By: Michael Liedtke, AP Business Writer
(AP) Overture Services Inc. added more scientific horsepower to its advertising-driven online search engine Tuesday by agreeing to pay up to $100 million for AlltheWeb.com and several affiliates.
Overture’s all-cash takeover of Internet properties developed by Fast Search and Transfer (FAST) comes a week after it announced plans to buy search engine pioneer AltaVista for $140 million in cash and stock.
In the latest deal, Overture is paying Norway-based FAST $70 million this year and up to $30 million over the next three years if certain financial targets are hit. FAST is retaining a larger division that licenses search tools to the Web sites of businesses.
The acquisitions herald Overture’s expansion beyond its lucrative specialty of pay-for-placement search — in which results are returned based upon who bid highest for such terms as “travel” or “eyewear.”
Although Overture isn’t a household name, its ad-driven search engine has become a pervasive force online. Its results appear in queries conducted on popular Web sites including Yahoo! and Microsoft Corp.’s MSN.
Splitting up the money from advertisers that bid for customer leads has turned into one of the Internet’s boom businesses. The concept is expected to generate $1.5 billion to $2 billion in revenue this year and another $3 billion next year.
By adding the algorithmic search tools developed by AltaVista and FAST, Pasadena, Calif.-based Overture thinks it can offer prospective customers a complete package of services.
Although it has steadily lost traffic in recent years, AltaVista still handles about 18 million search queries per day. AlltheWeb.com processes about 2.5 million queries a day. Google, the Web’s most popular search engine, crunches through about 150 million daily search queries.
With its recent expansion, Overture is escalating its battle with Mountain View, Calif.-based Google, which is revered for its ability to generate objective search listings relevant to a query.
Investors aren’t happy about Overture’s expansion, largely because the deal will hurt the company’s earnings this year. After projecting 2003 earnings of 90 cents per share to $1.05 per share earlier this month, management on Tuesday lowered its estimates to 60 cents to 70 cents per share.
Overture’s shares fell $1.93 to close at $15.44 Tuesday on the Nasdaq Stock Market. Since the company announced the AltaVista takeover, Overture’s market value has plunged by 32%.
The deals should start boosting Overture’s profit by mid-2004, management said Tuesday.
Overture’s recent shopping spree also might disappoint some Web surfers because the company eventually plans to blend the separate databases maintained by AltaVista and AlltheWeb into a single index.
“There is going to be some concern about that,” said Gary Notess, who runs Searchengineshowdown.com. “When you can’t find something you are looking for on Google, it’s nice to have other alternatives.”
Adding the resources provided by AltaVista and AlltheWeb will enable Overture to provide the Web’s most comprehensive search results, predicted Ted Meisel, Overture’s chief executive. “We are creating the next generation of search,” Meisel said. “We are prepared to play against anyone now.”
The jostling in online search isn’t confined to Overture and Google. Yahoo!, which depends on both Google and Overture for many of its search results, is about to buy Inktomi Corp.’s search division for $235 million.
The flurry of deals may intensify the pressure on MSN to pull off a search acquisition, said Danny Sullivan, editor of the newsletter Search Engine Watch. Microsoft was believed to be interested in buying AltaVista before Overture snapped up the search engine.
An MSN spokeswoman declined to comment on the site’s possible acquisition plans. MSN currently draws upon Inktomi, as well as Overture, for its search results.
If Microsoft were to make a search acquisition, potential targets include Ask Jeeves Inc., which runs a Google-like search engine called Teoma.com besides its own eponymous site.
With nearly $43 billion in the bank as of Dec. 31, Microsoft conceivably could buy privately held Google, although a deal like that would likely face a fierce public relations backlash, Sullivan said.
Industry analysts also have raised the possibility that Overture eventually might be bought by Yahoo!, which this year expects to generate $200 million in revenue from ad-driven search results.
Yahoo! executives declined to answer questions about a possible Overture bid at an analyst meeting earlier this month but lavished the company with praise. “Google had no idea how they were going to monetize search, but then Overture came along and showed the way,” said Terry Semel, CEO for Yahoo!