Yahoo!'s Overture Buy Makes Deep Impression

The echoes of Yahoo!'s decision last week to buy paid-search powerhouse Overture will be heard throughout the online ad industry for years to come.One of the key ripple effects will be in how Microsoft's MSN, a key Yahoo! rival that licenses Overture's search technology, will respond.It is in the area of paid-search- technology licensing that observers see the biggest impact of the Yahoo! deal, especially since advertisers will likely continue to buy on both Overture and its rival Google. "You do both, and they don't have duplicated audiences," said Danny Sullivan, editor of Searchenginewatch.com.Moreover, the $1.63 billion deal affirms that if the revival of the online ad industry has a silver bullet, paid search—which places text-based advertising messages adjacent to related search terms—is it. Paid search has been the true growth engine in the industry's nascent turnaround [Adweek, June 2], accounting for 15 percent of the $6 billion in online ad revenue in 2002, versus 4 percent in 2001, according to the Interactive Advertising Bureau. This has occurred even as the industry's major players—including Yahoo!, America Online and MSN—have worked to improve what they can offer brand advertisers.That growth made Pasadena, Calif.-based Overture, whose revenue rose about 132 percent from 2001 to $667.7 million last year, a prime candidate for acquisition. Overture, which in 2001 changed its name from Goto.com and shifted its focus to licensing search services to other sites, competes with market leader Google in paid search and licensing of paid-search technology to other sites.It is unclear how much bigger Google's business is than Overture's, as Google is privately held. According to May data from comScore Networks, 54 percent of paid search accessed on the Web came through Google's network of licensees, while 45 percent came via Overture. Some speculation projects revenue for Google this year will reach $1 billion. Google, which has a search-licensing partnership with AOL, declined comment.MSN and Yahoo!—which, according to Overture's 2002 annual report, make up some 60 percent of its revenue—had clauses in their contracts allowing them to terminate their relationships with Overture "upon a transaction in which our ownership undergoes a change of control," according to the report.MSN last week said its relationship with Overture would be unaffected in the near term. But the deal has given the service, which is developing its own search engine, "the need to rethink our long-term strategy," said senior product manager Lisa Gurry. It is unclear when Microsoft would be able to launch a product."I think that Microsoft has only recently gotten the in-house religion," said Sullivan.Yahoo!, meanwhile, is focused on how the deal will give it additional leverage with advertisers. Small to midsize businesses looking for cost-per-transaction deals predominate on search engines. Many major advertisers do not use the Web for direct response. Yahoo! sees potential for crossover in both directions. "Because we're going to keep the affiliate network, we can apply that for clients across a wide network," said Yahoo! chief operating officer Dan Rosensweig last week.

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Yahoo!'s Overture Buy Makes Deep Impression

Catharine P. Taylor

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Catharine P. Taylor