Advertisers Still Like Overture

The loss of a major partner and rising competition haven't diminished the appeal of Overture Services (OVER Quote), say some customers of the pay-per-click search engine company.

Though getting bumped from AOL Time Warner's (AOL Quote) Internet properties pummeled Overture's shares in May, Overture remains the top choice, by far, for companies that pay for their listings to pop up when people conduct searches on the Internet.

Google, the privately held search engine that dislodged Overture from its AOL perch, is getting additional business from advertisers, along with other per-click placement sellers such as FindWhat.com (FWHT Quote) and LookSmart (LOOK Quote).

But, say these advertisers, their demand for pay-per-click advertising means that more spending on Google doesn't translate into less spending on Overture. Plus, they say, Overture's policies are far friendlier to advertisers than Google's, giving Overture a distinct advantage.

On the Grill

"I'm going to have to support [Overture's] declaration that the AOL deal didn't hurt them that badly," says Dana Todd, co-founder of SiteLab International, a full-service interactive agency that works with different online advertisers.

The reaction to Overture indicates that it's unlikely the company will have disastrous news July 25, when it's slated to report results for the second quarter ended June 30.

Overture's shares, which have whipsawed between $43.15 and $16.26 since the first of the year, closed at $24.49 Wednesday, up 48 cents.

Though skeptics question how well Overture's margins will hold up over the coming years, the emergence of a competing product from Google -- its AdWords Select pay-per-click offering -- doesn't appear to have made a significant dent in Overture's business.

Though Todd says her firms are spending less money with Overture than they would be if Google hadn't introduced AdWords Select, "We are putting more money into both of them," she says. "And we will continue to do so, as long as the [return on investment] holds steady."

Bob Lawrence, a partner in the consumer insurance quote service Insurance4USA.com, estimates he spends at least 75% of his $12,000-plus monthly pay-per-click advertising budget on Overture. He spends nothing at all on Google, based on his past difficulties managing his listings on the service.

With both Google and Overture, advertisers bid on specific search terms that they guess potential customers will type into a search engine box -- "chocolate," perhaps, for a candy retailer. The prominence of the advertiser's listing is based in whole or in part on how much the advertiser has bid to pay each time search engine users click on that listing.

After Overture lost its deal to serve paid listings to AOL, says Lawrence, Insurance4USA.com's spending on Overture dropped about 20%, he says. But the company made up the shortfall by raising some of its bids for different search terms on Overture, and by spending money on LookSmart's pay-per-click product.

A consultant who advises companies on their search-engine strategies says that his clients are increasing their spending on both Overture and Google. "Google is just now a good addition to a pay-per-click program," says the consultant.

Digging a Hole

Though Google's threat to Overture might not be imminent, it appears real. The consultant, for example, guesses that his clients may split their spending 50-50 between Overture and Google within a year -- a significant market share gain for Google.

Another advertiser, however, says he has been spending less on Overture as his Google budget has increased over the past few months. Rob Arthur, director of sales and marketing at the promotional products company CustomInk, says his spending on Google rose from $860 in April to $2,040 in June, while Overture spending slid from $8,100 in April to $6,800 in June.

One of the complaints that advertisers have about Google is that they have less control over their positioning of their listing -- especially important on AOL, where paid listings are limited to three per search. Unlike Overture, which gives the top slots to high bidders, Google bases listing order on a formula that takes into account users' rate of clicking on those paid listings as well as money.

"You cannot guarantee that position simply with money," says Todd. "Advertisers do not understand that." That makes maintaining a listing on Google "high-overhead," she says. "You may literally have to adjust creative on a daily or weekly basis."

Another common complaint among advertisers was the greater difficulty of managing their accounts on Google, particularly those that involve large numbers of search terms that an advertiser may want to manage. "In the execution part of it, Overture is still blowing them away," says Arthur.