Yahoo to acquire search company Overture for $1.6 billion
Portal Yahoo Inc. will acquire online search services provider Overture Services Inc. in a deal valued at $1.6 billion, the companies announced today. Under the agreement, which still needs shareholder approval but could be completed by the fourth quarter, each outstanding common share of Overture will receive 0.6108 shares of Yahoo common stock and $4.75 in cash.
“The combined assets position Yahoo as the largest global player in the rapidly growing Internet advertising sector,” says Terry Semel, CEO of Yahoo. “Together the two companies will be able to provide the most compelling and diversified suite of integrated marketing solutions around the globe, including, branding, paid placement, graphical ads, text links, multimedia and contextual advertising.”
The move and the combined offering strengthen the position of an already-strong Yahoo in both the online advertising and online search marketplaces; respectively the second and third-largest online marketplaces, in terms of revenue, after e-commerce itself, according to a recent report by U.S. Bancorp Piper Jaffray. Paid search services in particular are growing at a rapid rate, expected to reach revenues of $7 billion worldwide by 2007, representing a compound annual growth rate of more than 30%, according to Piper Jaffray. Overture is a leading provider of commercial search, with some 88,000 advertisers globally at the end of the first quarter of 2003.
“Overture pioneered commercial search, and we believe there remains a huge upside potential in this market,” says Ted Meisel, CEO of Overture. “By combining the assets of Yahoo and Overture, we believe the company will be strongly positioned to take advantage of this growth opportunity by more rapidly developing and deploying innovative search and marketing solutions.”
With the deal, Yahoo further widens the gap between Overture and its nearest search competitor, Google, which has been angling for a bigger piece of the growing paid search market with the rollout of new commercial search products. Overture Services had search revenues of about $688 million in 2002, according to Piper Jaffray; Google’s revenues from search were estimated at about $294 million.
“This is testimony to the long-term staying power of search engine marketing,” says Frederick Marckini, CEO of search engine marketing company iProspect, which now manages a high volume of paid search programs through Overture on behalf of iProspect clients, along with the natural search services it has historically provided. “Investments this big don’t happen unless the companies know that the market is going to be there for a long time. But it’s a bad day to be Google,” he adds. “Their primary competitor, Overture, has now been backed by the biggest dog in the search engine space.”
Yet there is still room for more than one large player in paid search despite the consolidation that, for now, makes Yahoo the major presence in that arena, says Marckini, pointing out that Microsoft has been developing its own technology to increase its presence in search. Part of how which search companies stay on top depends on how they market themselves strategically, while part depends on technology, he says. Marckini points out that Overture owns Alta Vista, which owns a significant number of search technology patents, while Overture itself holds a number of technology patents on auction-model pay-per-click bidding on search terms.
“Yahoo is sitting on the biggest cache of intellectual property,” he says. “What they do with it now is likely going to shape the marketplace.”
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