Coupled with the recent acquisition of Inktomi Corp, AltaVista’s traditional rival, by Yahoo! Inc, Overture’s biggest customer, the deal makes for a very interesting competitive landscape indeed, particularly if one factors in Google Inc, which competes with AltaVista, Inktomi and Overture and partners with Yahoo.
In terms of what the acquisition does to the web search marketplace, the deal has a few highlights for Overture, but it also raises question marks in key areas of its business.
First the good news. Paid-placement specialist Overture gets its hands on one of the internet’s best algorithmic search engines. This will allow it to offer a combined search and paid placement product to its customers, helping it compete with Google Inc.
We have been looking at whether and how to add algorithmic search to our arsenal over the last year, Overture CEO Ted Meisel said. We decided we could better serve by working with an existing establish player.
In addition, Overture will own over 50 patents on algorithmic search including, crucially, US patent 5,974,455. CMGI CEO David Wetherell two years ago claimed ‘455 covers the fundamental process of spidering, which underlies all search engines.
Now the bad news. Overture will also own a popular, if flagging, web portal with over 30 million unique users, which potentially puts it into competition with its partners. But Overture’s Meisel said this is not a big issue.
This does not change our strategy to reach consumers through partners, Meisel said. We do not believe we are creating a competitor for our partners… We have had discussions with our largest ones about this kind of a move.
Meisel said that the av.com web site will be used as a test-bed for new products and services that would ultimately be delivered to partner sites. It remains to be seen how partners will respond to this situation.
A second new revenue stream will be paid inclusion, which differs from paid placement in that it only provides that a search engine will frequently spider a site, without guaranteeing a ranking. Meisel said paid inclusion will just cover engineering costs.
The acquisition also changes the dynamics of the relationship between Overture and Yahoo. Inktomi, which Yahoo is buying, for some time has provided the backfill algorithmic search results that run below Overture’s sponsorship-driven index.
Meisel, responding to a question about the Inktomi factor, said Overture was not motivated to act by other external factors. Meisel also said that the company definitely intends to syndicate the AltaVista search service to partners.
An Overture spokesperson later added that the company has no near-term plans as yet to dump Inktomi as the main backfill provider for its own site or partner sites. Inktomi’s new owner Yahoo accounts for, by some estimates, over a third of Overture’s revenue.
Another big question mark is hanging over AltaVista Software, the firm’s enterprise search division. The unit currently has 1,200 customers, including Amazon.com, Siemens, Borders and Buy.com. Overture’s specialty is not in the enterprise.
Nowhere in this week’s announcement or press conference was the software unit mentioned. An Overture spokesperson said the company will continue to support existing customers. He could not comment on strategic plans for the unit going forward.
The acquisition, for $80m in stock and $60m in cash, will be dilutive to Overture earnings in the short terms, but accretive by the middle of next year, Overture executives said in a conference call this week.
Overture will be AltaVista’s fourth owner since its creation in 1995 by researchers at Digital Equipment Corp. DEC was taken over by Compaq Computer Corp in 1998 and the following year, Compaq laid out plans to spin off AltaVista with an IPO during the height of the dot-com bubble.
Ultimately, Compaq chose instead to sell the business to CMGI for $2.3bn in mid-1999. CMGI was in the process of creating an expansive stable of dot-com properties, and also intended to IPO AltaVista in mid-2000, but the bubble burst first, halting that idea.
Over the last few years AltaVista has had the unenviable task of competing with the likes of Google while suffering under a parent company more concerned with selling off assets and cutting costs than developing a quality product that could easily fend off Google.
Source: Computerwire
