Yahoo To Buy Pay-For-Placement Service OvertureYahoo To Buy Pay-For-Placement Service Overture

Yahoo Inc. is acquiring Web-advertising company Overture Services Inc. in a $1.6 billion cash and stock deal, the Internet portal company said Monday. The move will help Yahoo diversify its revenue base beyond online advertising.

Overture provides commercial search services on the Internet using a "pay-for-placement" search engine. Yahoo says combining those capabilities with its own will let it provide a complete suite of integrated marketing solutions including branding, paid-placement, graphical ads, text links, multimedia, and contextual advertising.

Under the system employed by Overture, advertisers bid for the right to have their links displayed under specific search terms. The auction determines the order in which the links are displayed on a Web page.

The commercial search market will grow from $3 billion this year to $5 billion in 2006, according to estimates from market-research firm Piper Jaffray.

"This is definitely a high-growth market," says Timothy Hickernell, a Meta Group analyst. With E-mail marketing and spam coming under increased scrutiny, online marketers are looking for new advertising methods, he says. The Overture acquisition also gives Yahoo more muscle with which to compete in this market against Google and Microsoft.

The companies hope to complete the deal, which requires shareholder and regulatory approval, by the fourth quarter. Last month, Overture sold its AltaVista search-engine business to Fast Search & Transfer ASA, the latest in a wave of consolidation to hit the search-technology industry.

The deal calls for each Overture share to be converted into 0.6108 shares of Yahoo stock and $4.75 in cash. Overture would become a wholly owned subsidiary of Yahoo, and its chief, Ted Meisel, would report to Dan Rosensweig, Yahoo's chief operating officer.