Google and Overture Search for Tomorrow

03/19/03 - 07:10 AM EST

George Mannes

Ya-who?

The CEO of Europe's leading paid-search advertising company flatly denied on Tuesday a press report that his company was in negotiations to be acquired by Internet media company Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks).

"Espotting is not being bought by Yahoo!," Espotting's founder, Daniel Ishag, told attendees of a search engine conference in New York. Espotting will show explosive growth over the next few years, Ishag subsequently told TheStreet.com. "That's why we're not for sale."

That sky's-the-limit optimism from the privately held Espotting was typical of the outlook at the Tuesday conference on the business of Internet searching, sponsored by U.S. Bancorp Piper Jaffray. Though participants in the conference had their problems with Overture Services (OVER Quote - Cramer on OVER - Stock Picks), Google and other companies that make money from search engine advertising, people seemed confident that the search business, already an undisputed online advertising success story, is just getting started.

At stake is the investability of companies such as FindWhat.com (FWHT Quote - Cramer on FWHT - Stock Picks), Ask Jeeves (ASKJ Quote - Cramer on ASKJ - Stock Picks) and LookSmart (LOOK Quote - Cramer on LOOK - Stock Picks), but especially Overture.

On Tuesday, as the market shrugged off worries about an approaching war in Iraq, Overture's shares fell 10 cents to $14.99, down 50% from where the company traded two months ago. FindWhat.com's shares rose 15 cents to $9.55, Ask Jeeves fell 34 cents to $6.80 and LookSmart rose 4 cents to $2.35.

Gnawing

The leader in search-related advertising, Overture has seen its share price eaten away by investor suspicions that the company's biggest partners, Yahoo! and Microsoft's (MSFT Quote - Cramer on MSFT - Stock Picks) MSN, will demand an ever-increasing share of the money that Overture collects from advertisers or perhaps pull their business from Overture. Overture has argued, in response, that the growth in the paid-search market will more than make up for increased revenue sharing, or what Overture calls traffic acquisition costs.

Certainly, the expected growth in the paid-search business is as steep as it once was for the online advertising business overall -- a good sign if one thinks that Internet advertising watchers are older and wiser, but a bad one if you think they're just older. Worldwide paid-search revenue will jump from $1.4 billion in 2002 to $7 billion in 2007 -- representing a 30% compound annual growth rate -- according to U.S. Bancorp Piper Jaffray analyst Safa Rashtchy.

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