With One Sweep, Yahoo Regains Search Engine Dominance

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Monday July 14th may very well go down in history as the day that the Search Engine industry grew up and finally gained the respect it so deserved. It was this day that Yahoo announced that in a deal, comprising of $1.63 billion in cash and stock, it had acquired the popular pay-per-click company Overture

With rumors circulating for some months that Yahoo had built a "war-chest" and was preparing to make a significant acquisition, investors have been watching and waiting for the Sunnyvale, California based company to make its move. With Google increasing its audience reach and MSN announcing that it had recently started spidering the web, with the intent of launching a revamped search engine, Yahoo knew that in order to compete in the search engine industry it would have to make a move to increase its arsenal and improve investor confidence.

It appears that this acquisition is just the ticket for Yahoo, with the purchase broadening the company's focus and increasing advertising revenue from search services, especially in shopping, travel and yellow pages categories. The deal will also provide an audience of more than 88,000 Overture advertisers who will now be encouraged and enticed to purchase the many advertising services already offered by Yahoo. While the deal looks to be a good fit for Yahoo, which needed a new channel to generate additional revenue, and Overture, which has faced fierce competition from other "pay for performance" companies; is this announcement good for Overture's customers?

While it is too early to determine the full impact of Yahoo acquiring Overture, there are some concerns already being raised about the future of Overture's thousands of customers. Overture advertisers have already seen the loss of valuable exposure at AOL and Netscape, with both of those search engines turning to Google's popular Adwords service for its sponsored listings. In addition, Looksmart recently announced a partnership that would see it providing its new Looklistings ads to Lycos, which could ultimately replace or at least reduce the impact of the current deal with Overture. With Yahoo now taking over the reins at Overture, there is a definite possibility that MSN will not seek to renew its partnership with Overture, choosing not to share revenue now that the company is owned by one of their biggest online competitors. If this theory turns into reality, Overture advertisers could see a drop in the amount of traffic they receive with some estimates indicating a 30% reduction in traffic levels. If this holds true, then it will not only reduce the value of a pay-per-click campaign with Overture, but could also reduce future earnings that Yahoo had hoped to achieve from the deal.

So if buying Overture means that MSN and perhaps other search engines pull the plug on their partnership, is this a bad deal for Yahoo? Actually, not only has Yahoo likely considered all outcomes from making such an acquisition, it has probably already factored in the loss of large Overture partners such as MSN. However, with the acquisition of Overture's pay-per-click technology, Yahoo can now offer its own advertisers a PPC model that many suspect will ultimately mimic that of Google's Adwords. No longer having to rely on a third party technology, Yahoo can utilize this valuable advertising model and further improve its revenue, keeping its customers and investors happy. With the recent purchase of Inktomi and its crawling technology, Yahoo can now stand against rivals such as Google and MSN and offer a complete package to both the search engine user and search engine advertiser.

There are many directions that Yahoo can now take, with Overture and Inktomi safely under its belt. My personal opinion is that Yahoo will not be able to sustain many of the relationships that Overture has developed over the years. This will be partly due to partners such as MSN not wishing to continue a relationship with a company now owned by a competitor and partly because more and more of Overture's competitors are developing their own internal pay-per-click or sponsored listing technology. I see a future where, just as Overture planned to use the technology of AltaVista and AllTheWeb for its benefit, Yahoo will in turn use Overture's technology not to continue down the path of acquiring external partnerships, but to provide Yahoo and it's advertisers a new opportunity for increasing revenues. Many people will disagree and say that Yahoo can continue to make Overture work and will continue to add partners. But the world would be a very boring place if we all agreed now, wouldn't it?

Publication Date: Monday 21st July, 2003
Author: Andy Beal View profile

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