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Overture Reaches Out and Investors Flee

As a result of the new deals, Overture says it will be able to offer two new types of search products: One is algorithmic search, or listings in which order is determined not by payment, but by relevance based on proprietary formulas as applied in an automated process. The other is paid inclusion, in which businesses pay for their sites to be regularly examined for inclusion in an algorithmic search engine, though placement isn't guaranteed.

Both AltaVista and FAST operate algorithmic search engines and offer paid inclusion services.

On a conference call with analysts Tuesday, Overture chief Ted Meisel said the deal would ensure that the company has "a full search solution" for online affiliates who want it. "Overture is positioned to build and syndicate the best, most powerful search experience on the Internet, bar none," he said.

Other payoffs of the deals, indicated Meisel, are AltaVista's patent portfolio, FAST's "extremely well-engineered, cutting-edge" technology platform, and FAST's presence in Europe and other international markets, into which Overture has been speeding up its expansion.

Redundancy

The all-in-one strategy makes sense, says Danny Sullivan, editor of SearchEngineWatch.com, a Web site that focuses on the search engine industry. The company likely lost partnership agreements with EarthLink (ELNK) and AOL Time Warner's (AOL) U.S. America Online service last year because it couldn't offer both pay-per-click and algorithmic search services, Sullivan says. Both those losses hammered Overture's stock.

But if that were the only motivation, says Sullivan, a purchase of either FAST or AltaVista -- not both -- would have sufficed. "Buying two is overkill," Sullivan says. Acquiring one company, he says, would have helped Overture complete the puzzle in its business. "To have both of them is a piece that someone else needs to complete their puzzle."

That someone else, says Sullivan, could be either a competitor, such as European pay-per-click search engine operator Espotting, or an Overture customer, such as Microsoft's (MSFT - Get Report) MSN.

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