Overture buys two search companies, adds services

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Seeking to broaden its capabilities and defend its turf in the lucrative Web search marketplace, Overture Services Inc. announced in late February its acquisition of two search businesses. The deals, with AltaVista Co. and Fast Search & Transfer, an Oslo, Norway-based search technologist, are valued at a combined $240 million.

Pasadena, Calif.-based Overture, whose paid-listings business model is built on selling keyword search placement to the highest bidder, agreed to buy Palo Alto, Calif.-based AltaVista in a $140 million cash and stock deal on Feb. 18. A week later, it acquired the Web search unit of Fast Search in a $70 million cash deal, with an additional three-year cash incentive payout of up to $30 million.

The acquisitions give Overture algorithmic search capabilities, enabling it to offer enhanced search to portals, ISPs and other sites. While Fast Search helps pave the way for Overture’s international expansion, AltaVista gives Overture a well-trafficked test environment for new products and services.

"AltaVista generates about 18 million searches a day globally; that provides sufficient volume to serve as a proving ground," said Overture President-CEO Ted Meisel.

Playing defense

Analysts said the highly competitive search industry compels providers to enhance their services continually.

"The two acquisitions are part of Overture’s attempt to defend their position," said Lanny Baker, an analyst at Salomon Smith Barney, San Francisco. "I think they’re trying to defend the value-added [services] they bring to the search hosts by expanding the number of services they can take to them."

Overture, which has earmarked $10 million for product development this year, plans to add "paid inclusion" to its portfolio. With paid inclusion, businesses are ensured their site content is reviewed frequently and included in the search engine database.

Overture also partners with search hosts such as Yahoo! and Microsoft Corp.’s MSN, acting as the paid listings provider on those sites.

Baker theorized the moves are a defense against hosts vertically integrating search, such as Yahoo!’s $235 million acquisition of search provider Inktomi Corp., Foster City, Calif.

Google competition

Other observers say the February deals are part of Overture’s ongoing competition with Google, the biggest search engine in terms of use.

"Overture has been trying to get their business for a year," said Richard Fetyko, research analyst at New York-based Kaufman Brothers L.P., referring to Google’s revenue-sharing partnerships with companies such as America Online, Ask Jeeves and Earthlink.

But not everyone agrees. Google’s site is far larger than Overture and AltaVista combined, Baker said, adding that "Overture [is] trying to play without a similar captive distribution channel."

For its part, Google announced in late February it has developed a new content-targeted advertising service that serves targeted ads on a variety of Web sites. Overture reportedly is working on something similar.

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