MSN Extends Overture Deal Six Months

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Microsoft announced a six-month extension of its MSN distribution agreement with paid search provider Overture Services last week. The deal now expires in June 2005.

The extension covers paid listings on MSN Search in the United States and United Kingdom, the two companies said. Seattle-based Microsoft and Pasadena, CA-based Overture might also extend the distribution deals they have on MSN sites in eight international markets.

The agreement comes as Microsoft overhauls its search strategy, with an eye to catching up with MSN rivals Google and Yahoo. Many industry watchers expect Microsoft to eventually follow the lead of Google and Yahoo and own all components of search, from algorithmic to paid listings. The future of the MSN-Overture deal was put in doubt this July, when Yahoo inked a deal to buy Overture for $1.6 billion. For now, however, Microsoft said it is intent to keep Overture as a partner.

"Both Overture and MSN are committed to offering advertisers great opportunities via online search advertising, and this extension is an example of our commitment," said MSN spokeswoman Malina Bragg.

Overture provides keyword advertising matched to search queries, with advertisers paying each time an ad is clicked. More than 100,000 advertisers use Overture, bidding on keywords relating to their businesses. Under terms of the original MSN deal, it is believed Microsoft receives about two-thirds of the revenue generated from clicks on the Overture listings.

With rising competition from Google and Yahoo in the lucrative search market, Microsoft has devoted considerable resources to improving its algorithmic search. Last week, it dropped longtime search partner LookSmart, which provided a layer of directory listings from companies that paid to have their Web pages crawled.

Danny Sullivan, editor of industry newsletter Search Engine Watch, predicted Microsoft would eventually drop Overture from MSN's search results.

"They have said it's important for them to own one portion," of search, he said. "If you're going to own one part, it seems to make sense to own both parts."

Bragg said MSN plans to "evolve and develop" its "featured sites" program, which offers advertisers placement in result sets. The agreement does not allow MSN to use another third-party paid listings provider, according to Overture.

The extension was a reflection of the difficulty of implementing a large-scale paid search program, since Microsoft would probably rather not rely on a direct competitor for a key part of MSN's business, Sullivan said.

"A lot of people thought Yahoo would roll out its own" paid listings, he said. "The reality was that they ended up buying Overture. Doing paid listings is very complicated, very hard."

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