Now that Overture Services (OVER) is being acquired by one of its biggest business partners, some investors worry that Overture's relationships with its other online partners will sour.But Overture Chief Executive Ted Meisel calls this a misguided notion. Following Overture's agreement last month to be acquired by Yahoo! ( YHOO), there's a sense, Meisel says, "that because Overture is now part of a portal ... somehow that diminishes the value, to affiliates, of what Overture does." Not true, he says. Yes, in the past, the pay-per-click search-engine operator has gotten Web site affiliates to host Overture's search results in part by arguing that it wasn't competing with them for advertising dollars by operating its own destination search engine. In fact, Overture has used its decision not to develop a consumer brand as a distinguishing feature in its competition with privately held Google, the ever-popular search engine that competes with Overture for both affiliated Internet sites and advertising dollars. But now that Overture is being taken over by Yahoo! -- a company that, with Microsoft ( MSFT), supplies Internet traffic to Overture, amounting to two-thirds of the search company's revenue -- Meisel says losing that disinterested status will be no big deal. "We compete on several factors," says Meisel, including search monetization, quality and customized service. "No-branding, or private label, is one -- only one -- of the factors." Affiliation, along with competition from Google, the benefits of the Yahoo! deal, and new efforts in context-based and locally targeted advertising were among the topics that Meisel covered in a conversation with TheStreet.com last week. With Overture's stock trading in tandem with Yahoo!'s since the companies' deal was announced, it's unlikely that any of these issues will have a major effect on Overture's stock before the deal closes, as expected, by the end of the year. But given that pay-per-click is online advertising's biggest growth area these days -- with Overture accounting for about 20% of Yahoo!'s revenue in the first half of the year -- it's likely that they will play a significant role in Overture's and Yahoo!'s future for years to come.
Certainty"The logic for the deal, from Overture's side, was to eliminate some uncertainty associated with Yahoo!'s participation in the network," says Meisel, "and gain contextual advertising opportunity." Doing the merger, says Meisel, creates "certainty" that allows Overture to continue to invest in new products "at a pretty rapid rate." In the past, Overture's stock has risen and fallen on news that partners supplying major amounts of traffic to Overture were staying with, or departing from, Overture's affiliate network. Contextual advertising, which Google and Yahoo! have launched in recent months, enables marketers to place advertisements not only in search engine results -- but also on nonsearch pages in which the advertisement, ideally, bears some relationship to the editorial content on the page. Thus, in theory, an ad for New York Mets memorabilia might come up on the same page as a story about Gary Carter's admission to baseball's Hall of Fame. Overture officially launched its contextual advertising service only a month ago -- it has high hopes -- with Meisel saying it appears to be a multibillion-dollar market like search. Because search and contextual advertising are both big markets, says Meisel, "We were comfortable that if there were to be any losses in the network, they could be offset by what we were able to do with Yahoo! and through the certainty of developing better products -- the ability to get them into the hands of partners."