Yahoo / eBay

Yahoo Inc. and Web auctioneer eBay Inc. formed a U.S. advertising and e-commerce alliance seen as a broad challenge by two of the biggest Internet companies against their main rivals, Google Inc. and Microsoft Corp.

While short of a merger, one eBay executive on Thursday said cooperation could deepen over time. The move reflects the growing need for the biggest Internet companies to consolidate in the face of a mounting four-way competition and slowing growth.

EBay shares soared more than 12 percent -- adding more than $5 billion to the company's market capitalization -- and Yahoo stock rose more than 3 percent on news of the deal, which had been expected by some on Wall Street and Silicon Valley, Reuters reported earlier this week.

Yahoo, the world's largest Internet media company, will become the exclusive provider of online banners and other graphic advertising on eBay, and provide some search services within eBay's site to connect buyers to items they seek.

In return, Yahoo will promote PayPal, EBay's popular online payment system used by 73 million U.S. consumers, as a way for Yahoo's hundreds of thousands of affiliated Web sites and small business owners to conduct transactions online.

Executives said the alliance will not have a material impact on 2006 results for either company but could help fuel growth of the respective businesses next year as the ties become embedded in one another's products and services.

The agreed alliance is a response to inroads by Google's popular Web search system in setting the terms of where consumers go to shop, entertain or inform themselves. This competitive dynamic is forcing every major Internet player to consider joining forces instead of trying to go it alone.

EBay and Yahoo officials said the deal builds on cultural similarities that bind two of Silicon Valley's Web pioneers.

The current partnerships are centered on the United States. Depending on how these initiatives work, further relationships could develop internationally, Donahoe said.

In addition to the search and PayPal aspects of the deal, Yahoo Web search features also will be offered through a co-branded version of a browser toolbar for eBay users, and the companies said they would explore developing "click-to-call" Internet advertising that could take advantage of eBay's Skype Web telephone service or Yahoo's own version of Web-calling.

For Wall Street analysts, the word of the day was "monetization," which Internet industry insiders use as shorthand for finding ways to make more money out of a property or asset, such as placing more ads on a Web page.

Shares of eBay jumped $3.68, or 12.19 percent, to $33.88 on Nasdaq, while Yahoo closed up $1.13, or 3.55 percent, to $32.92, also on Nasdaq.

Shares of Google rose $1.74 or 0.46 percent to $382.99 and Microsoft closed up 24 cents or slightly more than 1 percent at $23.74, both on Nasdaq.

(c) Reuters