You can't argue with the success of Overture Services ( OVER). But there's still room for some of its customers to snipe. The Internet advertising firm has wowed Wall Street recently with its uniquely strong, by Net standards, financial performance. But conversations with some advertisers that use Overture's pay-per-click search listings suggest a recent change in editorial policy is stirring customer turbulence. This dissatisfaction suggests that even as investors worry about risks associated with Overture's distribution via Internet properties such as Yahoo! ( YHOO) and EarthLink ( ELNK), there are potential sales and editorial risks as well.
Round-Tripping Overture's fall and rise
Overture, which on Tuesday announced year-over-year revenue and earnings growth way beyond Wall Street's expectations, jumped $5.25, or 19%, to close at $32.91 Wednesday. The company, formerly known as GoTo.com, saw its shares plunge earlier this month over worries about the cost and extensiveness of affiliation agreements with properties such as EarthLink and AOL Time Warner's ( AOL) America Online. These deals give those companies a cut of Overture's ad sales in exchange for placement on their sites. Tuesday's rebound erased the last of last week's loss, though Overture's shares are still below their January 52-week high of $43.16.
At issue are rules implemented in recent weeks that seek to refine Overture's search results, which the company strives to make relevant to search users as well as profitable. The idea is that searching for "New York dentist" won't bring up a listing of Web sites advertising toothpaste or toothbrushes. (Advertisers on Overture bid against one another for high placement in search results for specific search terms; they pay the price they've bid only when search users click on their particular listing to visit their site.) The problem, say some Overture customers, is that some of the relevancy guidelines, at least as implemented, don't make sense. One company that has bumped up against the new guidelines is the Sanders Big Bear Lodge , a fishing lodge in Cooke City, Mont., near Yellowstone National Park. That Web site was recently turned down when it tried to bid on phrases such as "fishing resort," "fishing trip" and "fly fishing vacation," according to Dave Lerner, president of WyomingNetwork, a Web site design and Internet marketing company working with the lodge. The reason behind that rejection, which was reaffirmed in Overture's advertiser appeal process, was that a fishing lodge in a particular location isn't an appropriate answer for geographically nonspecific searches like "fishing trip," says Lerner. That might make sense if there were a national chain of fishing lodges, he says, but there isn't. Furthermore, says Lerner, often people who are interested in a fishing vacation don't have a particular geographic area in mind when they start searching. "Overture is saying 'fishing lodge' is not relevant for someone who is searching for fishing lodges," he says.
Lerner, who says he's steered about two dozen clients with Overture, and who estimates he's responsible for $10,000 of Overture ad sales annually, says the solution to which Overture's customer service staff has pointed him will mean more work for him, more work for Overture, and lower revenue-per-click for Overture. He's been told, he says, to resubmit all his terms in a Montana-specific form, such as "Montana fishing lodge." But based on Overture's own statistics, those Montana-specific phrases get one-tenth the inquiries, at most, that the company gets for similar geographically vague expressions. There's less competition for those Montana sites, too, Lerner says. Thus, the lodge will probably pay for fewer click-throughs, and less per click, he says, than it would had it been able to bid on the more general terms. Overture is "the best deal out there" for driving traffic to a Web site, says Lerner. "I think Overture is very useful and a good product," he says. "They should be complimented for trying to be relevant. Unfortunately, these guidelines eliminate some terms we think are relevant." Tom Weedon, Overture's senior director of product quality, says the new guidelines for location-specific listings -- instituted with several other listings guidelines on Jan. 21 -- are part of the company's ongoing effort to make search results relevant and useful for search engine users, a top priority of the Web affiliates on whose sites Overture's search engine appears. Dead-on relevance is especially important, he says, given that Overture's affiliates sometimes display only the top three listings from Overture's results. "We can't afford to have somewhat relevant or related Web sites in those top three," he says. That being said, says Weedon, the company is still working out the kinks in the new guidelines. Addressing Lerner's complaint specifically, he says the general-vs.-specific problem it embodies -- that is, the appropriateness of a specific answer for a general question -- is "really one of the toughest challenges in search." Says Weedon, "As we learn and as we tweak the new guidelines ... we figure out when to make exceptions that will benefit the users." Asked about advertisers' complaints that the company is rejecting bids on search terms it deems too obscure and specialized, in addition to the general terms deemed not relevant enough, Weedon admits Overture's decisions about what terms aren't worth the trouble are "arbitrary and subjective." He adds, though, that the company is trying to figure out a way to let advertisers bid on little-used terms in a way that's economically feasible for Overture. Maybe then all of Overture's advertisers will be playing a sweeter tune.