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eBay Seeks 'Super-Union' to Fend Off Google

The prospect of a "super-union" between two or more of the Internet's most powerful companies was raised Friday as news emerged that eBay (EBAY) had held talks with Yahoo! (YHOO) and Microsoft (MSFT) over a possible partnership designed to thwart the advance of arch-rival Google (GOOG).

A spokesman for eBay refused to rule out the possibility of a deal, telling Times Online that the company was in regular contact with Yahoo!, Microsoft and Google.

"The reality is we work closely with all these companies. We're always talking to them," he said.

According to the Wall Street Journal, eBay's parallel sets of discussions with Yahoo! and Microsoft began in earnest late last year and were spurred by Google entering into eBay's market with the launch of an online classified advertising site.

The four companies already compete and co-operate on a number of fronts. But there is a growing feeling within the industry that Google is becoming more aggresive.

Julie Meyer, chief executive of Ariadne Capital, a technology venture capital firm, said, "Google is undertaking the biggest land grab the world has ever seen. We are seeing it exercise its market power, its cash and its brand.

"It probably would take a coalition of major players, a kind of super-union, to stop it," she added, "and I would not be surprised at all to learn of a whole host of discussions behind the scenes."

Industry observers have noted that Google, which has a cash pile of $10 billion, has recently begun to act as a venture capital firm, investing in a string of online projects and placing bets in a number of areas.

The company's entry into online voice communications last year with the launch of GoogleTalk threw down the gauntlet to Skype, the market leader in Internet telephony that was bought by eBay for up to $4.1 billion.

Google has also been hugely supportive of open-source software developers, such as the non-profit Mozilla Foundation, which compete aggressively with Microsoft, the world's largest software house.

Yahoo!, Microsoft and Google are all jockeying for position in online search, an area where Google holds a clear lead. Google has also begun a concerted drive to recruit the brightest IT engineering teams across the globe.

On Thursday, the company announced that its quarterly sales had soared past $2 billion for the first time.

Meanwhile, sites such as eBay's online auction house, the world's largest, rely on Google to drive consumers to them, a relationship that benefits Google's partners but which could leave them vulnerable to changes in policy from the search-market leader.

Rivals will also be mindful that Google, despite being founded seven years ago, has only been operating as a public company — with the huge escalation in cash resources that has involved — for less than two years.

Sources close to eBay today noted in conversations with Times Online that eBay and Microsoft already co-operate in some areas — there is a link to the eBay site from Microsoft's MSN portal homepage, for instance. These kind of tie-ups could form the basis of a more consolidated effort to fend off Google, they said.

There has been speculation that eBay could enter a formal agreement over its online advertising spending with a chosen partner and offer information to either Microsoft or Yahoo! on its massive consumer base in return.

Such an agreement could echo the one announced earlier this week by Google when it revealed partnerships with seven major IT companies in the field of enterprise search.

Included in those was a deal with Oracle (ORCL), the IT company, which recently announced its own offering to allow companies to search for digital information stored internally — a direct rival to Google's offering.

Google executives have said they believe such "co-opetition" will become more common as companies compete for revenues amid the complex web of corporate relationships that have developed in the online sector.

The Journal also raised the prospect of one side in the eBay-Yahoo!-Microsoft triangle taking an equity stake in another. Such a transaction would mirror Google's acquisition of a 5 per cent stake in AOL, principally a portal business that competes with Yahoo!, for $5 billion in December.

However, industry sources discounted that idea, noting that once completed, cross-shareholdings can be troublesome to unwind.

"I doubt these companies have a clear enough vision of where they are going to commit to that. The industry is just changing too fast," one said.

EBay already has close ties with Google in the finely interwoven online marketplace. The auction site spends heavily on Google ads.