Microsoft and eBay Swap Exposure for an Endorsement

Microsoft(MSFT) and eBay(Ebay) Monday announced a far-reaching partnership that gives Redmond an important endorsement and gives the auction site new outlets for its listings.

Starting later this year, Microsoft will offer eBay auctions on many Web sites, including MSN, and through different devices, such as Palm Pilots and cell phones. In exchange, eBay will adopt some of Microsoft's .Net technologies and is buying Windows 2000 server software.

Both companies have incentive to prop each other up. Ebay, though faring better than its tech brethren, faces a slowdown in the auction market and concerns that its valuation is too high. Microsoft needs support for .Net, its loosely defined strategy to offer software and services over the Internet. The program is key to the company's future as the PC market continues to shrink.

Ebay is the first large company to publicly back .Net, although Microsoft officials said there would be more deals announced in the next few weeks.

"It's an important endorsement of a major e-commerce company that will build on .Net, but I don't think this is large enough for us to build in higher numbers... yet," said Crowell Weedon analyst Jim Ragan, who rates Microsoft a buy. (His firm hasn't done any underwriting for the company.)

Shares of Microsoft were down $4.75, or 8.9%, to $51.94 at today's close. Ebay closed lower also, down $2.44, or 7.2%, to $31.56.

The alliance is based, in part, on a set of technologies that eBay is currently developing, called API, applications program interface, which gives software developers a standard method for writing applications that are closely linked with eBay's auction site.

Ebay's API online marketplace technology will be offered over the Web through Microsoft's .Net service. Ebay will use Microsoft Web tools, such as VisualStudio.NET, to make it easier for developers to write applications. According to Merrill Lynch analyst Michael Ramirez, "Widespread adoption of VisualStudio.NET is required for Microsoft's .NET strategy to succeed.

Through the .Net platform, eBay will be able to offer its services to consumers through a wide variety of devices, such as Palm Pilots and cell phones.

"By working with Microsoft's cutting-edge technology, we will significantly strengthen eBay's marketplace and our community's ability to trade seamlessly at any time from anywhere on the planet," said Meg Whitman, eBay's chief executive, in a written statement.

In a separate part of the deal, Microsoft will integrate eBay's auction listings into its Web sites including MSN, CarPoint auto-purchase site, bCentral small-business site, and WebTV. As an example, the companies said, MSN's CarPoint will add eBay's motors sections to its used-car listings. Microsoft's sites attracted nearly 55 million visitors, compared with eBay's 20 million visitors, according to Media Metrix December data. (Most recent data available.)

Ebay also agreed to buy computer servers running Microsoft's Windows 2000 software to power its Web site. It will also allow its users to register and sign on to its site with Microsoft's "Passport" identification service, which allows Web surfers to use one user name and passport for various e-commerce sites.

Financial terms of the deal were not disclosed.

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