Overture to Buy AltaVista

Paid search leader Overture Services signed a definitive agreement to purchase search engine AltaVista in a $140 million cash-and-stock deal, in an attempt by Overture to offer a complete search solution like rival Google.

The agreement with AltaVista, which is majority owned by CMGI, calls for Overture to pay $80 million worth of its stock and $60 million in cash. That cash will come out of Overture’s sizeable store — at the end of 2002, it reported having $251 million in cash. The company expects the deal will close in April.

With Palo Alto-based AltaVista’s algorithmic search technology, Pasadena-based Overture can now go after complete search deals, instead of just offering paid listings. This would follow the lead of Google, which has sought to parlay its standing as the top search technology into a top spot in the paid listing space. After entering the paid-search market last April, Google quickly established itself as a rival by luring away Overture partners EarthLink, Ask Jeeves and AOL.

“Adding AltaVista is an important step forward in expanding our capacity and commitment to search,” said Ted Meisel, Overture’s chief executive, in a conference call. “We believe this acquisition will strengthen the competitive advantage we already possess.”

In addition to algorithmic search, the AltaVista acquisition will give Overture a further search product: paid inclusion. With paid inclusion, companies can pay to have certain Web pages crawled to be included in search results. AltaVista has also experimented with other search products, such as integrated search units that allow a user to search an advertiser’s site directly from AltaVista.

“We think as we go forward technologies will blend,” Meisel said. “We thought it was time to bring the technology in-house so we could bring a complete solution to partners.”

The deal will also bring to Overture the AltaVista Web property, which would seem to put it in competition with its partners. In January, AltaVista was the 17th most visited search engine with 5.4 million unique visitors, according to Nielsen//NetRatings.

Overture has long maintained that its advantage over Google, which operates the fourth most popular site on the Internet, is that it does not compete with its partners for search traffic. Overture said it would use the AltaVista site to test new search products and marketing products.

“This acquisition does not change our strategy to reach consumers through our partners,” Meisel said. “We do not believe we are creating a competitor for our partners.”

Overture has sought to diversify its business beyond its dependence on its paid-listings partnerships with Yahoo and MSN. Overture recently told analysts that its partnerships with the two portals made up 66 percent of its business in the fourth quarter, resulting in higher customer acquisition costs because of the favorable deals Yahoo and MSN command.

Overture’s play for AltaVista is the second major move in the search space in recent months. In December, Yahoo inked a $235 million deal to acquire search provider Inktomi, in a move many saw as the first step to Yahoo ending its algorithmic search agreement with Google. Yahoo maintains a contract with Overture for paid listings until April 2005.

In addition to new search products, Meisel said AltaVista’s international profile, with search in 25 languages, would aid in Overture’s expansion abroad. Last week, Overture inked a deal to provide paid listings to MSN Japan, the latest in a string of international agreements the company has signed.

The deal will bring to a close the roller-coaster ride of AltaVista. As an early search engine praised for its technical acumen, AltaVista tried to become a portal in the late 1990s, only to lose out to the vast offerings and audience of Yahoo,MSN and AOL, while Google snuck in to emerge as the king of search.

Last November, AltaVista re-launched its site, featuring a Google-like stripped-down interface and an emphasis on paid search through its long-time Overture partnership.

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