As part of an amendment made Monday to an existing contract, Microsoft is permitted to offer auctions hosted by companies other than FairMarket. In exchange, Microsoft agreed to cancel its warrant for 4.5 million shares of FairMarket stock.
Noting that the amendment made on Monday reduces potential charges for FairMarket, company Chief Financial Officer Janet Smith said the agreement was good for both companies.
"This allows both sides to gain something to their advantage," she said. "We have a positive relationship with Microsoft and we're going to continue to provide them with dynamic pricing technology."
A Microsoft spokesman said the companies decided to modify their agreement because of "changing market conditions," but did not elaborate. "We still continue to value and work with FairMarket," he said.
Microsoft was one of the founding members of FairMarket's auction network, which debuted to much fanfare in 1999. With members such as Lycos, Ticketmaster-CitySearch and Dell Computer, the network seemed to pose a threat to eBay's dominance in online auctions. But the network never reached a critical mass of listings or bidding activity.
In recent months, FairMarket and its network have suffered a number of setbacks. Last month, for instance, Terra Lycos took down links to its FairMarket-hosted person-to-person auction site and began linking to auctions on eBay. In May, FairMarket Chief Executive Eileen Rudden resigned and the company laid off 25 percent of its work force.
As part of the modification to the contract, Microsoft will no longer require FairMarket to provide it with a minimum amount of transaction revenue. However, FairMarket will continue to host auctions for Microsoft under the contract, which lasts for about three more years.
Under an agreement signed in March, Microsoft plans to integrate some of eBay's technology into its Carpoint, bCentral and other MSN properties. Meanwhile, FairMarket announced its own deal with eBay in February, through which FairMarket will help its clients list items on eBay.