The Yahoo-Overture Acquisition: The What and The Why

EDITOR’S NOTE: Well Folks, it doesn’t look like the consolidation is going to cease any time soon. Yahoo’s announcement this week that they are planning to purchase Overture for $1.6 BILLION (that’s a whole lot of zeros!) has made big headlines. With this acquisition, Yahoo will own no fewer than five of the major search engines.

What does all this consolidation mean to the industry, the marketplace and to search engine marketers in general? Does this spell doom for unpaid (a.k.a. “natural” or “organic”) listings? We’ll take a look and ask for your feedback as well. We’re very eager for survey participants this week, so please take our survey!

THE YAHOO-OVERTURE ACQUISITION: THE WHAT & WHY

On Monday, July 14th, Yahoo announced its intent to purchase Overture for an estimated $1.6 billion price tag. With the ever-heated battle for search engine supremacy raging between Yahoo, Google and Microsoft’s MSN Search, this news came as no surprise to industry analysts.

There’s a lot of money at stake. According to a report by securities firm Piper Jaffray, the worldwide commercial search segment is estimated to grow from approximately $2 billion by year-end 2003 to approximately $5 billion by 2006, a compound annual growth rate of approximately 35 percent.

Yahoo’s acquisition of Overture helps Yahoo to the last puzzle piece in its move to become self sufficient as a search engine machine. Yahoo kicked this plan into gear late last year when it purchased Inktomi Corp. on December 23, 2002. Inktomi is the power behind many search engine results. With a large database of indexed web pages, Inktomi generates search results using an algorithmic technology analogous to that of search king (and current Yahoo search result provider) Google. By purchasing Inktomi, Yahoo has cleared the way to divorcing itself from Google if it so chooses.

Inktomi was also attractive to Yahoo because it has a paid-inclusion program in which web site publishers must pay an annual fee to ensure inclusion in the Inktomi database. By acquiring Inktomi, Yahoo only adds to its own one-time fee paid inclusion program which does not assure inclusion but rather consideration for inclusion. Double the programs, double (or more) the revenues?

What Overture Brings To Yahoo

Yahoo’s intended purchase of Overture will give the folks at Google a run for their money. Overture pioneered the field of paid search listing and will bring Yahoo 88,000+ advertisers. Overture claims to be “the leading provider of commercial search.”Overture’s reach overseas is formidable. There are different versions of Overture in almost every major overseas country, providing more solid revenue sources to Overture.

By buying Overture, Yahoo plans to “expand Pay-for-Performance search into vertical properties, such as shopping, travel, and yellow pages” while also “integrating contextual advertising throughout Yahoo!’s network, including properties such as in sports, real estate and autos.” What this boils down to, Yahoo hopes, is more direct ad revenue.

Speaking of revenues, it only makes sense for Yahoo to buy out a company from which it already derived a large portion of ad revenue. Overture’s syndicated paid search listings on Yahoo generated nearly a fifth of Yahoo’s $282 million in revenues last quarter…and that was by just earning a portion of the per-click revenues. By buying Overture, Yahoo will now get to keep 100% of the per-click revenues generated on its own site, while also earning the revenues Overture has been generating from its other syndicated partnerships. Doesn’t seem like such a bad deal from our perspective.

Overture’s Properties, Partnerships and Reach

By acquiring Overture, Yahoo will also be buying two of the five largest search engines on the Internet, AltaVista and FASTSearch, which Overture had previously acquired. It was thought that Overture had acquired these search engines for testing new advertising methods or perhaps as security in case one of its big partners (e.g. Yahoo, MSN) terminated their agreements. We can only speculate whether Yahoo will sell off these search engines, kill them altogether, or let Overture continue with tinkering with them.

In addition to Yahoo & MSN, Overture also has very lucrative, long term agreements with some of the Internet’s largest properties. Current U.S. partners include iWon, ESPN, Gator, InfoSpace, HotBot, CNet and Lycos.

Overture’s international partners include:
* MSN in the United Kingdom, Germany, France, Japan and South Korea
* South Korea’s Daum Communications, HanaroDream and Dreamwiz
* AOL Europe, Yahoo Japan, Japan’s InfoSeek
What the Competition is Doing

There is a constant jockeying of programs and assertions when it comes to the three major search engines. Google has fortified its existence as the leader in search by becoming a leader in paid listings as well. Its AdWords platform has been extremely successful, and its recently launched AdSense program has overnight increase exposure for its advertisers and revenues for itself.

Meanwhile, recently MSN has gotten into the ballgame by announcing that it has a new search engine in the works, a toolbar for that engine that will be automatically embedded in its new IE browsers, and rumors of acquisition plans for LookSmart and/or FindWhat to help it get up to par with paid inclusion and paid search listing programs. Some pundits are even wondering if Google is leaving money on the table by not having a paid inclusion program of its own and that it might plan to launch one soon.

Please follow the link for an updated list of other PPC Search Engine Listing Firms and what partnerships they have.

Shameless Plug

If you are new to paid search engine marketing, unsure of your true return on investment for the dollars you’re spending with search engine pay-per-click programs, or are overwhelmed and looking to outsource, think WebAdvantage.net. We have years of experience in putting together high-performing search engine marketing campaigns.

Click here for more information or to contact us

RELATED WEBADVANTAGE.NET MARKETING TIPS

Changing Tides In the Search Engine Sea

Driving Search Engine Results - Does it Pay to Pay?

To Pay or Not to Pay

RELATED ARTICLES

NYTimes: Yahoo in Deal for Overture, an Internet Listing Service

Yahoo Tunes Up by Buying Overture

Yahoo Overture Combo Could Hurt MSN

 back to top