Google and Ebay forge alliance

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Google and Ebay announced a ground-breaking partnership on Monday that links the fortunes of the online giants at a time when their strategies had threatened to put them increasingly on a collision course.

The alliance, which echoes a deal reached in May between Yahoo! and Ebay, will further isolate Microsoft at a time when the software developer has sought partnerships of its own to accelerate its internet initiatives.

By creating a more complex network of dependencies between the leading online companies, the deal could also serve to dampen speculation about mergers in the industry that has been rife in recent months.

Ebay said it had given Google an exclusive contract to supply text-based advertising for its websites outside the US, echoing its earlier agreement to carry advertising from Yahoo in its home market. Also, the companies announced a non-exclusive worldwide “click-to-call” advertising agreement under which they will carry their respective voice services – Ebay’s Skype and Google Talk – on each other’s shopping and search pages. Click-to-call adverts create an online voice connection between a web user and advertiser.

Concern that Google would expand into online commerce and payments has cast a shadow over Ebay recently and is frequently mentioned on Wall Street as one of the biggest reasons for underperformance in the online auction company’s shares over the past 18 months. The threat from Google was also seen as one of the main reasons for Ebay’s alliance with Yahoo.

Eric Schmidt, chief executive officer of Google, said the latest alliance “underscores how much we value Ebay as a partner”.

The two companies already have one close tie, in that Ebay, alongside Amazon.com, is thought to be one of the two biggest buyers of keyword advertising on Google’s search engine.

Ebay’s deal with Google stops short of its Yahoo relationship in at least two significant ways. While Yahoo is to supply display as well as text advertising to Ebay, Google is not in the display business, though it has said it plans to enter it at some stage. Also, Yahoo has agreed to carry PayPal, Ebay’s online payment service, on its sites, while Google recently launched its own payment service.

The agreement to supply ads to Ebay’s international sites is the latest in a string of important partnerships for Google, following similar deals with AOL and MySpace.

Those deals have been won ahead of Microsoft, which is looking to win wider distribution for its own online advertising service, and which sealed an alliance with Facebook, a social networking site, last week.

Ebay’s share price was up 3 per cent on Monday morning after the official announcement, while Google were up 1 per cent.

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