Yahoo and eBay Ink Multi-Year Pact

Internet giants Yahoo and eBay have formed a multi-year partnership to combine search, advertising, and online payments, while exploring other technologies.

Two giants of the Internet world are getting increasingly snuggly in their bids to compete with the likes of Google and Microsoft: today Yahoo and eBay announced a multi-year partnership to combine aspects of both companies offerings to expand their U.S. business operations. The companies plan to begin rolling out initiatives this year, with full implementation to come in 2007.

Sound vague enough? Well, there’s actually meat on these bones. The agreement specifically covers four areas: search and graphical advertising (where Yahoo holds the upper hand), online payments (where eBay subsidiary PayPal holds the upper hand), a co-branded toolbar, and the opportunity to explore “click-to-call” functionality via eBay’s shiny new VoIP unit Skype.

On the advertising front, Yahoo will exclusively provide third-party ads on the heavily trafficked eBay site, along with sponsored search links on some eBay results pages. The two companies also plan to work on “increasing the quality and comprehensiveness” of Yahoo’s Web search results for eBay; we’re not sure what that means, but we suspect we’ll be seeing most eBay listings and links appearing next to Yahoo search results (and they’ll probably be even less tangentially related to the original search than ever before). A natural place for Yahoo to more tightly integrate eBay offerings would be in Yahoo Shopping.

On the online payments front, Yahoo will adopt PayPal as the exclusive third-party provider of its online wallet, enabling customers to pay for Yahoo services using PayPal (and, thereby, their bank accounts, credit cards, etc.). Yahoo also plans to deeply integrate PayPal into its sites and give PayPal prominent positioning when users purchase or renew Yahoo services. PayPal will also be promoted as Yahoo’s preferred payment solution for merchants and publishers working with Yahoo, via programs like the Yahoo Publisher Network, Yahoo Search Marketing, and Yahoo Merchant Solutions.

The companies plan to run with a co-branded eBay Toolbar, integrating Yahoo searching, home page, Yahoo Mail, and the My Yahoo custom page service into eBay’s existing auction-centric toolbar.

Perhaps more interesting is the company’s agreement to “explore” click-to-call advertising ideas on their U.S. Web sites, rolling in Yahoo Messenger and Skype: the idea is that users could click an advertisement for a product or service and be connected directly to that advertiser to “pursue a transaction.”

(Or, you know, ask for “Huggme