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Yahoo to Buy Overture for $1.63 Billion

Yahoo announced yesterday it will buy paid-search provider Overture Services in an acquisition worth $1.63 billion.

Under the deal, Overture shareholders will receive 0.6108 shares of Yahoo and $4.75 in cash for each share they own.

It will give Yahoo, Santa Clara, CA, control of both its algorithmic search services and the paid search results that appear on its site.

Overture has 88,000 advertisers who bid on keywords for placement in search results that it syndicates to affiliate Web sites. Yahoo is Overture's No. 1 affiliate.

Another large affiliate is Microsoft's MSN, a relationship many believe will soon end.

When an advertiser's keyword is used in a search, Overture technology displays the results to consumers in order from the highest bidder on down. The advertiser pays Overture its bid price every time a surfer clicks through to the advertiser's Web site. Overture then shares revenue with its affiliates.

In the case of Yahoo, Overture provides paid links in the first four slots of its search results pages.

“This is a continuation of consolidation in this [search] space with Yahoo lining up to be a top-to-bottom competitor [to Google, AOL and MSN,]” said James Lamberti, vice president of media solutions, comScore.

The consolidation Lamberti refers to is Yahoo's purchase of algorithmic search provider Inktomi in December, and Overture's acquisitions earlier this year of Alta Vista and FAST's Web search unit.

The current search leader is Google. It has 54 percent of the paid search affiliate market compared to Overture's 45 percent, according to comScore.

Also, of approximately 4 billion searches conducted in May, Google processed 32 percent, Yahoo processed 25 percent; AOL processed 19 percent; MSN processed 15 percent, and Ask Jeeves handled 3 percent, according to comScore.

Acquiring Overture puts Yahoo in more direct competition with Google.

For advertisers, however, the impact will probably be minimal in the short run, said Kevin Lee, CEO of search engine campaign management firm Did-It.com, New York.

“The biggest potential impact is going to be outside of the Yahoo/Overture relationship,” he said. “In other words, how will folks like MSN feel about it?”

MSN has been hinting that it has been working on a replacement for Overture, said Lee.

“If you talk to an MSN rep, they won't tell you anything definitive other than MSN has made a huge technology investment in beefing up their back end,” said Lee. “When you ask for anything more than that, they get a little cagey.”

Yahoo's acquisition of Overture is expected to close by the fourth quarter of 2003, after which Overture will become a wholly-owned subsidiary of Yahoo. Its operations will remain in Pasadena, CA, the companies said. Ted Meisel will continue to head up Overture's operations and report to Dan Rosensweig, Yahoo's chief operating officer. The transaction is subject to customary closing conditions, including regulatory approval and the approval of Overture's stockholders.

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