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Overture to Add More Search Power

On the heels of its deal with AltaVista, the firm says it will buy the Web unit of Fast Search.

February 26, 2003|David Colker | Times Staff Writer

Overture Services Inc. has taken another expensive step toward expanding its search engine services in the face of increased competition.

The Pasadena company said Tuesday that it would buy the Web search unit of Fast Search & Transfer of Oslo for as much as $100 million. The deal comes on the heels of last week's announcement that Overture will pay $140 million for Internet search firm AltaVista Co.

Wall Street's initial reaction to its latest acquisition was to run for cover. Overture shares lost more than 11% of their value in Nasdaq trading, falling $1.93 to $15.44.

"This is a profitable little company that has suddenly, completely shifted into the investment-growth mode," said analyst Christa Sober of Thomas Weisel Partners.

"So now you have an investor base that has to deal with the fact that the happy little profit steam is being interrupted."

Neither Sober nor her firm own Overture stock or do business with the company.

Overture Chief Executive Ted Meisel said the acquisitions give the company its own search engine and the technology to offer new search products. He said he has no plans for any other immediate acquisitions.

"We got the companies we wanted, and that's it," Meisel said. "Our plate is full."

Because of the acquisitions, Overture reduced its per-share profit forecast for the year by about 20 cents. It now expects to earn 60 to 70 cents a share this year.

Meisel said he was disappointed by the early response from investors, but he said he understood it.

"This is a 'show me' market," he said. "We've been there before, and we know what to do: deliver."

Overture's main business has been in selling favored placement on Internet search results. That has proved to be one of the few profitable ways to make money in online advertising.

But the company has suffered recently from increased competition. Last year, chief rival Google Inc. of Mountain View, Calif., signed contracts with AOL Time Warner Inc.'s America Online, EarthLink Inc. and Ask Jeeves Inc., all former partners of Overture.

The company pays commissions to the Internet sites -- most prominently Yahoo Inc.'s site and Microsoft Corp.'s MSN -- that display its paid search results. With increased competition from Google, those sites have demanded bigger commissions from Overture. In the fourth quarter, the commissions consumed 62% of Overture's revenue. A year earlier, it was 51%.

With the technology acquired Tuesday, Overture hopes to offer a type of search advertising called "paid inclusion." A company subscribing to this service has its Web site probed more deeply to turn up products and other information that might not show up in a regular search.

Meisel said AltaVista, which used to be among the leading search engines, would be used mostly as a testing site for Overture's new offerings.

But he added that he would not promote AltaVista in order to minimize competition with one of Overture's main clients, Yahoo.

"AltaVista's market share is now less than 5%," Meisel said. "I don't expect it to increase."

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