Amazon and eBay - a perfect match?

As eBay celebrates its first five years, rumour and speculation abound that the world's largest online auctioneer may merge with ecommerce retailer Amazon.com.

Analysts say both companies have seen the value of their stocks plunge during the past six months and each could use a boost to their long-term revenue objectives.

Amazon's stock has been extremely volatile for months as the company saw its losses grow by 40 per cent to $115m in its second quarter, although revenue climbed by 84 per cent to $578m in the three-month period.

eBay, on the other hand, is predicting 50 per cent sales growth for the next five years. The company has predicted sales in excess of $3bn by 2005. In 1999, eBay posted total sales of $224.7m, up by 161 per cent from $86.1m in 1998.

A merger could provide Amazon with a leadership position in the online person-to-person trading arena, an area in which it has been unsuccessful so far. As for eBay, a merger could give the company a business diversification.

Henry Blodget, an internet analyst at Merrill Lynch, said: "Combining the two could be a very powerful entity."

Both companies are also pursuing similar strategies in their continued quest for more profit, pursuing revenue beyond the core business of selling merchandise to consumers by licensing some of their most valued technology to other online retailers.

Amazon, for example, said it would build a co-branded online store with offline retailer Toys R Us. Amazon also licensed its 1-Click patented technology to Apple for use in its online store. Although eBay has not detailed its plan, the company said it would license its auction software so that other websites could post its listings.

Mark Macgillivray, an analyst at H&M Consulting, said these kind of rumours are commonplace, but do not necessarily mean there is any truth to them. He said both companies have a common type of activity but eBay makes money and Amazon does not.

"eBay's clout and Amazon's partners could be something compelling," he said. However, Macgillivray added: "If I were eBay I don't know what the advantage would be."

He pointed out that Amazon is essentially a store without the physical presence. "Amazon just sells the same stuff you can get anywhere, and people have found the novelty has totally worn off."

Macgillivray also said Amazon's growth has slowed and a question mark remains over its future, while eBay maintains a low overhead operation. "Combining them just might be a good thing. Amazon needs to partner up with someone who is profitable, but eBay would say why merge with these guys?"

However, he said stranger things have happened. "Some of these things are not done with much diligence, particularly with internet companies as these deals can be done quickly."

Both eBay and Amazon.com declined to comment.