July 14, 2003 4:45 PM PDT

Overture proves search skeptics wrong

When Internet entrepreneur Bill Gross first launched paid search engine Overture Services in 1998, he was greeted with dozens of questions, most of them hinting at whether he had lost his mind.

Why are you starting a search engine now? How are you going to blend paid search engine results with unpaid? And how are you going to make any money off of 1- or 2-cent clicks?

"They were all very, very skeptical," Gross said of his detractors. "People definitely thought we were crazy."

Five years later, Gross can point to Overture as a powerful rebuttal to critics of his Idealab incubator, which spawned such dot-com investment failures as eToys and cosmetics e-tailer Eve.com. On Monday, Yahoo bought Overture for $1.63 billion, in the biggest endorsement yet of the paid search model as not only a viable, but a desirable, method of spinning hits into cash on the Web.

"We feel very proud that it worked out," Gross said.

Unlike other surviving dot-coms that soared, crashed and then retrenched during the boom and bust years, Overture traveled a slower and steadier road, first to profitability and then to its standing as a Yahoo takeover target.

The company, which pioneered the paid search model, was widely panned when it launched, especially by purists who worried that the paid search model would tarnish the freewheeling information hub of the Web. Critics including consumer advocate Ralph Nader accused paid search companies of misleading Web surfers. An influential technology columnist in a 1998 comparison of search engines said Overture's paid model could result in a "useless and distorted set of hits."

But Overture plodded on, steadily convincing advertisers that it could deliver more than the ethereal eyeballs and branding peddled by other dot-com salesman touting the then-almighty banner ad.

A year after its launch, Overture landed more than 5,000 advertisers, Gross said, giving it an air of legitimacy in some of the more innovative advertising circles. Then it went public, giving it more cash to expand its reach.

Finally, in what analysts said was a major endorsement, Overture landed a string of distribution partners that read like a virtual who's who of the Web: MSN, AOL and Yahoo.

"They sort of systematically bagged all of the major players," said Chris Sherman, editor of Search Engine Watch.

No stranger to controversy
But throughout its history, the controversy surrounding the company has continued, perhaps a reflection of the general distrust about paid models, where a simple change in editorial standards regarding keywords could drop a company from the top of the front page of the search results into virtual oblivion.

In 1998, the operator of Autos.com said the company gave preferential treatment to a competing auto site that Gross had also invested in--a charge Overture, which was then called GoTo.com, dismissed as coincidence.

Then in 1999 the company took on media giant Walt Disney, eventually winning a preliminary injunction that forced Disney to stop using a logo on its Go.com Web portal that a judge said was too similar to GoTo's logo.

In 2001, a Nader watchdog group asked federal authorities to investigate Web sites that mixed paid and unpaid ads. Although Overture was not specifically targeted, and the feds found no major wrongdoing, the incident underscored lingering concerns about paid search.

Meanwhile, the company has tried to counteract such worries by requiring partners to fully disclose that its links are paid. What's more, it's tightened up its editorial guidelines over the years in hopes of making searches more relevant, much to the chagrin of some Webmasters. That is, if a company bids on a keyword, it must have some relationship, however tangential, to that word.

Two other factors also helped to propel the company: Google's entrance into paid search and the economic downturn.

Overture is currently entangled in an intellectual-property dispute with Google, having accused its archrival of infringing a patent that covers some of the technology behind its system for selling keywords to the highest bidder.

But Google's march into the paid ad market may have bolstered Overture, said Jupiter Research analyst Matthew Berk, even though Google has won over some of Overture's customers, such as EarthLink. "I think that Google entering the business sort of legitimized it," Berk said.

Unlike most companies, Overture benefited from the dot-com bust, say analysts, industry watchers and people inside the company itself.

At a time when advertisers were growing increasingly skeptical of promises to deliver "eyeballs," Overture's pioneering paid-search plan continued to pull in dollars, charging customers only when Web surfers clicked on their links, delivering tailor-made search results to surfers who were ready and willing to buy.

As a result, during the dot-com crash Overture was able to offer hard-to-resist revenue to cash-strapped Web publishers like Yahoo, whose long-held objections to paid search seemed to evaporate as quickly as the dot-com marketing dollars once earmarked for banner ads on their networks.

"When people are searching, they are in a 'buying' mode," Search Engine Watch's Sherman said. "They are basically saying give me something, and I will click on it and buy it."

 

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