Google and Overture Search for Tomorrow
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)
.
"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)
,
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)
,
Ask Jeeves
(ASKJ)
and
LookSmart
(LOOK)
, 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) - Get Report
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.
That number chiefly comprises pay-per-click listings revenue -- money that advertisers bid to be listed high in search results, which they pay only if Internet users click on their listing to visit their site -- but it also includes paid inclusion, advertiser payments for having their sites checked for possible inclusion in search listings ordered by relevance, not bid amount.
The Here's Why
Among the avenues for further growth are contextual advertising -- repurposing search engine ads for nonsearch-engine contextual pages. Google, for one, has started running these contextual ads from its search engine advertisers in the hopes, for example, that people reading a Web page devoted to rabbits are likely prospects for a pet food store.
Another possibility is locally targeted search-engine advertising -- a promising market, given the huge size of the yellow pages business, but one that has so far proved smaller than expected for ventures such as Microsoft's Sidewalk and
USA Interactive's
(USAI) - Get Report
Citysearch.
Overture's chief technology officer, Paul Ryan, said that what the industry should be working for is "democratizing" other online marketing channels, the way that pay-per-click search opened up the Internet advertising door to numerous small businesses that wouldn't have been able to afford conventional brand advertising campaigns online. That means, he said, giving small advertisers similar tools to market through contextual advertising, local search, paid inclusion and email advertising.
But, he said, this outlook shouldn't be interpreted as a road map for Overture's business plans. "I think it's the goal for the industry," he said.
