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When a story in the New York Post reported on behind the door parleys between Microsoft and eBay, hinting at the possible acquisition of the auction site by Microsoft, the industry went into a tizzy. Over the fortnight, numerous analysts examined the case from every angle, highlighting the pros and cons of such a move.

The paper went on to state that the talks were in the advanced stage but subsequently 'cooled' off due to concerns relating to Microsoft's anti-trust issue. Subsequently, eBay forged a strategic tie-up with Microsoft's rival, Yahoo.

Bill Gates was keen to complete a bid for eBay, as he believed it could be a 'Google-killer' strategy. Yet, the world's richest man for the past 12 consecutive years, having a net worth of around $50 bn, was unable to realise his plans. The anti-trust cases filed against Microsoft in the US and other European countries played a dampner.

However, if rumor-mills are to be believed, Microsoft is still keen to court eBay, the tie-up with Yahoo not withstanding, as it believes the deal has the  potential of trumping its arch rival in the cyberspace, namely Google.

eBay's Auction?
Suddenly eBay has transformed into a proverbial Cinderella, who every one wants to tango with. Pierre Omidyar set-up eBay as part of his larger personal website in 1995. The first item sold on eBay was Omidyar's broken laser pointer for a few dollars. Lately, eBay has enabled the sale of items such as a World War II submarine and the town of Bridgeville, California. It has gone on to become the largest online auction company, way ahead of rivals Amazon and Yahoo Auctions, with a market cap of over $40 bn.

In 2000, during the heady days of Internet boom, CNBC had reported that Yahoo and eBay were close to clinching a 50/50 merger deal. It did not materialize then.

eBay's attractiveness lies in the purchases it made in 2002 (Paypal for $1.5 bn) and in 2005 (Skype for $2.6 bn). Paypal's purchase brought millions of its users to eBay. Similarly, Skype, a popular voice over Internet protocol (VoIP) company, added thousands of its users to the company's database. Skype also lets eBay dabble into click-to-call advertising, an industry waiting to boom in the time to come.

More than Eyeballs
While the first Internet boom witnessed the war for eyeballs, the current war is for something more than that. It's for advertising dollars. With a market capitalization of around $117 bn as of late 2005, Google is the largest Internet search company in the world. Google's market cap might not be much when compared to Microsoft's $232 bn. But Google has done this in less than a decade while the giant from Redmond has been around for over three decades now. No wonder Microsoft is perturbed.

Google leads the pack with an annual revenue of around $7 bn from its Internet business, Yahoo comes second and Microsoft's MSN comes a distant third. And this is what hurts Microsoft the most. In spite of its numerous attempts it has not been able to make a real headway in the cyber space.

The last face-off between Microsoft and Google went in favor of the latter. In December 2005, America Online (Time Warner) dumped Microsoft in favor of Google for a tie-up. Google reportedly paid $1 bn for a 5% stake in AOL.

Reportedly, Microsoft was also mulling the purchase of Yahoo. But the synergies just didn't match as both companies compete at different plateaus, rendering the idea redundant.

Buy to Win
The three players have been making the battle hot, buying up companies and technologies at high prices. For instance, Google acquired Pyra Labs owner of Blogger, Picassa, Keyhole, and has bought over numerous companies that specialize in niche areas such as mobile e-mail software development.

Meanwhile, Yahoo has made a few high profile purchases such as Geocities, Broadcast.com, Flickr, and Dialpad. These purchases have made Yahoo a specialist provider of content on the Internet, right from news to videos.

Microsoft has steadily increased its reach in the Internet domain by purchasing companies such as MongoMusic, Driveoff.com, NCompass Labs, and Lookout Software. Microsoft has really not made a move that would effectively challenge Google's dominion.

Two to Tango
In a joint statement, Yahoo and eBay    stated that they would combine forces in the areas of advertising, merchant payment, Web search, Internet-based telephony and browser toolbars. While Yahoo is looking at ways to triumph over Google, for eBay it is more of a defensive measure.

eBay is duly bothered about two of Google's ventures. The first one attempts at implementing an alternative online payment mechanism that rivals Paypal, and has been dubbed as Google Wallet. Google is also looking at venturing in the classified advertisement space reportedly named as Google Base, directly in confrontation to eBay's Craiglist. eBay also does not want to antagonize Google, as a lot of traffic to the auction site is routed through Google.

The World and Us
The synergies between Yahoo and eBay seem to be perfect. Not only because of the difference in their specialization, online trading for eBay and Internet content for Yahoo, geography is a factor too. eBay has been quite popular in Europe, while Yahoo is a force to reckon with in the US and Asia Pacific market. Thus, the companies complement each other in that sphere as well.

India is a unique market for all these players. Google leads the pack in terms of search traffic, Yahoo is also quite popular and so is eBay. In 2004, eBay made a grand entry into the Indian market with the purchase of Bazee.com for $50 mn. Recently, Terry Samel, CEO, Yahoo, made a discreet visit to India, reportedly to study the case for a high-profile acquisition. Microsoft is also trying to make the right moves, launching MSN's version in Hindi and other Indian languages. Thus, all the players have a significant share in Indian market.

Gates's Gamble
So will eBay walk down the aisle with Microsoft? The possibility is on, as Google's share gains are coaxing other competitors to explore strategic alliances. Terry Samel recently admitted that Microsoft had attempted, unsuccessfully, to buy a slice of Yahoo's search business in the past. If Microsoft were to purchase eBay, it would lead to a kind of alliance with Yahoo as well, now that Yahoo and eBay are partners.

The focus could shift on to eBay's rival now. Amazon could be the next big catch for the companies involved.

Shashwat Chaturvedi
mail@dqindia.com

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