Feb 26

Overture has announced that they will be acquiring the Web search properties of Fast Search & Transfer (FAST) for $70 million in cash and up to $30 million over the next three years, based on fiscal performance targets met by FAST. This is on the heels of their earlier announcement that they will be acquiring AltaVista for $80 million in Overture stock and $60 million in cash. Although Overture keeps denying it, they must be investing $100 million in cash to address the growing threat from Google and Yahoo to Overture's core business of paid placement within search results. Of course, the immediate result of these two announcements was that Overture's stock price plummeted down by 33%. If I were holding Overture stock right now, I would not be very happy.

I still remember the early days of Overture when they were known as Goto.com. They had this wacky idea of auctioning placement of search results from keywords to the highest bidder. It sounded like one of those novel business models dreamt up by a clever MBA that was creative but not quite solid. Not as wacky as the business model from AllAdvantage.com (recurse(get paid to surf and get a cut of the revenue stream from everyone you recruit into the program)) or the original business model of buy.com (sell goods at cost and make money on advertising to the customer base), but still a little wacky. You definitely have to hand it to Overture. They were able to execute on their business model and launch a $2 billion market.

The question is, can Overture continue to execute on their business model? In some ways, they've shown how companies such as Google can monetize web searches, but they seem to be slipping. After all, how hard can it be to develop search placement technology? All you have to do is recognize some keywords and then look up the appropriate text to place within the search. The real hard part is developing a good search engine, which is the part that Google seems to have mastered. Now that Overture has access to the AltaVista and FAST web search assets, it will be interesting to see how they innovate and evolve their technology into new areas. The hard part for them is that they have to embark on this transformation as a public company, with all the scrutiny and short term revenue and earnings pressure associated with being a public company. Whatever happens in the short term, I wouldn't count Overture out. They've been able to execute on their original business model and build a $2 billion market. Maybe they can do it again.