Internet powerhouses Yahoo Inc and eBay Inc are joining forces in an alliance that further defines the battle lines in an online brawl with rivals Google Inc, Microsoft Corp and AOL.
Under the multiyear partnership announced on Thursday, Yahoo and eBay will draw upon each other's strengths in online advertising, payments and communications so they can connect with even more Web surfers than they already do.
Shares of both companies jumped on the news, reflecting investor expectations that the deal will open up even more moneymaking opportunities for two of the Internet's oldest and most successful businesses.
Sunnyvale, California-based Yahoo operates the world's most trafficked Web site with 402 million unique users and ranks second in the lucrative search advertising market behind Google. It earned US$1.9 billion on revenue of US$5.3 billion last year, primarily through online ads.
San Jose, California-based eBay is the e-commerce leader, with nearly 200 million users of online auctions and another 73 million US accountholders of its payment service, PayPal. It earned US$1.1 billion on revenue of US$4.6 billion last year, mostly by taking a slice of the auction sales on its site.
Nearly 113 million people in the US visited Yahoo or eBay or both destinations last month, according to Nielsen/NetRatings Inc.
Thursday's announcement followed several weeks of rampant Wall Street speculation about the mating dance among the Internet's heavyweights. At one point, there was even talk that Microsoft wanted to buy Yahoo.
Although it's not expected to have a financial impact until next year, the deal between Yahoo and eBay seems likely to shake up the competitive landscape.
Coupled with Google's recent US$1 billion investment in Time Warner Inc's AOL, the Yahoo-eBay partnership also figures to intensify the pressure on Microsoft to find an ally as it tries to become a more formidable player in Internet advertising.
Industry analysts on Thursday identified Amazon.com Inc, the Internet's top retailer, and MySpace.com, an increasingly popular teen hangout owned by News Corp, as the most logical candidates for a Microsoft alliance.
Unlike the Google-AOL deal, Yahoo and eBay aren't swapping any money. Instead, they are pooling together their resources in an effort to boost their revenue beginning next year -- a prospect that provided a lift to their recently slumping stocks.
EBay shares surged US$3.68, or 12 percent, to close at US$33.88 on the NASDAQ Stock Market, where Yahoo's shares rose US$1.13, or 3.6 percent, to finish at US$32.92.
"This is a great deal for eBay in particular," Standard & Poor's analyst Scott Kessler said.
In a Thursday research report, J.P. Morgan analyst Imran Khan predicted the deal will increase eBay's revenue by US$350 million next year and boost Yahoo's by US$150 million.
Neither Yahoo nor eBay projected how their alliance might affect their respective financial outlooks.
Under their partnership, Yahoo will become the exclusive provider of display advertising throughout eBay's Web site and will add some search-generated ads as well.
Although eBay has done relatively little advertising so far, its site has the potential to become a major marketing magnet with 60 million unique US visitors last month, according to comScore Media Metrix.
In another new twist, Yahoo's brand and search engine will be blended into an eBay Web browser toolbar that has been downloaded by 4 million users so far.