Yahoo! to Acquire Kelkoo for $579M

Portal giant Yahoo is shelling out $579M (475M Euro) in cash to buy European comparison shopping site Kelkoo and establish a firmer foothold in the region.

Kelkoo has operations in nine countries, works with more than 2,500 merchant advertisers, and reaches nearly 10 percent of all European Internet users, according to the companies. It operates a network of country-specific sites and distributes its listings through partnerships with MSN’s European sites; EasyValue; ANM’s Femail and ThisisLondon; Telewest’s Blueyonder; and Eurosport.

Kelkoo’s model is most similar to that of U.S.-based Shopping.com, or Yahoo’s own shopping operation. Merchants list their products for free, but pay a per-click fee (which varies by category) when customers are referred to their sites. The acquisition fits with Yahoo Shopping and its Overture paid listings company, both of which allow marketers to pay per-click for referrals.

Yahoo’s operations in Europe comprise sites for the United Kingdom and Ireland, France, Germany, Italy, Spain and Catalan (a section of Spain with its own dialect). Kelkoo operates in Belgium, France, Denmark, Germany, Spain, Italy, the Netherlands, Norway, and Sweden.

“Kelkoo will add depth and breadth to Yahoo’s integrated network of services for consumers, and adds another set of powerful tools for marketers seeking to reach them,” said Terry Semel, Yahoo’s chairman and CEO, in a statement.

Kelkoo will operate as an independent business unit in Yahoo’s international division, and the companies will look for opportunities to cross-pollinate across the network. Yahoo says it plans to combine Kelkoo’s online shopping expertise and product search capabilities with its own network and Web search. Specifically Kelkoo’s product search and comparison engine will power Yahoo Shopping in all of Yahoo’s European sites. Kelkoo’s technology is already employed at Yahoo France, Italy and Spain. In the U.S., Kelkoo employees will have a “collaborative relationship” with the folks at Yahoo Shopping. Rolling out Kelkoo’s technology across other international properties is also being considered.

“Online comparison shopping and product search is definitely a global opportunity,” said Joanna Stevens, a Yahoo spokesperson.

Overture’s paid listings capabilities are also expected to play a role. Kelkoo has long had agreements with both Overture and its competitor Espotting, which have placed search and contextual listings on its sites. Yahoo says it plans to maintain the relationship with Espotting, and the distribution relationship with MSN in Europe.

“We’re committed to helping maintain Kelkoo’s current partnerships,” said Stevens.

Yahoo’s Overture also has a long-running relationship with MSN, providing the Microsoft portal with paid search ads.

Comparison shopping has arisen to become one of the hotter areas of Internet marketing, combining elements of the hot search space with elements of e-commerce. U.S.-based Shopping.com, formed from the merger of DealTime and Epinions, earlier this week filed for an initial public offering, hoping to raise up to $75 million.

“We’ve seen 72 percent growth in the use of shopping search engines and price comparison portals in the past year,” said Simon Chamberlain, general manager of audience measurement firm Hitwise UK. “This deal is significant in that it continues Yahoo’s strategy of capitalizing on the phenomenal growth in revenues from search marketing. That strategy began by the acquisition of Inktomi, was strengthened by the acquisition of Overture and leads us to the acquisition of Kelkoo today.”

Chamberlain notes that Yahoo Shopping, while a leader in the space in the U.S., has never competed at the top levels in Europe. Kelkoo, by contrast, dominates the sector in Europe, according to Hitwise.

Kelkoo was founded in France in November 1999, and has since grown through merging or acquiring several companies in the UK, Spain, Norway and France. Its annual revenue in 2003 was around $52 million, an increase of around 180 percent from 2002’s $19 million. The bulk of the income comes from the United Kingdom, which generated more than 40 percent of the group’s total revenue.

The company has 250 employees, the company said, and its not expected to reduce its workforce as a result of the acquisition. Kelkoo CEO and founder Pierre Chappaz will continue to lead Kelkoo’s operations and will report to John Marcom, senior vice president of international operations at Yahoo.

The deal is expected to close during the second quarter of 2004.