Google Scares eBay: Report

The Wall Street Journal says it seeks to enlist Microsoft and Yahoo!.
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eBay

(EBAY) - Get Report

is looking for ways to beat back the growing competitive threat from

Google

(GOOG) - Get Report

, including a potential alliance with

Yahoo!

(YHOO)

or

Microsoft

(MSFT) - Get Report

,

The Wall Street Journal

reported, citing people familiar with the talks.

The discussions with Yahoo! and Microsoft, the two main rivals to Google in search, began last year and Google has responded with a proposal to eBay of its own, the

Journal

says. eBay, one of the largest buyers of search advertising, would increase spending with a partner and provide it access to the reams of data that it collects about its customers, according to the paper.

The

Journal

says eBay also is considering developing its own search technology. No timetable has been set for the talks, and it's likely that eBay would continue to do business with all three search engines at some level, the newspaper says. None of the companies could immediately be reached for comment on this story.

eBay is worried about Google Base, the auction giant's free classified listings services. Wall Street analysts have long argued that plans to use Base to process payments from online merchants is a threat to eBay's lucrative PayPal business. Publicly, both eBay and Google have downplayed such speculation.

Google Base highlights Wall Street's longstanding concerns about eBay's ability to compete against the search-engine giant, which yesterday reported first-quarter earnings that blew away analysts' estimates. Earlier this week, eBay reported an in-line quarter and surprised investors by not boosting guidance for the year. Shares of eBay, which fell because of the lackluster guidance, rose 23 cents to $37 in early trading.

"eBay is trying do whatever it can to equalize the playing field," says Jim Friedland, an analyst with Cowen & Co., who rates eBay as neutral and Google as outperform, in an interview. "Google is becoming the dominant force on the Web."

The auction giant gets about half of its traffic from some form of online advertising, making it very dependent on Google.

"If eBay reduced its spending on Google, revenue at eBay would take a hit," he says. "If eBay stopped spending on Google, the revenue decline would be dramatic and it would be disastrous for the stock. For better or for worse, eBay needs to continue to spend and grow its relationship with Google."

Google will no doubt work hard to persuade eBay from joining forces with its competitors. The Internet auction giant is one of the largest buyers of search advertising, spending most of its $400 million marketing budget with Google, according to the

Journal

.