AOL and eBay Link Up in $75 Million Deal

Shares of online auction house eBay (Nasdaq: EBAY) and America Online (NYSE: AOL) stormed ahead in early trading today after the companies announced a strategic partnership. Under the terms of the four-year deal, eBay, a rumored acquisition target of AOL, will pay AOL $75 million (US$) in exchange for promotion on AOL’s network of sites and services.

eBay will be featured on AOL.com, CompuServe, Netscape’s Netcenter, online city guide Digital City, and online communication network ICQ, which includes chat and message services.

AOL, which has 16 million subscribers (not counting CompuServe’s two million), and eBay will create customized, co-branded sites across AOL’s network. The sites will include auction listings, feedback, ratings of sellers, message boards and other select content from eBay.

“By providing AOL users with quicker and more convenient ways to conduct person-to-person trading on eBay, we are continuing to set the standard as the leading personal e-commerce destination,” said Meg Whitman, president and CEO of eBay. “This alliance not only provides us significant customer acquisition opportunities, it serves as an important brand investment.”

Many Benefits for AOL

AOL will receive all advertising revenues generated by the co-branded sites and will also be able to sell advertising on eBay.com. eBay will also promote AOL on its Web site, and in the future, will allow users to download ICQ’s software on eBay.com.

The deal is also just the latest sign of the value of real estate on AOL, which can now be selective when it evaluates the numerous sites that are offering it money in exchange for promotion.

eBay Files for Public Offering

eBay stock was up more than 10 percent in early trading today, rising more than 14-5/8 to 160, while AOL stock was up nearly eight percent, climbing nine points to 126-1/8.

In other stock-related news, eBay also filed for a proposed public offering of 6,500,000 shares of common stock. The company plans to sell 4,250,000 of those shares, with 2,250,000 shares sold by other stockholders. eBay could be making this move to raise capital in order to expand its business, as well as pay AOL.

eBay had 2.1 million registered users by the end of last year, and was the third stickiest site (meaning the busiest in terms of usage time) on the Web in February, according to Media Metrix. The deal with AOL means more growth, but it could also signal the end of any plans AOL might have had to buy eBay, at least in the near future.