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
, 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
, 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
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.
One of the key benefits of the Yahoo! deal to Overture, suggests Meisel, is the security it gives Overture. And that's not simply dollars and cents, but the amount of Internet traffic that Yahoo! will supply to Overture in coming years.
"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."
Another product that Overture is working on is locallytargeted advertising, which the company hopes to debut by the end of the year.
In theory, localized online ads are a huge business opportunity. In practice, no one has made a tremendous success of it. And that includes Meisel, who formerly worked at CitySearch, since subsumed into
The difficulty, says Meisel, is that local advertising is complicated for both the advertisers and Overture itself, which first entertained the idea of localized search-engine advertising in 1999. "We've been waiting until we could get automation to the right point and service to the right point where we could help advertisers through that in a cost-effective way," he says.
On the subject of integrating Overture with Yahoo!, Meisel says the biggest challenge will be melding operations in the area of algorithmic search -- that is, search results determined by automated processes rather than the bid-for-placement scheme at the heart of Overture's core business. Yahoo! purchased algorithmic search-engine operator Inktomi earlier this year, while Overture acquired algorithmic search technology from FAST and AltaVista.
Although Overture hopes to completely integrate AltaVista and FAST by the end of the year, there's no timetable for the expected subsequent merger with Inktomi. "We have a fair amount of planning to do," says Meisel.
Finally, Meisel is sanguine about the company's competitive position with the privately held Google, both before and after the completion of the Yahoo! deal. He points out that Overture has won several recent affiliation deals with publishers, including one with
"There's been an air of invincibility around Google," says Meisel, "that I think we've punctured just in the last month."
Over the long run, he returned again to the security issue: "By having captive access to everything that Yahoo! has to offer -- the full breadth of the Yahoo! network -- we know we have a traffic source that will allow us to continue to make plans with great certainty," says Meisel. "So, we can invest in order to be as competitive as possible."