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T-Online drops Overture for Google

The Web access provider signs a multiyear deal with Google for search services, abruptly severing its contract with rival Overture Services.

T-Online, one of Europe's largest Web access providers, on Thursday signed a multiyear deal with Google for search services, severing its contract with rival Overture Services early.

T-Online, which operates in Germany, Spain, Austria, France and Switzerland, exercised a right to terminate its deal with Pasadena, Calif.-based Overture and its subsidiary, Fast Search & Transfer, in the event of a buyout by a competitor. Overture, which licensed sponsored search and Fast's algorithmic Web search to T-Online, is expected to be acquired by Yahoo later this year in a deal valued at $1.7 billion.

"We see Yahoo as one of our main competitors in several fields, so we've drawn on our change-of-control clause to terminate the contract," said Mark Nierwetberg, a T-Online spokesman. Overture was scheduled to provide commercial search results to T-Online's European properties through at least 2004. Fast's deal with T-Online is undisclosed.

Overture was thrown off by the unexpected change.

"We are very surprised that T-Online has decided to prematurely stop serving Overture listings," an Overture representative said. "We have only just been informed of the news and are attempting to find out the nature of the situation. We will be pursuing all available approaches with the company to resolve this issue as quickly as possible."

The abrupt customer change is part of a heated and ongoing contest between Google and Overture and could cast a shadow over the value of Yahoo's proposed acquisition of Overture, financial analysts said.

Both companies license search technology and affiliated advertising to distribution partners. For example, Overture licenses its advertisements to Yahoo and Microsoft's MSN, and Google does the same with America Online. The proposition has become so lucrative for portals that last month Yahoo decided to buy Overture, which provides 20 percent of Yahoo's revenue. Because of the moneymaking potential, Overture and Google have fought vigorously to lock up partners in the United States, and the fight has slowly reverberated overseas as the two companies expand internationally.

Overture's competitive sell to partners has long been that it does not operate an independent Web site that may rival its partners' sites. Unlike Google, which runs one of the most popular sites on the Web, Overture is a third-party provider. With a Yahoo-owned Overture, many of Overture's partners, including T-Online, could see a threat and choose to back out of their relationships, analysts said. Already, MSN, one of Overture's chief partners, has said it is examining long-range options to replace Overture for paid search.

"It is certainly a risk to the combined entities' business," said Derek Brown, research analyst for Pacific Growth Equities. "There's a lot of uncertainty about how aggressive Yahoo-Overture plan to be in maintaining the affiliate network."

T-Online operates Net access service in Germany, France, Spain and Austria, with 12.7 million subscribers, according to recent financial reports. It also runs a Web portal in Switzerland. Nierwetberg said the company sees Yahoo as a rival in online auctions, travel and shopping.

T-Online signed on Google to provide Web search results and Google AdWords, or sponsored search listings, for all of its Internet properties. Financial terms of the deal were not disclosed.

Nierwetberg said the company chose Google because "it's the most known search technology in the world." Despite Google's entry into European markets in the last year, including in Germany, the company poses less of a competitive threat to T-Online, Nierwetberg said.

"Right now, Google is competing against us in a minor area, and that's search," he said.