UPDATE: Yahoo! to Buy Overture

Yahoo! on Monday announced plans to acquire Overture Services, Inc. for an aggregate purchase price of approximately $1.63 billion, marking the first purchase of a major search services provider by a major portal, and sending tremors of "search consolidation" through the online industry.

Overture will become a wholly-owned unit of Yahoo, and its operations will remain in Pasadena, California, following completion of the acquisition, which is expected in the fourth quarter. Ted Meisel will continue to head up Overture's operations and report to Dan Rosensweig, Yahoo's chief operating officer.

Within the rapidly growing Internet advertising market, commercial search is the most dynamic and fastest growing segment. The worldwide commercial search segment is estimated to grow from approximately $2 billion by year-end 2003 to approximately $5 billion by 2006 (Source: Piper Jaffray), a compound annual growth rate of approximately 35%.

The transaction is subject to customary closing conditions, including regulatory approval and the approval of Overture's stockholders. It is expected the transaction will be completed by the fourth quarter of 2003. Company officials said during a conference call Monday morning that the deal is expected to break even in the first year.

"The combined assets position Yahoo! as the largest global player in the rapidly growing Internet advertising sector," said Terry Semel, chairman and chief executive officer, Yahoo! Inc. "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."

Yahoo! recently acquired Inktomi Corp., a pioneer in algorithmic Web search technology. With this acquisition, Yahoo! will own all the critical components of a comprehensive search offering. The combined companies expect to be able to take advantage of a number of revenue synergies by expanding marketing opportunities on Yahoo!'s network through:

  • expand Pay-for-Performance search into vertical properties, such as shopping, travel, and yellow pages;
  • integrate contextual advertising throughout Yahoo!'s network, including properties such as in sports, real estate and autos; and,
  • leverage Overture's marketplace by offering its 88,000 advertisers, the majority of which are small- and medium-sized businesses, the ability to get online, sell online and promote online by purchasing a range of additional Yahoo! services such as Yahoo! Store and Yahoo! Web Hosting.

    LookSmart's Vice President Dakota Sullivan says consolidation in the search arena will continue. "Eventually, I think we'll get to a point when the outsourcers (search services providers) will be lined up behind the sources of traffic (MSN, AOL, Yahoo)."

    Google officials declined comment on the announcement, but Wall Street analysts said Google may actually benefit from the deal as Overture's partners re-evaluate deals and possibly consider Overture as more of a competitive threat.

    Additionally, Yahoo Inc.'s decision to buy Overture may lead Microsoft Corp.'s MSN, which has recently been talking about entering the search business, to rethink its ad pact with Overture and instead buy or create its own competing service, analysts said on Monday.

    Having written 3 books, including Search Engine Positioning on search marketing since 1997, Fredrick Marckini, CEO and Founder of iProspect, thinks MSN's response has to come quickly to have a chance to compete. "MSN need s a partner to dance with," he says, adding that they need to find that partner before Yahoo fully integrates Inktomi, FAST, AltaVista and Overture. He speculated that FindWhat seems to be a likely search partner for MSN because "they just bought eSpotting and that gives them Europe and 40,000 paid advertisers."

    Overall, Marckini says, the Yahoo/Overture deal, and especially the price tag, is "irrefutable proof that the major players see that search marketing is here to stay. Yahoo is going long on this industry."

    Smith Barney said on Tuesday it raised its rating on Overture Services Inc. to "in-line" from "underperform."

    Share of Searches Submitted by U.S. Internet Users (May 2003)

    Google Sites          32% 
    Yahoo! Sites          25% 
    AOL Time Warner       19% 
    MSN-Microsoft Sites   15%  
    Ask Jeeves             3%
    SOURCE: comScore qSearch

    % of U.S. Searches Served by Paid Search Affiliate Network (May 2003)

    Google Network        54%  
    Overture Network      45%
    SOURCE: comScore qSearch

    Web search deals timeline

  • 11/13/02: search company Inktomi reaches a deal to sell its enterprise search software business to Verity Inc. for $25 million cash plus some contract obligations.
  • 11/23/02: Yahoo buys Inktomi for $235 million.
  • 02/18/03: Overture announces plans to buy AltaVista from CMGI for $140 million of cash and shares.
  • 02/25/03: Overture announces plans to buy Web search arm of Fast Search & Transfer for $100 million.
  • 06/18/03: FindWhat.com announced plans to buy European search engine Espotting for $163 million in cash and shares.
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