Overture pricing model in tune with advertisers

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Performance-based search service Overture Services Inc., formerly, is doing something most of its competitors are not: making a profit in the slumping online advertising business.

Late last month, Overture reported its first-ever quarterly profit, with earnings of $8.9 million, or 15 cents a share, for the third quarter, compared with a loss of $46.1 million, or 94 cents a share, for the same period last year. Revenue for the period was $72.5 million, nearly triple the $25 million logged in last year’s third quarter.

"We certainly feel well-positioned, to have rising revenues in an otherwise declining environment," said Ted Meisel, president-CEO of Overture, Pasadena, Calif.

Meisel said Overture has been successful because it provides value to advertisers, which bid on the price they will pay for keyword searches and pay only for clicks that result from search listings. The minimum monthly investment for advertisers is $20.

For example, companies that want to buy the keyword "procurement" bid on the price-per-click they’ll pay, and they can see what their competitors are bidding by searching on that keyword on the Web site. (At press time, the high bid for "procurement" was $2.15 per click, by ProcureIT.)

Listings are ranked by highest bid, and advertisers can adjust their bidding based on the results they’re getting. The average cost-per-click was 21 cents in the third quarter, up from 19 cents in the second.

Overture splits revenues with its distribution partners, including AOL Time Warner Inc., Ask Jeeves Inc., Lycos Inc. and Yahoo! Inc., which earlier this month struck a deal with Overture to provide paid listings for the first time. Previously, Yahoo!’s search listings were free to advertisers.

"In the pay-per-click [search] space, they are the best in class," said David Johnson, director-sales and marketing for Position Research Inc., Escondido, Calif., which provides research services on search engine optimization.

"What [Overture] has capitalized on is a pay-per-click strategy that looks and feels like a search engine result," Johnson said.

Overture’s Meisel said about one-third of his company’s advertisers are b-to-b marketers, including many technology companies. Search technology offers them an affordable way to target ads to a specific audience, he noted.

"One thing that any business still needs to do is generate sales, no matter what the market environment," he said.

Cost-effective results

Derek Vaughan, senior manager-online marketing at Web hosting company Affinity Internet Inc., El Segundo Calif., said advertising on Overture has been cost effective and has provided good results.

"Our strategy is to find absolutely the most efficient way to advertise and target potential customers, and only pull money out of our wallet when we can actually measure something happening," Vaughan said.

"That to me is a real advantage of Overture. They have executed against that initiative better than anyone," he added.

Vaughan pointed to Overture’s broad distribution among affiliate partners, a sophisticated bidding mechanism and reporting tools that are "far above competitors."

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