Yahoo!, Overture Combo Could Hurt MSN

  |  July 14, 2003   |  Comments

Yahoo!'s $1.6 billion acquisition leaves Overture distribution partner MSN in a pickle in the fast-moving search sector.

Yahoo's blockbuster $1.6 billion deal to buy paid search pioneer Overture Services leaves MSN in an awkward position with a dwindling set of options in the fight for leadership in the booming search market, according to analysts.

MSN is now in the position of depending on two recent Yahoo acquisitions, Inktomi and Overture, for its core search services, both algorithmic and paid listings -- a situation unlikely to make MSN happy, as Yahoo is one of its biggest competitors. Now MSN faces the daunting task of building algorithmic and paid search platforms or choosing to buy one of the few search firms left on the market.

Publicly, Yahoo and MSN officials said they remain committed to the relationship, although most industry analysts doubt it can survive.

"I think MSN has to be kicking themselves for being asleep at the wheel for so long," said Fredrick Marckini, chief executive of search marketing firm iProspect. "The sand is shifting under their feet and they have to act."

For now, MSN says it is keeping its options open.

"It's too soon to speculate what direction we'll go," said Lisa Gurry, group product manager at MSN. "We'll be evaluating what our best options are."

Gurry said MSN did not rule out continuing its relationship with Overture, which is set to end in December 2005.

"At this point in time, we don't anticipate any short-term changes to our business," she said. "Long term, we're looking forward to talking to Yahoo and Overture to understand the agreement in detail."

Close Ties

MSN was a key partnership for Overture. Together with Yahoo, the two distribution partners accounted for 65 percent of Overture's revenues. The cornerstone of the relationship, Overture's paid listings on MSN.com, began in 1998, in the early days of paid search when Overture was known as GoTo.com. The contract is set to run through December 2004.

According to analysts, the MSN partnership has been lucrative for both sides, with MSN taking roughly 70 percent of the revenue generated.

In addition, the two companies have forged close ties in new product areas and abroad, where Overture was expanding at a fast clip. Just two weeks ago, Overture rolled out its contextual advertising product with MSN as its key distribution partner. Likewise, Overture and MSN last week announced they would extend their distribution deals for browser search in six countries and add Overture's Web paid search to MSN Italy. The deals now also expire in December 2004. Overture has distribution deals in every country it operates.

"You've got to think MSN's going to be looking at their relationship with Overture in a new light," said Gary Stein, an analyst with Jupiter Research, which has the same parent company as this Web site.

MSN is in a particularly awkward position since its algorithmic search provider is Inktomi, which Yahoo acquired last December for $235 million. MSN chose to renew its contract with Inktomi two months later, while laying the groundwork for its own search offering. Its Inktomi deal now expires in December 2005.

"Buying Overture is almost like a slap in the face," said Danny Sullivan, editor of Search Engine Watch, which is owned by the parent company of this Web site. "When MSN has given so much support to Overture, it's got to be somewhat shocking that you're left hanging."

Build or Buy?

Now, MSN must decide whether to buy or build paid search capability. While it re-upped with Inktomi until the end of 2005, Microsoft has made clear that it would drive hard to build a leadership position in algorithmic search, setting its sights on market leader Google.

Microsoft might need to develop an algorithmic and paid search at the same time -- a potentially daunting task, even for the tech giant. "Now, they're going to have two giant problems to deal with at the same time," Sullivan said.

For now, industry analysts do not expect MSN will invoke an out clause in its contract with Overture that allows it to walk away from the relationship in case of a change of control of the company. Since the Yahoo-Overture deal does not close until the fourth quarter, the company has some time to figure out its next move.

Denise Garcia, an analyst with GartnerG2, said that Microsoft has the wherewithal to develop its own paid listings program.

"I think MSN could start something like this on its own," she said. "Being part of Microsoft gives them the tech backing to do it."

In the meantime, MSN's contract with Overture is already flexible enough to allow it to begin its own paid listings program while still using Overture, according to Kevin Lee, chief executive of Did-It.com. He said MSN could expand its own "featured listings" offering, which appears above Overture's listings on the results page.

"Overture's great backfill," he said. "There's no real reason to get rid of it."

The other option is for MSN to purchase a paid listings provider like FindWhat.com, which might have made itself more attractive by adding an international reach through its acquisition of Espotting Media last month.

Then, there is the long-shot option that elicits the most excited chatter.

"I think if MSN bought Google that would make things really interesting," iProspect's Marckini said. "Then you'd have a clash of the titans."

ClickZ Live Toronto Twitter Canada MD Kirstine Stewart to Keynote Toronto
ClickZ Live Toronto (May 14-16) is a new event addressing the rapidly changing landscape that digital marketers face. The agenda focuses on customer engagement and attaining maximum ROI through online marketing efforts across paid, owned & earned media. Register now and save!

ABOUT THE AUTHOR

COMMENTSCommenting policy

comments powered by Disqus

ClickZ Today is our #1 newsletter.
Get a daily dose of digital marketing.

COMMENTS

UPCOMING EVENTS

Featured White Papers

ion Interactive Marketing Apps for Landing Pages White Paper

Marketing Apps for Landing Pages White Paper
Marketing apps can elevate a formulaic landing page into a highly interactive user experience. Learn how to turn your static content into exciting marketing apps.

eMarketer: Redefining Mobile-Only Users: Millions Selectively Avoid the Desktop

Redefining 'Mobile-Only' Users: Millions Selectively Avoid the Desktop
A new breed of selective mobile-only consumers has emerged. What are the demos of these users and how and where can marketers reach them?

Jobs

    • Sr. Paid Search Manager
      Sr. Paid Search Manager (Bisk Education) - TampaCurrently seeking a Sr. Paid Search Manager in Tampa, FL for Bisk Education! Bisk Education is a...
    • Contact Center Professional
      Contact Center Professional (TCC: The Contact Center) - Hunt ValleyLooking to join a workforce that prides themselves on being routine and keeping...
    • Recruitment and Team Building Ambassador
      Recruitment and Team Building Ambassador (Agora Inc.) - BaltimoreAgora, www.agora-inc.com, continues to expand! In order to meet the needs of our...