Yahoo The Winner In EBay Deal

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Yahoo and eBay announced a multi-year partnership to the general applause of Wall Street, but the deal may be more one-sided than it appears. A message from eBay (EBAY) North America president Bill Cobb kicked the technology media into high gear. Yahoo (YHOO) and eBay would partner in a multi-year deal many are calling an alliance against Google as well as Microsoft. Yahoo appears to come out well ahead in the arrangement. As part of the deal, Yahoo gains the opportunity to display its profitable CPM advertising to eBay visitors. All graphical ads to appear on eBay will be delivered by Yahoo. The Nielsen//NetRatings report for April 2006 shows Yahoo reigns atop the top 10 brands visited by home and work Internet users. Yahoo's 105 million visitors have helped it become the dominant display advertising company on the web. This deal with eBay adds another potential 53 million viewers, eBay's April 2006 unique audience, to Yahoo's display advertising reach. The report also showed that eBay users spend an average time per person of one hour, 53 minutes on the site. Much has also been made of PayPal's part of the deal. Ebay's payment processing service will be Yahoo's payment processor, and marketed to Yahoo's merchants and publishers. Since eBay garners a fee for each transaction processed, an uptick in payments running through PayPal will be beneficial. But that part of the agreement may be just as important to Yahoo, though not so much as a 50 percent increase to its display ad-viewing audience. If Yahoo has been paying a third-party payment processor to do its credit card processing, the deal with eBay has to be one that provides Yahoo some cost savings per transaction. I thought Yahoo might go this route, but not with eBay as a partner. When Yahoo Japan disclosed it was in talks in that country to set up a joint online banking venture, I'd speculated Yahoo would look into a banking partnership here. Yahoo and eBay looked like they had overlap in the e-commerce businesses to me, but the appeal of PayPal's well-known name and adoption by millions of customers does make sense here. After implementation, it won't be surprising to see Yahoo's expenses move down when a following earnings announcement is made. Wal-Mart owns the global retail market, yet has been pursuing an institutional bank charter so it can do credit card processing itself rather than paying for the service. That indicates the significance of the expense associated with payment processing. Unfortunately, full details of that part of the deal are not available. They would make for interesting reading if they were. News of the deal was enough to push shares of both companies upward after the announcement.

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http://www.internetfinancialnews.com/insiderreports/featured/ifn-2-20060526YahooTheWinnerIneBayDeal.html

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