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Yahoo! to Buy Overture for $1.6 Billion
by
Posted On July 21, 2003
Yahoo!, one of the first subject directories on the Web and now a major search portal, has announced it will purchase the commercial search company, Overture Services, Inc., which specializes in Web advertising and operates the AltaVista.com and AlltheWeb.com sites. The two companies have signed a definitive agreement for a stock and cash deal worth $1.6 billion. The transaction is subject to regulatory approval and the approval of Overture's stockholders, and is expected to be completed by the fourth quarter of 2003. The acquisition serves to escalate the growing competition in the search market and Internet advertising sectors, and in particular puts pressure on top competitors, Google and Microsoft's MSN.

For the last few years, Overture has provided Yahoo! with its pay-for placement search results, which are generated by Overture's 60,000 advertisers who bid for placement on keywords. These listings are screened by Overture's editorial team before being distributed to the company's affiliate partner network, which includes many popular sites - including MSN, though this could change under the Yahoo! ownership. Overture had been rumored to be a takeover candidate for some time, with Yahoo! and MSN the most likely purchasers.

Yahoo! said that the acquisition furthers its objective of becoming "the leading end-to-end integrated search provider, combining assets capable of generating, distributing, and monetizing search results." In other words, it's time to own the ad placement technology rather than just partner or build its own service. Its rival Google chose to develop its own paid listings program and distribution network.

In addition, with the acquisition Yahoo! gains Overture's recently purchased search assets, the AltaVista and AlltheWeb.com (FAST) search engines. Some see this as a good complement to Yahoo!'s recent purchase of Inktomi. Others, however, wonder whether Yahoo! will maintain these multiple search technologies, and fear the loss of some innovative features.

Danny Sullivan of SearchEngineWatch stated: "Once the Overture deal closes, Yahoo, like Google, will control both key elements to search success: good content to pull users in and good ads to help pay for the service. That helps secure Yahoo's future as a search destination." He also commented that Yahoo-generated listings will provide a welcome alternative and competition to Google.

It's clear these recent acquisitions by Yahoo! are a reaction to Google's dominance. Interestingly, Google is currently the supplier of some search results to Yahoo!, which certainly complicates the partner/competitor relationship. (Another complication Yahoo!'s Inktomi supplies search results to MSN.) Rich Wiggins, an information technologist at Michigan State University, commented: "This is a big deal. Yahoo! is clearly threatened by Google and is taking serious steps to be a player in the search arena. If you go to Times Square today you see an electric Yahoo! sign depicting searches in real time. They want to be thought of as a search company, not just a point-and-click catalog."

Terry Semel, Yahoo! Inc.'s chairman and CEO, stressed the advantages of the Overture acquisition. "Together, the two companies will be able to provide the most compelling and diversified suite of integrated marketing solutions around the globe, including branding, paid placement, graphical ads, text links, multimedia, and contextual advertising."

There are other benefits, as Chris Sherman of SearchDay pointed out: "With this acquisition, Yahoo! is getting some absolutely top-rate search engineering talent. They're also solidifying their financial position, assuring a healthy R&D budget. Over the past year or so, we've already seen a significant improvement in relevance from the major crawlers this will only make the competition more intense, potentially leading to dramatic improvements in search results over the next few years."

Yahoo! also provides a variety of products and services through its 25 international portal sites offered in 13 languages. The company has built independent directories of local language Web sites and other content, developed by native speakers of each language. In addition, the company provides enterprise information portal solutions that integrate personalized Yahoo! content and services with corporate data and applications for intranets and extranets.

The Yahoo! Directory is still a human-created and maintained library of Web sites organized into categories and subcategories. Yahoo! editors review these sites and select the best place to list them. Yahoo! Search retrieves relevant results from the Web and from the Yahoo! Directory.

Overture will become a wholly-owned subsidiary of Yahoo!, and its operations will remain in Pasadena, Calif. Ted Meisel will continue to head up Overture's operations and report to Dan Rosensweig, Yahoo!'s chief operating officer.

How will this changing landscape affect searchers? Ran Hock, author of The Extreme Searcher's Guide to Web Search Engines, had this comment: "Overall, all of this shuffling and competitiveness will probably be good for the searcher. On the search side, the 'winning' search sites will be those that get just the right balance between good, 'real' search results for the user and enough prominence of ads to keep the advertisers happy."

Marydee Ojala, editor of ONLINE, had a mixed reaction to the news: "While I think this acquisition will strengthen Yahoo's market position, perhaps getting people to use multiple search engines, I'm a bit concerned about the implications of the dominance of advertising represented by it, however... Do search engines now turn the Internet into a giant store?"

Reporters and industry analysts have already been speculating on the domino effects this acquisition could have on Web search. Most observers feel that more consolidation is inevitable, and some have started to examine the takeover targets and possible combinations. Another little factor just could be that MSN is developing its own search technology (http://search.msn.com/msnbot.htm). However, both Sullivan and Sherman pointed out that the Yahoo!/Overture deal hasn't been completed and that MSN could make a counterbid for Overture.

Yes, we do live in interesting times - competitive and high stakes.


Paula J. Hane is a freelance writer and editor covering the library and information industries. She was formerly Information Today, Inc.’s news bureau chief and editor of NewsBreaks.


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