Web Deals Show Shifts in Alliances
Two high-tech alliances announced Thursday reveal the growing reliance on partnerships to capture the loyalty and money of Web surfers as the Internet industry charts its second decade.
Yahoo Inc. and EBay Inc. said they would team up on a broad partnership for Internet advertising and payments to parry a growing threat from Google Inc.
A few hours later, Google said it had struck a deal with Dell Inc. to have software installed on millions of new computers, encroaching on the PC real estate long dominated by Microsoft Corp.
So far, Microsoft has been left in the cold, rebuffed by Time Warner Inc.’s AOL and now Yahoo.
Analysts said the deals punctuated the end of go-go growth for the first generation of online giants. . As the winners are being established in advertising, search, e-commerce and other categories, the biggest players are turning to former -- and potentially future -- competitors for a boost.
“You can’t be great at everything,” said Standard & Poor’s equity analyst Scott Kessler. “The Internet is unique because things change so quickly, and upstarts can really make their mark more significantly than in any other industry. There are pressures to take these types of actions.”
EBay shares soared $3.68, or 12%, to $33.88, on news of the deal, while Yahoo gained $1.13, or 3.6%, to $32.92.
Google’s stock traded down in the morning, then recovered on the Dell news, closing up $1.74 to $382.99. Dell climbed 12 cents to $24.30.
“We will continue to see these kinds of alliances forming as the Internet space evolves and matures,” Microsoft spokesman Vivek Varma said. “Microsoft has been very clear about the investments we will make in this area. We are going to push forward aggressively in the areas we have outlined. And we will also continue to partner with and find additional ways to work with both EBay and Yahoo.”
Yahoo and EBay are teaming up to tap the booming market for online advertising. Yahoo will sell display and search-related ads for placement on EBay’s websites, which attract 60 million U.S. visitors a month. Already the leading seller of display ads, Yahoo will have 44% more Web pages to pitch to advertisers, according to Nielsen/NetRatings.
The companies will share the ad revenue.
New sources of revenue are enticing to the online auctioneer, which has only dabbled with selling ads on its pages. But EBay is going to have to make sure sellers don’t complain that their listings are being overshadowed by the ads, especially those tied to searches, said Nielsen/NetRatings analyst Heather Dougherty.
“The EBay marketplace is fairly vocal about change,” Dougherty said. “They’re going to have to tread carefully to see what the group will accept.”
Yahoo also agreed to widely promote EBay’s online payment service, PayPal. In addition, the two plan to create a co-branded toolbar for Internet browsers and collaborate on an emerging form of advertising called pay-per-call, in which consumers can click on ads to place Internet calls to businesses.
Rumors of a tie-up between Yahoo and EBay have circulated for months. In fact their flirtation goes back at least to 1998, when Yahoo almost acquired the Internet auctioneer, which was then a start-up.
“The potential for this kind of a hook-up, whether a merger or a partnership, has been out there for the better part of the Internet revolution,” Kessler said.
Nearly a decade later, the landscape has changed dramatically. Back then, EBay didn’t own PayPal or Internet calling service Skype. And Yahoo didn’t have its own search engine.
“A lot of the components of the deal are combining opportunities to enhance our growth in assets that we have each built, grown or acquired in the last few years,” Yahoo Chief Financial Officer Susan Decker said.
One huge factor: Google, which is widening its lead over Yahoo in searches even as it expands onto EBay’s turf with services such as Google Base, a classified-ad marketplace, and a fledgling payment system.
“Essentially, the two companies are opting to focus on their own core strengths and cooperate against a common adversary rather than compete against each other,” UBS Investment Research analyst Ben Schachter wrote in a report.
EBay President John Donahoe denied that Google’s growing power was an influence in the decision to partner with Yahoo.
“Not at all,” he said. “Google is an important business partner and will continue to be one.”
Said a Google spokesman: “EBay is a valued partner and has been for years. We expect our partnership with them to grow as we find new ways to work together.”
Google also found a partner Thursday, when it announced a deal to buy important real estate on the Dell desktop. The companies said Google software such as its desktop search program and browser toolbar would be loaded on all Dell PCs sold to consumers and small and medium-sized businesses.
Additionally, the Internet Explorer browser on those PCs will feature a home page co-branded by Dell and Google as well as a search box that uses Google’s search engine as the default choice.
A Dell spokesman would not say how many PCs the deal covers. The computer maker sold 37 million last year, according to research firm IDC.
Google paid an undisclosed fee for the placement in an effort to give its products an edge.
“All manufacturers are looking beyond just Microsoft to add value from alternate software,” said Ben Bajarin, an analyst with technology consulting firm Creative Strategies.
“When you look at the relationship, for Dell they’re saying, ‘We believe that Google has equal if not better offerings than others.’ ”
The two deals illustrate how quickly alliances can shift.
During its antitrust legal battles, Microsoft counted Dell as a strong ally. Now the computer maker is teaming with Google, Microsoft’s search nemesis.
Yahoo and Microsoft last year partnered against AOL to make their instant messaging systems work together, but Microsoft was recently snubbed in its offer to buy a stake in Yahoo’s search business.
