By Robin Arnfield
May 30, 2006 1:50PM

"[Microsoft] can either improve MSN to make it more of a real competitor to Google, or it can take a different approach, for example by buying eBay," said Martin Reynolds, an analyst at Gartner. "Google is quietly creeping up on Microsoft, and eBay would take Microsoft in a whole new direction."

The latest rumor to sweep the world of high tech claims that Microsoft has its eyes on eBay for a possible buyout. Last week, a report in the New York Post said that Microsoft has engaged in preliminary talks with eBay about acquiring the online auction company and merging it with MSN.

Microsoft and eBay declined to comment. "The information out in the public is speculation and the company does not comment on rumors," said an eBay spokesperson. A spokesperson for Microsoft said much the same thing.

But bloggers, industry analysts, and others have been speculating about what a move on Microsoft's part might mean.

Improving MSN

"[Microsoft] can either improve MSN to make it more of a real competitor to Google, or it can take a different approach, for example by buying eBay," said Martin Reynolds, an analyst at Gartner. "Google is quietly creeping up on Microsoft, and eBay would take Microsoft in a whole new direction."

Reynolds also said that eBay's acquisition of Internet telephony Relevant Products/Services from firm Skype last year would be an added bonus for Microsoft. "But buying eBay would be an expensive acquisition for Microsoft," he warned.

Stacey Quandt, an analyst at Aberdeen Group, agreed with Reynolds that acquiring eBay would transform Microsoft.

"If Microsoft purchases eBay, it would certainly invigorate MSN and create a stronger community due to the growing use of Skype and PayPal," she said. "A dramatic gesture of this sort is needed to achieve the promise of MSN to be a leading content- and services-delivery model."

'No Natural Synergy'

Avivah Litan, an analyst at Gartner, warned of the possible downside. "I can understand MSN's motivation in potentially acquiring eBay, but it would be a major negative for eBay shareholder value," she said.

"Microsoft has no expertise in actual commerce and transactions, and there is no natural synergy between the two companies other than that they both have a major Internet presence," she said. "Surely, there are less painful ways to improve the stakes for MSN."

The eBay-Microsoft merger rumors follow last week's announcement that eBay has agreed to a wide-ranging partnership with Yahoo. Under the terms of that deal, Yahoo will become the exclusive provider of all graphical advertisements on eBay, and will deliver sponsored search listings for products on some eBay pages.

At the same time, Yahoo is putting eBay's PayPal platform in its online-wallet system so customers can pay for the Web portal's services through their PayPal accounts.