By: Deepti Jain

Yahoo and eBay have formed a commercial partnership which the two companies feel will build their position in their respected online shopping, payment and communications markets against recent moves by Microsoft’s Live Windows Shopping and Google Base. This, ladies and gentlemen, is MASSIVE.

The partnership includes integration of PayPal into the Yahoo Web Services and payment options (think Yahoo Stores), a co-branded toolbar, and partnering for click-to-call marketing. Here is the official announcement from Yahoo & eBay:

Yahoo! Inc. and eBay Inc. today announced a multi-year strategic partnership designed to mutually benefit both companies by better serving their user, merchant, and advertising communities in the U.S. The agreement consists of four major components in the areas of search and graphical advertising, online payments, a co-branded toolbar, and the opportunity to explore “click-to-call” functionality.

“Our consumers will benefit from the combination of Yahoo! and eBay’s leading technology and services, providing them with one of the best online experiences,” said Terry Semel, chairman and chief executive officer, Yahoo! Inc. “Yahoo! holds a leadership position in all forms of online advertising. This partnership with eBay provides us with a great opportunity to further extend our sponsored search and graphical advertising reach to one of the largest and most active communities on the Web.”

“We are thrilled to be working more closely with Yahoo! and we think this agreement represents a great opportunity to benefit our communities and grow our businesses,” said Meg Whitman, president and chief executive officer, eBay Inc. “Yahoo! offers an engaged online audience, which drives massive traffic through its rich consumer content and premium services. Working together, we can create more exposure for our properties, which in turn makes them more valuable to our users.”

Yahoo! and eBay will begin to roll out the initiatives outlined in the agreement this year. Further details of the agreement include:

With the Yahoo-Paypal Checkout Program:

“a blue shopping cart icon appears next to your ad in Yahoo! search results. This can help your ad stand out, and let customers know you offer PayPal Express Checkout, from the brand known for security.”

Search and Advertising:
Yahoo! will become the exclusive third-party provider of all graphical advertisements throughout the eBay.com site, and sponsored search for complementary products on some eBay.com search results pages in the U.S. Yahoo! already provides a broad and deep array of essential services to an extremely engaged audience around the world. Through this partnership, Yahoo! can expand upon these strengths with the addition of eBay.com’s high quality online inventory, offering advertising clients an optimal marketing experience.

Yahoo! and eBay have also agreed to collaborate on ways to increase the quality and comprehensiveness of Yahoo! Web search results for eBay.com and to provide Yahoo! search users with more up-to-date listings from the millions of products on the eBay.com marketplace, with the goal to create a better search experience by enabling shoppers to more easily find relevant eBay listings.

Integrated Commerce Payment System:
Yahoo! has selected PayPal to become the exclusive third-party provider of its online wallet — allowing customers to pay for Yahoo! services from bank accounts, credit cards or balances associated with their PayPal accounts. PayPal, which has 73 million accounts in the U.S., also will be deeply integrated on the Yahoo! site and will receive prominent positioning when users purchase Yahoo! services across its network. This offering will provide Yahoo! consumers with additional online payment choices and the option to use PayPal across the entire Yahoo! network.

PayPal will be integrated and promoted as Yahoo’s payment solution to Yahoo’s merchants and publishers, which includes the Yahoo! Publisher Network, Yahoo! Search Marketing, Yahoo! Merchant Solutions and other small business services.

Co-Branded eBay Toolbar:
Yahoo! Web search functionality and Yahoo! site links, including the Yahoo! Home Page, Yahoo! Mail and My Yahoo!, will be integrated into a co-branded version of the eBay toolbar. The eBay toolbar has been downloaded by more than four million eBay users to date, and lets consumers quickly link to preferred eBay locations while offering enhanced online protection. This new co-branded toolbar will make it even easier for consumers to take advantage of both companies’ offerings to quickly access information wherever they are on the Web.

“Click-to-Call” Advertising Functionality:
Yahoo! and eBay will explore developing and deploying “click-to-call” advertising technologies on their respective Websites in the U.S., accessible by users of both Yahoo! Messenger with Voice and Skype. “Click-to-call” is a product feature link included inside an advertisement that consumers can use to directly call that advertiser to pursue a transaction.

To conclude, The PayPal checkout program is aimed providing merchants and advertisers a streamlined transaction checkout process and improved conversion of window shoppers into buyers among active Yahoo shoppers.

Yahoo, Ebay/