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Commentary: Eye on the search prize

Yahoo's planned acquisition of Overture separates it from America Online and MSN. But Google is the prize--and chief rival--of portals and Internet service providers.

Commentary: Eye on the search prize
By Forrester Research
Special to CNET
July 14, 2003, 2:00PM PT

By Charlene Li, Principal Analyst

In the race for consumers and marketing dollars, Yahoo's acquisition of Overture will separate it from America Online and Microsoft's MSN. But Google is the prize--and chief rival--for portals and Internet service providers.

Yahoo announced on Monday that it will purchase Overture for $1.63 billion in stock, which will add paid search capabilities to its already strong marketing services portfolio. This positions Yahoo squarely against Google--which has gained users in the past year at the expense of Yahoo and other portals. The acquisition also does the following:

• Gives Yahoo the best integrated marketing solution. With paid search in-house, Yahoo will expand beyond simple listings, integrating search into areas like yellow pages and product search. The appeal: A one-stop online marketing solution for businesses. Yahoo also provides the perfect proving ground for contextual search--inserting paid listings into content like news and sports.

• Leaves MSN out in the cold. MSN currently has three search partners: Overture (paid listings), Inktomi (algorithmic search), and LookSmart (Web directory). With two of those partners now

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owned by Yahoo, MSN will eventually develop substitutes for Overture and Inktomi, either through in-house efforts or acquisitions of companies like Our call: While MSN will be starting from behind, don't count it out. Search marketing will easily accommodate a new player with deep pockets and great usability, just as it did when Google introduced its paid search service only last year.

• Sounds the bell for Google's initial public offering. Google will continue to be the undisputed search champion with its wide distribution network (including AOL), strong consumer brand and product innovation (like its product search Froogle and contextual advertising service AdSense). But now is the time to cash in for two reasons: First, search usage--and marketers' interest--has never been higher; and second, it gives Google the cash to position itself as the paid-listings ad network for online publishers. Turning up the heat on the IPO is a financial no-brainer. And it'll bring back memories for many of us.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.