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Monday, August 28, 2006

Ebay And Google: Friends Or Foes?

Stocks: (EBAY)(GOOG)

Ebay was rightly concerned when Google launched a direct competitor to PayPal, Ebay's online payment system. A look at Ebay's 10-Q shows that PayPal is the auction company's fastest growing division.

But, Google and Ebay will now cooperate on a program that should bring significant revenue to both. First, and perhaps most important, Google will supply text ads to Ebay's auction sites overseas. This could certainly bring both companies tens of millions of dollars each year given the audience and page-views that Ebay has. The company now claims to have over 200 million registered users. EBay's international business is also growing faster than its domestic auction business.

Less clear is how the second componet of the partnership will work. The two companies said they will cooperate on a VoIP "click-to-call" feature so that buyers can talk to sellers and advertisers. It is unclear whether this is something that buyers want. If its is, Ebay's Skype and PayPal divisions could be helped, which is odd since Google has both VoIP-like and online payment businesses of its own.

What is clear is that this is one of the partially-baked deals that the large internent and "content" companies are forming hoping that some aspects of the deals will "stick to the wall." Whether that will happen here, beyong the component of text ads at Ebay auction sites, which is almost certainly a winner, is unclear.

Ebay's stock may rise on the news, but that could be premature.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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