Overture Exec Departs for Yahoo!

Yahoo on Tuesday said it hired away a top Overture executive to head its search unit.

Tim Cadogan, who was vice president of search at Overture, will join Yahoo in the same capacity. Considering his background at Overture, the leading provider of paid listings, the hiring caused speculation that Yahoo would end its relationship with Overture when their contract expires in 2005.

In a research note released Tuesday morning, Soundview Technology Group analyst Jordan Rohan raised the possibility the hiring, combined with Yahoo’s $235 million deal for paid placement provider Inktomi, could presage Yahoo making paid listings part of an integrated search offering.

Spokespersons for both companies said their relationship remains unchanged and strong.

“We have an excellent relationship with Yahoo and expect and look forward to working closer with Tim in his new role to further strengthen and deepen our relationship with Yahoo,” Overture spokesman Al Duncan said.

“We have a great working relationship with Overture,” Yahoo spokeswoman Diana Lee said.

The two companies signed a deal last March to extend their paid-listings relationship until March 2005.

Yahoo’s much-ballyhooed turnaround has been fueled, in large part, by its relationship with Overture. In 2002, paid search generated $120 million in revenues for the company.

Terry Semel, Yahoo’s chief executive, has lauded paid search’s efficiency, calling it a “beautiful system.” With the acquisition of Inktomi, most analysts thought Yahoo was preparing to end its relationship with Google for algorithmic search and provide its own search product.

In fact, Overture’s chief financial officer, Todd Tappin, told an investor conference earlier this month that the Yahoo-Inktomi deal made him “pretty excited” and would end up hurting Google.

The Yahoo-Overture relationship has benefited both sides. Overture has derived a large chunk of its revenue from the deal, with Yahoo and fellow mega-portal MSN accounting for 63 percent of the company’s $173 million of third-quarter sales. The two deals loom even larger for Overture in the aftermath of AOL’s decision last May to sign with Google for its rival paid listing offering.

In December, the company reported that its traffic-acquisition costs for the fourth quarter would rise from 59 percent in the third quarter to 62 percent. The company said the rise was due to a greater portion of revenue coming from its Yahoo and MSN deals, which give Overure a lower cut of the revenue generated each time a user clicks on a paid listing.

In an attempt to blunt the over-concentration of revenues in its largest partnerships, Overture has focused on expanding abroad, where paid search is still new. The company has scored a number of international wins in 2002, beating out rival Google for a contract with the top portal in the United Kingdom and sharing a deal with Yahoo Japan.

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