Not since 1996, when Excite purchased both Magellan and WebCrawler, have we seen one search engine company gobble up two others. Even then, Excite let a couple of months pass between acquisitions. Overture announced plans for its two acquisitions within the space of just two weeks.
The rapid move has people speculating what Overture will do next. Not another acquisition any time soon, assures Overture president and CEO Ted Meisel. "Our plate is full," he said.
As for how Overture will digest and use what's already on the plate -- AltaVista and the web search unit of FAST -- Meisel provided further guidance on some key questions during an interview with me last week.
In the story below, rather than keep referring to "the web search unit of FAST," which is what Overture wants to purchase, I'm simply saying AllTheWeb.
I think this will make it easier for everyone to understand what Overture wants to buy, the web search technology that FAST uses to power AllTheWeb.com and FAST's partner sites. Overture is not buying FAST itself. That company is simply selling off its web search technology and focusing instead on enterprise search.
Could Have Helped Save AOL
Meisel said in conference calls with financial analysts about the AltaVista and AllTheWeb deals that having a complete solution for partners -- editorial and paid listings -- was a move Overture needed to make, to stay competitive:
"We have seen opportunities come and go that we would have liked to have won. We didn't have the full search solution our partners were looking for," Meisel said, during last week's call about AllTheWeb. "Those are the opportunities we would seek to reclaim."
Following on this, I asked if there were any particular deals last year where Overture thought having a combined solution would have been helpful.
"I think we might have had a different conversation at AOL. I can't say for certain, because you can't go back in time. Clearly, algorithmic search was a very important factor, and we weren't ready."
Why Not Inktomi?
By getting AltaVista, Overture's picked up a large paid inclusion base. By getting AllTheWeb, the company's picked up what many believe is the better search technology. But why did Overture not get Inktomi, which has both a large paid inclusion base and great search technology?
"I can see why it was a very good match for Yahoo," Meisel said, but that didn't mean Inktomi was the right fit for Overture, he explained.
"I think Inktomi does a good job. The question is always what set of assets at what price? Strengths we got outweigh what we would have got at the price that Inktomi sold for," Meisel said. "We wanted to get companies that had been putting lots of focus on their international operations," he explained further.
Did Yahoo's purchase of Inktomi spur Overture on to get AltaVista and AllTheWeb? Meisel said that talks with both companies had happened "on and off" over the past year and that they weren't culminated as a reaction to Yahoo but rather because the time was right for both companies, Overture and Yahoo, to make such moves.
"I don't think it changed our point of view. What probably happened is we both came to the same conclusion at the same point in time. It's not incredibly surprising as we've spent a lot of time with the Yahoo folks to understand the future of search," Meisel said.
Why Buy Two?
So if Inktomi wasn't the right fit, did Overture really need both AltaVista and AllTheWeb? There was a spin at the conference call that the AllTheWeb deal would help strengthen things not found in the AltaVista deal. If so, then what if Overture hadn't been able to get AllTheWeb?
"It goes into making us a stronger provider sooner. We were perfectly prepared to work with AltaVista alone and would have built a terrific service, but this helps us go faster and clarifies our intentions," Meisel said.
"Are you really trying to compete with your partners," he said, asking the question many financial analysts has posed (and worried about). "If that was our intention, there were other companies that we could have gone after that had more traffic than technology."
One obvious advantage of getting AllTheWeb is that it messes up a partnership that Overture-competitor Espotting had just announced with the service in Europe. Was that a factor in going after AllTheWeb?
"It just wasn't our focus. That wasn't the first, second or third motivation," Meisel said. "We had planned to expand pretty rapidly in Europe and announced that at the last conference all, so this fits nicely in with those plans."
How Do You Make Two Into One?
The last conference call gave an impression that AltaVista and AllTheWeb's technologies would somehow be blended into a new creature. My assessment has been that in reality, Overture will likely build off of one technology as the main foundation but enhance this with techniques and knowledge from both parties they are acquiring.
"You are right," Meisel said. "You have five plus major software components of a search engine and software that's inextricably linked to data structures," he said, which means you can't just blend everything from both services together.
I suspect FAST will be the foundation technology, but Meisel wouldn't say either way. And to be fair, until the deals are completed and all three teams are working together -- tech staff from AltaVista, AllTheWeb and from within Overture itself -- no one really knows for certain how things will progress.
"I know we'll find best of breed components in each," Meisel said. "We'll need to make some changes to make them work together, and we don't think this will be a case of three months later, 'Voila,' a fully integrated search engine."
Eventually, this means there will be one single index that powers the editorial results that Overture will provide to its partners and use within the AltaVista and AllTheWeb sites, assuming both are kept running.
Meisel figures this common index will emerge in "roughly a year." Until then, it's likely that both AltaVista and AllTheWeb will keep crawling and indexing the web independently.
But I Paid To Be In Both!
Having a common index poses a complication. Some paid inclusion customers have paid to be included in AllTheWeb for a year, while AltaVista sells on a six-month basis. If Overture moves to a common index, there's the potential for some people to have paid twice to be in the same place.
"It's one of the issues that we'll need to deal with. It's something we'll be very sensitive to," Meisel said.
As for the larger customers being included on a cost-per-click basis, moving to a single index should have no impact. They'll still be included in that index and distributed as in the past.
Overture & Inktomi Results
Overture currently supplies Inktomi's unpaid, crawler-based results to some partners such as Go.com, affiliate sites and uses them on its own site. Will it continue to do this, once its deals are completed and it has the option of supplying its own crawler-based results?
"I think we've made no decision on what we're going to use at Overture.com," Meisel said. As for partners, Overture's happy to let them do whatever they think is best. Having its own crawler-based results simply lets Overture have an additional option to offer, making it stronger when that's wanted but not weaker when it is not.
"We'll let our partners chose. If Inktomi is offering a service that our partners find meets their user needs better, then we'd be perfectly happy to share that with Inktomi," he explained. "Some partners may be uncomfortable with the Yahoo relationship, while other partners think that's a plus, and we're happy to work it both ways. For us, it won't be a branded play."
What Happens To AltaVista's & AllTheWeb's Web Sites?
In purchasing AltaVista, Overture has inherited a network of search sites worldwide, albeit far less popular than during AltaVista's heyday. It also gains the AllTheWeb search site, which has relatively few users. It has indicated its conference calls that both sites will be maintained. So what will users see?
"We're working that issue through" Meisel said. "You can think of us incorporating those two sites into a more formal product development process. You have alpha testing and beta testing. You can think of AllTheWeb as an alpha test site and AltaVista a beta test site.
What About Those Patents?
In the last conference call, Overture outlined seven points of its overall strategy in acquiring both AltaVista and AllTheWeb. That last point was to have a "defensible" intellectual property position. In other words, Overture doesn't want to get sued by someone saying they have a patent on producing crawler-based web search results. Who might do that? Google, for one.
Overture is currently suing Google, saying that the company is violating its patent that applies to paid search results. Now Google just received its own patent, one that applies to unpaid crawler-based results. It's completely possible that Google might counter-attack Overture's move into the crawler-based arena, saying that its use of AltaVista and AllTheWeb technologies violates its patents.
Should that happen, Overture might be able to defend itself with the portfolio of web search patents that AltaVista currently holds. However, the company might also go on the offense. Just as it has sued over patents on paid search, Overture could take action against others offering free, crawler-based listings. Will it?
"We want to understand them [the patents” So we will be doing that between now and the time we close and obviously soon after, and I think we'll come to a point of view," Meisel said, not ruling anything out nor committing the company to any action, yet.
AltaVista's Enterprise Search & FAST's "Performance" Bonus
Yes, AltaVista still provides enterprise search software to companies, a business that Overture will gain as part of the acquisition. What will happen on this front remains to be seen.
"It's a small business, and we are evaluating next steps with it," Meisel said
As mentioned, Overture did not acquire the enterprise division of FAST. That company will continue to sell enterprise products. Overture also will pay FAST additional fees if the company helps Overture grow its distribution, something it expects will especially happen in Europe.
"The performance portion is for growing distribution share measured in the form of searches. So once we get above a certain threshold, we'll make additional payment," Meisel said. "We want them to be involved."
Paid Inclusion Not Main Focus
In its last conference call, Overture talked about being able to now offer three products: paid placement (what it calls pay for performance listings), free crawler-based editorial results (what it calls algorithmic search) and paid inclusion. But in many ways, paid inclusion is almost an afterthought.
Overture is not buying AltaVista and AllTheWeb primarily because it hopes paid inclusion will bring it a ton of new income. Instead, it needs them in order to offer an "all-in-one" balanced solution of paid and editorial results to potential partners. As mentioned above, the fact that Overture has lacked such a solution is seen as one reason why the company lost the AOL partnership to Google last year.
That was the message that repeatedly came out of the first conference call about the AltaVista deal. Overture kept repeating how it was now going to be able to offer "algorithmic" search. Paid inclusion was mentioned almost as an aside, and AltaVista's program was said to be "in its early days," even through the company has upwards to 10 million paid inclusion URLs and has been running for a year and a half.
Why this downplay? Because Overture isn't depending on paid inclusion as a major way of earning money.
"We made this move without assuming either Yahoo and MSN would become a [paid inclusion” partner, and we assumed that in our economic models," said Meisel.
Nor does Overture need paid inclusion. Players such as Inktomi and AllTheWeb have needed paid inclusion integrated into their editorial products as a way to generate revenue that can be shared with distribution partners. In contrast, Google has not needed paid inclusion because partners agreeing to carry its paid listings earn money off of those and essentially get its unpaid editorial listings for free.
Similarly, once Overture has finished its acquisitions, it can afford to give away its new editorial product to partners for free, as long as those partners agree to carry Overture's paid listings. Paid inclusion simply isn't necessary.
But Paid Inclusion Offsets Technology Spend
While not being necessary, paid inclusion certainly got better play during Overture's second conference call about AllTheWeb, which is ironic because AllTheWeb's program is indeed still young and involves 5 million URLs, behind AltaVista.
The reason for the change was that Overture's stock dropped after the AltaVista news, because buying AltaVista will reduce Overture's profits. Buying AllTheWeb will reduce profits even more. Thus, by talking about paid inclusion revenues, Overture wanted to highlight that it was to some degree acquiring editorial technology that will pay for itself in part through paid inclusion.
"We'll be doing paid inclusion because our partners want us to do that and it helps pay for the technology," Meisel said. "It's an issue of balance for us, and paid inclusion is a way to help provide that."
What about that "partners want us to" part? Yes, some partners will want to monetize as much of the search results page as possible. Paid inclusion can help them do this, but still don't expect to see it take over as Overture's main revenue generator.
Challenge Of Selling Both Paid Placement & Inclusion
Indeed, one of the biggest challenges Overture faces is how to sell paid placement and paid inclusion alongside each other.
Paid placement is an extremely simple and compelling product. Pay enough, and you can show up tops for exactly the terms you are interested in. In contrast, paid inclusion is confusing and at first, unappealing. Pay to be included, but get no guaranteed or ranking well? No thanks!
So why does anyone do paid inclusion? While unpredictable, it can deliver targeted traffic at a cost sometimes far less than with paid placement. Therein lies the challenge -- make paid inclusion too compelling, and Overture could hurt its paid placement product.
Meisel's view on this?
"We want to help advertisers with a range of ways of getting their listings to us. We think exact matches [paid placement” are best and most powerful, but if you need and want us to crawl your site to do it, we'll do that," he said. "We have to figure out how to price the leads appropriately. We'll have some work to do on that, and we'll have to experiment to get that right."
Overall, however, Overture is greatly helped by the fact that paid inclusion will remain a sideline, rather than a primary product that needs to be pushed.
"It's incremental. It would be different and a challenge if it was the main product line to be sold. It is hard to make that a large, sustainable business," he said.
Early Bird Rates have been extended!
June 12-14, 2013: Join industry experts at SES Toronto for a crash course in the latest strategies in Online Marketing and Advertising.
Save $300 when you register by Thursday, May 23.