November 18, 2004 12:30 PM PST

Microsoft extends Overture ad contract

Yahoo's Overture Services division has extended its deal to provide ad placement technology to Microsoft Web portal MSN.com, the companies said Thursday.

The renewed pact will run through June 2006 and span all of Microsoft's MSN ad operations in the United States, Canada, Europe and Asia. The two companies' previous contract was set to expire in June 2005. Financial terms of the new deal were not released.

Microsoft's decision to extend the Overture agreement is significant because it contradicts speculation that MSN would abandon the partnership for competitive reasons in the middle of next year or to launch its own ad placement system. Since Overture was acquired by Yahoo for $1.7 billion in October 2003, Microsoft has essentially been funneling lucrative advertising business to one of MSN's primary rivals in the portal market.

A previous agreement between Microsoft and Overture would have allowed MSN to exit the relationship when Overture was acquired, but the company chose not to do so and renewed its deal shortly after Yahoo completed the buyout.

Microsoft announced last year that it is building its own advertising technology to replace licensed search ads from Overture, but Thursday's announcement indicates that the company could be taking longer to perfect the system.

Earlier this year, Microsoft's plans suffered a blow when the company lost Paul Ryan, former chief technology officer of Overture, as its executive charged with building a paid-search technology to compete with Yahoo. MSN Chief Yusuf Medhi said this summer that the company has not replaced the position but instead has had other executives fill in.

The latest move comes as MSN is jockeying hard to become the king of Web search, a title held by Google and coveted by Yahoo. Earlier this month, Microsoft launched a beta version of its latest MSN search engine, but the company has not yet replaced the search technology it licenses from Yahoo to power MSN's existing search capabilities and does not plan to do so until sometime in 2005.

Earlier in the year, Microsoft Chairman Bill Gates said the company would launch a full-fledged search engine by the end of the year, but the delay of its service to go public is another setback in the company's plans to dominate search.

Advertising dollars remain at the heart of the three companies' respective quests to dominate the search business. While Microsoft remains largely a symbolic threat to Google and Yahoo--both of which have legions of devoted users--the company is considered a formidable threat to challenge its rivals in the multibillion-dollar advertising business associated with results pages as it continues to develop its emerging search strategy.

CNET News.com's Stefanie Olsen contributed to this report.

 

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