also explore development of a click-to-call advertising technology for users of Yahoo Messenger with Voice and Skype. Click-to-call advertising connects users and advertisers over the phone, either by clicking on an ad and immediately speaking with a customer-service representative via voice-over-Internet protocol or by a third-party auto-dialing the user and advertiser and connecting the two. The service tracks online visitors' moves into a phone sales channel and has become more popular with search advertisers.
The deal also includes PayPal becoming the exclusive third-party online wallet for Yahoo, which the company will promote to its customers, publishers and merchants. The companies will also launch a co-branded toolbar for Yahoo's home, mail and My Yahoo pages, which allows customers to link to eBay pages.
Dan Rosensweig, Yahoo's chief operating officer, called eBay "one of the largest untapped communities on the Web, which is really a very fertile environment for advertising."
He predicts this deal will increase marketing dollars spent online.
Greasing the system
"Anytime you can take friction out of the system, provide great audiences and the right environment for advertising, that has the potential to accelerate the amount of advertising that goes here," he said. "Because the math just doesn't work -- 16% of time [spent on Internet] vs. 4% of ad dollars [spent on the Internet]. Those numbers have to get closer together."
Mr. Rosensweig also addressed the surge in online video and Google's announcement earlier in the week that it would begin to offer online video ads anywhere it sells graphical ads.
"We always appreciate when others try to add services that Yahoo has," he said. "We show more video on Yahoo than any other site in the world. ... We've been providing video ads on Yahoo both in-stream and we think there's an opportunity for increased video advertising on the network adjacent to content."
Leveraging the Net
The company's video offerings are bolstered by the fact that more vendors and advertisers are looking to leverage the Internet, he said. Yahoo has partnered with CBS to broadcast "60 Minutes" and NBC Universal's USA Network, which is premiering "4400" on Yahoo. The deals vary -- in some cases Yahoo licenses the content and sells advertising around it, in other cases the two companies may share ad revenue and in still other cases Yahoo acts as a pure distribution vehicle.
Earlier this week JP Morgan issued a report that said of all the speculated Internet mergers, "a partnership or merger between eBay and Yahoo is the most strategically feasible. ... [It] could create a company that leads the market in auctions, graphical advertising, payments, VoIP and that would be the second largest search player behind Google. Additionally, we believe the potential combination between Skype and Yahoo!'s communications products (email, IM and VoIP) would make the company the leader in online communications, with more reach and user activity than both Google and MSN."
Keyword pricing impact
It also points out that Yahoo could leverage eBay's large base of small and medium businesses to increase its paid-search business, increasing coverage, relevance and, potentially, pricing, because having more keyword bidders leads to high prices per click. An alliance could also benefit large marketers that could buy Yahoo ads on eBay's targeted pages, such as Nike buying branded ads on a running-shoe auction.
The eBay-Yahoo partnership was announced early this morning and boosted both companies' share prices, eBay by 8.48% to $32.76 and Yahoo by 4.28% to $33.15. Google's share price dropped 1.2% to $376.80 on the news.