In a strategic alliance announced yesterday, eBay gets behind Microsoft's new .NET initiative and will see its commerce engine and auction marketplace integrated into the software company's massive network of sites. The deal will also open eBay's API, or application program interface, to millions of Microsoft developers.
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What is the sound of two giants scratching each other's backs? It must be like fingers on a chalkboard for some investors. eBay (Nasdaq: EBAY) and Microsoft (Nasdaq: MSFT) teamed up in a strategic alliance yesterday that should benefit both companies, yet both underperformed even the sinking Nasdaq during the session. The agreement calls for eBay to incorporate Microsoft's new .NET (pronounced "dot-net") technology into its own API (Application Program Interface), and to use Windows 2000 Server for all of its front-end servers. In return, Microsoft will incorporate the eBay marketplace into most of its web properties, including MSN, Carpoint, bCentral, and WebTV. Although it sounds complicated, it's really not. eBay launched its API program in November in order to allow other companies to incorporate its commerce technology into their own businesses. Using the .NET standard will open eBay's platform to the four million or so Microsoft developers worldwide. As eBay CEO Meg Whitman says, the .NET relationship "turbocharges" eBay's API program. In a joint conference call with Microsoft CEO Steve Ballmer, Whitman provided an example: "If you run a content site for motorcycles," she said, "you could import all the eBay motorcycle auctions onto your site, so eBay would be the commerce engine for the site." Ballmer says Whitman told him, "We know we need to open up... We want third parties to develop around us kind of the way they develop around Windows." Considering the reach of Microsoft sites like Carpoint, which draws more than 6 million visitors a month and generates $8 billion in auto sales each year, the payoff for eBay could be significant. eBay's marketplace will also be integrated into Microsoft's bCentral service for small businesses. Whitman says eBay currently has difficulties when another company approaches it with a large number of items to sell; difficulties hooking into that company's inventory, order entry system, general ledger system, and so forth. Through its Commerce Manager service, bCentral provides all the tools necessary to facilitate these transactions. There are no estimates yet as to what this could mean for either company's top line, but Ballmer says: "We'll book more bCentral revenue because any customer can seamlessly and easily interact with eBay. More revenue to us and to eBay... It's win-win." Microsoft's biggest benefit from the alliance comes not in the form of revenue, but from the legitimacy eBay adds to its .NET program. The auction king is the most prominent company to date to get behind the new Web services platform, and Whitman says it will "make eBay available through new application Web-based devices, such as mobile phones, pagers, and even TVs." Microsoft is putting considerable time and effort into .NET in the hopes of making it a standard for XML, or Extensible Markup Language, which is the next generation of HTML. Whitman says the alliance will not affect existing partnerships with Sun Microsystems (Nasdaq: SUNW) -- which will continue to run eBay's back-end database operations -- or with AOL Time Warner (NYSE: AOL). "There's room for a lot of companies to partner up with us," she says. Likewise, Microsoft will continue its relationship with FairMarket (Nasdaq: FAIM), a consortium of big names that once sought to topple eBay, but has since shifted its business plan. Neither company will reveal the economics of the agreement. Ballmer would only say negotiations between the two giants were secondary. "The big deal," he said, "is the shared vision." Rex Moore wonders what a non-strategic alliance would be. At the time of this writing, he owned shares of eBay and Microsoft. You can view his portfolio and the Fool's disclosure policy online.
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