Yahoo! buys Internet search engine Overture

SAN FRANCISCO -- Yahoo! snapped up online advertising pioneer Overture Services for about $1.6 billion on Monday, giving the Internet powerhouse a potent weapon in the competitive search-engine business.

By buying Overture, Yahoo! gains control of one of its most important business partners and strikes a blow against Google and Microsoft. Google is the top search engine, and Microsoft has been pouring more resources into the online search on its MSN site.

Overture has been one of Google's fiercest rivals and now its ad-based search engine threatens to become more formidable by tapping into Yahoo!'s greater resources.

Like Yahoo!, Microsoft's MSN service had been collecting a steady stream of profits from Overture.

Although Yahoo! executives said they hope to maintain Overture's existing alliances with partners such as MSN, it seems improbable that the rivals will want to subsidize each other, said Danny Sullivan, editor of the industry newsletter Search Engine Watch.

"This hurts MSN because Overture had been one of its best buddies," Sullivan said.

Overture has played a pivotal role in Yahoo!'s recent financial revival, accounting for roughly 20 percent of Yahoo!'s revenue of $604 million during the first half of this year.

Conceived by dot-com entrepreneur Bill Gross in 1997, Overture developed a search engine that sorts its results based on how much advertisers are willing to pay to be ranked under specific words; the more they pay, the better placement they get on Web searches on sites such as Yahoo!.

Ridiculed just a few years ago, the so-called "pay-for-performance" concept has turned into an online gold mine. Pay-for-performance search is expected to generated $2 billion in revenue this year.

Overture has cashed in on the growth, attracting 88,000 advertisers while generating earnings of $114 million since it first became profitable in the summer of 2001.

But the company's success attracted more competition, most notably from Google, which has lured away pivotal partners such as AOL and EarthLink and spurred pricing concessions that have lowered Overture's profit margins.

Privately held Google, which provides some of Yahoo!'s search results, declined to comment on Monday's deal.

Microsoft will make its next move after examining how Yahoo!'s deal might affect its relationship with Overture, said Lisa Gurry, MSN's group product manager.

As a counter-punch to Yahoo!'s moves, Microsoft seems more likely to acquire a search engine company, Sullivan said. Potential candidates includes Ask Jeeves Inc., FindWhat Inc. and, perhaps even Google.

Overture's shares rose $2.54 to close at $24.05 Monday on the Nasdaq Stock Market after the cash-and-stock deal was announced. Yahoo!'s shares gained 1 cent to close at $32.20.

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On The Net:

http://www.overture.com

http://www.yahoo.com

http://www.google.com

http://www.msn.com