Google Making More Inroads on Overture

In a recent report, Brown argues that Google's acquisition of Applied Semantics guarantees that a meaningful source of traffic to Overture's search engine -- a domain parking business it operates -- will end with the current partnership in 2004, if not earlier. Applied Semantics, in fact, was one of Overture's top 10 affiliates in the fourth quarter of 2002. (Yahoo! (YHOO Quote) and Microsoft (MSFT Quote) are Overture's biggest, feeding the company the traffic from which it derives a majority of its revenue.)

Furthermore, says Brown, Applied Semantics has been an important technology vendor to Overture, which has been developing its own content-based advertising system -- known sometimes as contextual marketing. "While others may eventually be able to provide [Overture] with this technology/capability," writes Brown, "the acquisition is, at the very least, a setback for Overture's near-term platform expansion plans."

Brown has an underweight rating on Overture; his firm hasn't done any banking for the company.

Overture responds that Applied Semantics' role as a partner that generates Overture's traffic has diminished. "We do not expect this to have a material impact on revenue, if any," emails an Overture spokesman.

As for Applied Semantics' technology, it "is merely ONE of many technologies we have been testing as we develop our own contextual product," says the spokesman. Pure technology approaches such as Applied Semantics', he says, are inherently weak, and the company's forthcoming contextual advertising service will combine technology with human editorial processes.

Brown, in turn, counters that though Applied Semantics no longer fits Overture's definition of a partner, it still sends the company a significant amount of revenue-generating traffic.

Meanwhile, Overture recently completed its own acquisitions of AltaVista and Fast Search & Transfer's Web search business as part of its own effort to expand into other paid search areas such as paid inclusion, in which Web publishers pay to have their sites regularly checked for relevance by search engines. But Overture CEO Ted Meisel indicated last week that the acquisition-fueled paid search business was taking longer to launch than the company had expected.