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Thursday, May 25th, 2006

Yahoo and eBay Form Multifunctional Strategic Partnership

 

Yahoo and eBay have formed a strategic partnership in order to tie up a number of loose ends both firms feared losing to Google. The agreement, announced earlier today, will see the each firm provide functions and services to each other and each other’s users in areas ranging from search results, graphical advertising, online payments, the creation of a co-branded toolbar and an opportunity for both firms to explore “pay-per-call” advertising options.

According to a press release issued by eBay, the two firms will begin to introduce services and features based on the agreement, later this year. A trial and error test phase is anticipated with full implementation expected sometime in 2007. Initially, the partnership is limited to the United States.

In the area of search, Yahoo will be the exclusive third party provider of all graphical advertising and sponsored results on some eBay search results. The two firms are also exploring ways to integrate Yahoo web search results with product results drawn from the eBay search engine. In the future, eBay would like to see some of the products offered by its membership appearing in Yahoo search results.

The second part of the agreement covers the online payment system, PayPal, which eBay purchased last year. PayPal will be used by Yahoo as a means of accepting payment for its services. Yahoo will also promote PayPal to its users, subscribers and ecommerce/Yahoo Shopping clients.

The partnership will also cover the development of a co-branded toolbar. Currently, the eBay toolbar is installed on over 4-million computers. Yahoo will provide web search results and sponsored search results for complementary products on some US-based eBay searches.

Perhaps the most interesting part of the agreement addresses exploration of the pay-per-call sponsored search billing model in which advertisers are charged by the number of phone calls generated by an ad, as opposed to the number of clicks generated by an ad. Yahoo recently updated its instant messenging application Yahoo Messenger to allow users to communicate verbally as well as through text messages. Last year, eBay bought the popular VOIP start-up company Skype. Users should look for some form of integration between the two systems, allowing for both to be used to facilitate pay-per-call advertising.

Both eBay and Yahoo come out of this agreement as winners though it could be argued that eBay receives the most value of the two.

For Yahoo, the agreement offers access to a huge user market numbering in the tens of millions along with a convienient and already trusted online payment system in the form of PayPal. The agreement will also grant Yahoo access to the statistics and demographic information provided by eBay users.

For eBay, the deal offers a measure of security against the growth of Google in the online advertising and sales market, most notably through Google Base and the pending introduction of other Google ecommerce focused products such as Google Wallet. It also offers a direct line-in to eBay for users of the world’s most popular search portal.


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