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Overture Wins Yahoo, What Will Happen With Google?

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Overture Wins Yahoo, What Will Happen With Google?

By Danny Sullivan, Editor
The Search Engine Update,
May 6, 2002

Overture had a major win last month by extending its initial five-month deal to provide paid listings to Yahoo for an additional three years. In addition, Overture's being named Yahoo's exclusive paid listings provider may impact whether Google will get to renew its editorial partnership with Yahoo that expires next month.

Yahoo wouldn't say if this is the longest search deal it has ever signed, but it certainly seems unprecedented. Previous partnerships for crawler-based results from AltaVista, then Inktomi and the current one with Google were for two years. Now for paid listings, Yahoo has locked itself into a three-year deal.

"Three years is generally on the longer side for Yahoo, and that speaks to the quality and success weve had so far [with Overture” and the plans we have to monetize this space," said Elizabeth Blair, Yahoo's senior vice president of listings.

The deal continues as before, with the first three paid listings from Overture for a particular query also appearing for that query in the "Sponsor Matches" section of the Yahoo search results page. Listings four and five from Overture also appear at the bottom of the Yahoo results page, in the "More Sponsor Matches" area.

When Yahoo initially signed its deal with Overture, Yahoo said that though it had the option to continue with Overture beyond April 2002, it very much wanted to develop its own in-house paid listings system. Why then the change of mind? One key reason is that financially, it made sense to stick with Overture.

"The great news for Yahoo is that we are completely capable of doing it ourselves or partnering," said Blair. "The deal we were able to arrive at with Overture made sense to continue working with them."

Of course, had Yahoo decided to push ahead with a system that perhaps used bidding, it could have been a target of a patent infringement lawsuit by Overture, just as that company has filed suit against Google and FindWhat. This may have been another reason for deciding to stay with Overture.

Yahoo had said it wanted to provide its own service for two other reasons, in order to better maintain contact with advertisers and to better control targeting on its non-US properties.

The previous worry Yahoo had expressed about partnering with Overture is that it didn't make long-term sense to be telling potential advertisers who wanted to appear on Yahoo to instead establish a billing relationship with Overture. Yahoo has other products and services besides listings that it might want to offer such advertisers.

Under the new deal with Overture, Yahoo's concerns appear to have been addressed.

"We identified that as an issue that was important to us, the idea of giving the advertiser away," Blair said.

Blair couldn't provide specific about how the new Overture deal solves Yahoo's worries, as few terms of the deal are being disclosed. However, one simple way might be that Yahoo has the ability to contact Overture advertisers through Overture's regular newsletters or perhaps offer them products through other ways.

Such an agreement might further explain Yahoo's desire to enter into such a long-term relationship with Overture, which claims 60,000 advertisers. Some of those might be plum prospects for Yahoo's many services, such as its online store system.

As for the international issue, just weeks after Overture signed the Yahoo.com deal in the US, Yahoo Europe signed with a different paid listings provider, Espotting. And last month, Yahoo Australia & New Zealand signed a deal to pick up paid listings from LookSmart Australia.

Clearly, the Yahoo international properties have been allowed to go their own way rather than wait for some top-down solution to come out of Yahoo in the US.

That Overture is not getting picked up for these deals is no great surprise, given that until recently, the company was only able to deliver country-specific listings for the US and the United Kingdom. Now Germany has been added to the list, but Yahoo has many more country-specific properties. It likely that we'll continue to see Yahoo country-specific properties seek solutions from different providers.

Indeed, the three-year deal with Overture only covers Yahoo's US and Canadian sites and only for those people visiting the sites from those countries. As before, those coming to Yahoo from outside North America are seeing no paid listings at all. This situation, which I call the trans-oceanic gap, is something Yahoo aims to correct.

"We have started to lay the framework for that, and you will see us filling those gaps," said Blair.

How this will be done and who will provide the listings remains to be seen. It would make a lot of sense for Yahoo to show those in the UK, France and Germany going to Yahoo.com paid listings from Espotting, since the same people already see those ads if they go to Yahoo's country-specific versions in those countries.

Similarly, the previously inconceivable idea of Yahoo.com sporting LookSmart listings may become a reality, at least for those coming to the site from Australia.

Google is another contender that has to be considered. The search engine has strong traffic in country-specific Google sites around the world and the ability to display country-specific ads on those sites. It could be that Yahoo will further plug its trans-oceanic gaps by picking up Google AdWords for selected properties.

There was speculation that Google might become the paid listings provider for Yahoo, given that Google already provides Yahoo with some of its editorial results. Now that Overture has won the deal, does that preclude Google's paid listings from appearing even on pages that contain Google editorial results, the "Web Page Matches" listings?

Yahoo wouldn't come out and specifically deny this. Instead, Blair stressed that Overture had an exclusive deal for Yahoo.com's web search results pages, even on pages carrying Google listings.

"They are the only provider of paid listings within Yahoo Search," Blair said.

This presents a problem for Google. Yahoo currently pays Google for each search request that Google handles, which happens if there is no answer in Yahoo's own editorial database. However, the trend since the Yahoo-Google deal was signed two years ago has shifted to the portals getting money to carry a search provider's results. If Google can't run its own ads, because of the Overture deal, then it would seem stuck asking Yahoo to continue paying for its results.

In contrast, Inktomi says it is competing to take over the Yahoo contract from Google. Inktomi has paid inclusion income that it shares with portals, money it receives from listings that are included in its editorial results but which probably would not seem to violate Yahoo's deal with Overture, given that paid inclusion listings have no guarantee of ranking well for particular terms. So, instead of asking Yahoo to be paid, Inktomi may be able to pay Yahoo for distribution.

Which way will Yahoo go? "Maximizing and monetizing search is one of the top three priorities for [Yahoo chairman and CEO” Terry Semel this year," Blair said, which would lead you to think that Yahoo's choice will be simple -- go for the money with Inktomi.

Don't count Google out. For one thing, Yahoo could decide, as AOL just did this month and as Yahoo did two years ago, that Google's brand awareness for quality search is worth paying for. After all, Yahoo does have a monetization strategy in place even for the pages with Google results, the paid listings it carries from Overture. Revenue from those may more than offset what Google will charge Yahoo, and Yahoo would still get the intangible benefit of being associated with Google's brand.

As you might expect, Yahoo's not commenting on what will happen but certainly is not ruling Google out.

"We have a terrific and long standing partnership with Google," Blair said. "We and Google are looking to see how we can expand those relationships."

As for Google, it is hoping that the quality of its results will again be a deciding factor in getting the deal renewed.

"The big thing that well be thinking about as we go into this deal, and that I hope Yahoo will be thinking about, is how does this affect the user experience and how important that is to them," said Sergey Brin, Google's cofounder and president, technology.

Brin also confirmed that Google had talked with Yahoo previously about carrying Google's paid listings, but while most of Google's attention was focused on the AOL deal, Overture moved in on Yahoo.

"We were actually working really hard to get the AOL deal done, so we had some discussions with Yahoo about adverting syndication, but not much," Brin said. "Overture moved very quickly to offer Yahoo a deal that they would sign quickly."

By the way, the Overture deal doesn't impact Yahoo's own paid listings program, the "Sponsored Sites" that appear within Yahoo category pages, Blair said. Overture's deal only covers those pages that appear with web search listings as a result of keyword searching.

Meanwhile, how about the move LookSmart made, to cost-per-click pricing?

"It certainly wasnt a surprise, because obviously we are evaluating these things ourselves," Blair said. And does this mean Yahoo might follow suit? "We are going to continue to do what works for us," she said.

Will Google, Yahoo renew their vows?
News.com, May 3, 2002
http://news.com.com/2100-1023-898266.html

Nice rundown on the issues coming up with Yahoo and Google, including Yahoo's estimated 5 percent ownership of Google made at the time the initial deal was signed.

Yahoo Proxy Statement
http://eol.finsys.com/edgar_conv_html/2002/03/15/0000912057-02-010171.html

We finally find out how much Google is making from Yahoo for search services through this proxy statement filed in March. Google earned $7.2 million in 2001 from Yahoo, while Yahoo got $1.1 million from Google for unspecified "branding, advertising and promotional services." Not shown but confirmed by Google is that Yahoo also made a small investment in Google, at the time of the deal.

Semel rises to Yahoo challenge
News.com, May 1, 2002
http://news.cnet.com/investor/news/newsitem/0-9900-1028-9817362-0.html

Review of changes to Yahoo, a year after CEO Terry Semel took over.

LookSmart Inks Yahoo Australia
InternetNews.com, April 3, 2002 http://www.internetnews.com/IAR/article/0,,12_1003211,00.html

Details of the LookSmart-Yahoo deal in Australia.

LookSmart Answer Their Critics
The Search Light, May 3, 2002
http://www.high-search-engine-ranking.com/LookSmart_Answer_Their_Critics.htm

LookSmart Australia's CEO comments on the new distribution of paid listings into Yahoo Australia & New Zealand.

Overture & Inktomi Out, Google In At AOL
SearchEngineWatch.com, May 1, 2002
http://searchenginewatch.com/subscribers/articles/02/05-aol.html

Google has been selected by AOL to provide editorial search results and paid listings to AOL's various search properties in the United States, including AOL Search, Netscape Search and CompuServe Search. The deal ousts Overture, which has provided AOL with paid listings since October 2000. Inktomi also loses out in the deal. Brief comments here from Inktomi on how it hopes to win in the battle for Yahoo.


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