Yahoo Inc. and eBay Inc.'s U.S. partnership could be the first step towards a global alliance that would be far more rewarding than a solely domestic agreement, analysts said on Thursday.
Yahoo's strength and eBay's weakness in Asia, and vice versa in Europe, meant the world's biggest Internet media company and the top Web auctioneer had much to gain from combining forces overseas.
Yahoo on Thursday said it will be the exclusive provider of online banners and other graphic advertising at eBay, and in return promote PayPal, eBay's popular online payment system.
"If they're going to do this in the U.S. they'll probably do it internationally as well," said Sasa Zorovic, an analyst at Oppenheimer & Co. "They would both benefit from leveraging one another's strengths."
Thursday's move stops short of an outright merger but eBay left room for the possibility of deeper ties.
"We will see," John Donahoe, president of eBay's marketplaces unit, told Reuters in an interview. "We think there is so much opportunity right in front of us. That's where our focus will be in the next six to 12 months."
With Google Inc. winning market share in the maturing Internet search business, there is a growing need for competitors to consolidate their operations.
Analysts said a key focus was China, where Yahoo, eBay, Google and Microsoft Corp.'s MSN have been vying for a slice of the world's second largest market with more than 100 million Web surfers.
While Yahoo has made strong inroads into Asia, partly due to local partnerships, eBay has had a tougher time.
Ebay arrived late into some Asian markets, such as Japan, where its brand recognition was low, analysts said. Europe, however, contributes 80 percent of eBay's international revenue and sales in the region grew 32 percent in the first quarter.
Some analysts said Yahoo may face hurdles cooperating with eBay in Asia because of Yahoo's relationships with local partners, such as its 40 percent stake in China's Alibaba.com and its Japanese joint venture, Yahoo Japan Corp., with Softbank Corp..
Yahoo's Asian partners now compete with eBay and would have to sign on to any deal, or cut their ties. Alibaba.com boasts more than 70 percent of the business-to-business auction market in China, where eBay has struggled to find its footing.
"They don't own Alibaba or Yahoo Japan outright .... They'll have to sell this to their partnerships," said Denise Garcia, analyst at WR Hambrecht & Co.
But Garcia and other analysts said local partners may delay but probably not prevent an overseas deal between Yahoo and eBay. Silicon Valley companies often start pacts in the U.S. market before expanding them overseas.
"The approach generally has been for most of these companies to see how it works at home before broadening it internationally," Garcia said.
Many analysts said eBay could use a partnership with Yahoo to reenter Japan after a failed attempt in 1999.
"Japan is obviously a market which is of fair interest to eBay, in which Yahoo has a stronghold," said Oppenheimer analyst Sasa Zorovic.
Despite its weakness in Asia, eBay has enjoyed strong sales in Europe. EBay's Skype unit, which offers phone calls over the Internet, is also popular in the continent.
EBay International President Matt Bannick said earlier this month that Europe may eventually overtake the United States as its biggest market.
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