Overture Challenges Google with AltaVista Grab

In a bid to bolster the technology that drives its booming search services, Overture Services has announced it will pay US$140 million to acquire once-venerable search engine AltaVista from dot-com incubator CMGI.

The deal consists of $80 million worth of stock and $60 million in cash. The fire-sale price represents a bargain for Overture and a disaster for CMGI, which paid Compaq $2.3 billion for an 83 percent stake in the company in June 1999.

Overture has made it no secret that the move is intended to fend off the rising star of Google. The company noted that AltaVista, which was founded in 1995, holds 58 patents and uses “advanced algorithmic search technology” to crawl the Web and return relevant results.

Growth Ahead

Overture said it will not change its 2003 guidance as a result of the buy, but noted that the purchase will start to pay off by mid-2004.

Wall Street did not react favorably to the news. Shares of Overture plummeted 14 percent in early trading Wednesday to $19.48. On the other hand, CMGI stock — which once traded for $163 per share — rose to 98 cents, a gain of 18 percent.

But Overture said the deal has long-term implications. In a conference call, CEO Ted Meisel said the search business remains in its infancy.

“There is no more compelling growth proposition anywhere than in the market for commercial and business search,” Meisel said. “This is still a very young industry and very young product. There’s still a lot of innovation to go.”

Why CMGI Sold

But if search is such a hot field, why did CMGI sell AltaVista?

CMGI spokesperson John Stevens told the E-Commerce Times that although CMGI had considered AltaVista a core asset during a lengthy and extensive reorganization that saw the incubator spin off several under-performing companies, the sale represented the best option for shareholders.

“The amount of investment needed to continue to compete as a stand-alone search engine would have been significant,” Stevens said.

Though it is now significantly smaller, CMGI may have finally begun to pare its losses. The incubator, whose main holdings now include auction site uBid, YesMail and SalesLink, recently said it will lose between $10 million and $15 million in the current quarter, just a fraction of the $1 billion loss it posted in the third quarter of 2001.

Google on its Mind

Asked whether Overture’s latest move represents a challenge to Google’s dominance, CEO Meisel said he would “love to have the problem of Google’s market share” within algorithmic search. Many sites, including Yahoo!, use both Overture’s paid listings service and Google’s automated Web search.

“The response from our partners has been that they’re pleased we’re taking steps to enhance our product and they’re looking forward to seeing where we take it,” Meisel said. “The proof about whether or not we’ll be a competitor will be in our actions going forward.”

Search and Conquer

Search has been a bright spot even amid the technology downturn. Overture has turned in profitable quarters recently, and Google seems poised to carry out one of the first dot-com IPOs when the stock market finally thaws.

“Search engines have become an increasingly important way for companies to quickly and expensively establish a presence online,” Nielsen//NetRatings senior analyst Lisa Strand told the E-Commerce Times. “Almost every company that uses the Web for marketing has integrated search engines into their strategy, and they are always looking for ways to refine what they’re doing.”

Buying and Selling

Overture’s foray into automated search comes as Google has made headway into the paid listings arena. Last year, Google wrested a long-term, $100 million contract to provide paid listings to Ask Jeeves away from Overture. Google also is testing a comparison shopping site dubbed Froogle.

Earlier this week, meanwhile, Google aimed its acquisition efforts in a different direction, quietly buying privately held Pyra Labs, which makes popular software that helps users create Weblogs, also known as blogs. Terms of that deal were not disclosed. Some analysts speculate that Google will use Pyra to feed information to its news search service.