The new agreement, announced Monday, extends Overture's incumbency in certain international versions of Microsoft's Internet Explorer software for a year, and allies Microsoft with Overture's recent and impending launches in certain European countries.
Monday's announcement highlights Overture's ongoing plans to expand rapidly in international markets and to reach profitability quickly in those markets. The pay-per-click advertising firm says it expects international revenue to double from 2003 to 2004, and those operations will stop losing money by early 2004.
International expansion is one of several strategies -- including, for example, Overture's recently launched program to place advertisements on Web pages judged to have similar content -- that the company is taking to diversify its revenue stream beyond the U.S.-based pay-for-placement search engine operation that dominates Overture's results.
Since the beginning of 2002, skeptics have argued that Overture's dependence on a few large partners for Internet distribution leaves the company vulnerable to paying an increasing share of its revenue to Internet publishers, such as Microsoft and
, in exchange for the business Overture generates through their sites. In addition to the leverage enjoyed by large publishers, Overture faces competition for advertising dollars and partnerships from other pay-per-click advertising firms, chiefly the privately held
In fact, in the first quarter ended March 31, 65% of Overture's revenue came through Yahoo! or Microsoft, and traffic acquisition costs as a percentage of revenue rose from 54% in the first quarter of 2002 to 64% in the first quarter of 2003. The new agreements with Microsoft don't do anything to diversify that company-specific revenue concentration for Overture, but they do help diversify revenue on a geographical basis.
Overture's shares, which over the past 52 weeks have ranged from a high of $31.30 to a late-April low of $10.42, traded at $20.39 Monday, up $1.05, or 5.5%.
In the renewed deal announced Monday, Overture's agreement to provide pay-per-click search results through Internet Explorer's MSN Search feature has been extended until December 2004 in the U.K., Germany, France, Japan and South Korea. Previously, the agreements had been set to expire at the end of 2003.
Additionally, Overture's agreements to provide results to MSN Search and to Microsoft's MSN Web sites has been expanded to include Overture's recently launched Italian operation, as well as areas the company expects to enter by the end of the year, including Spain, the Netherlands and certain Scandinavian markets.