January 28, 2003 11:27 AM PST

Yahoo hires Overture search exec

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Yahoo confirmed Tuesday that it has hired away an executive from commercial search company Overture, raising questions about the Web portal's own paid-search ambitions.

The company said it has hired Overture's vice president of search Tim Cadogan to become its own vice president of search. Cadogan's responsibilities will include overseeing Yahoo's relationship with his former employer, managing product development, and figuring out ways to get revenue from the search business. Cadogan will report to Jeff Weiner, Yahoo's senior vice president of search and marketplace.

"We're very focused on our search business as a whole," said Yahoo spokeswoman Diana Lee. "Tim is going to lead our efforts to best optimize our search pages."

Overture spokesman Al Duncan would not elaborate on Cadogan's responsibilities, but said the hiring would help the company work closer with Yahoo.

"We have an excellent relationship with Yahoo and expect and look forward to working closely with Tim in his new role, to strengthen and deepen our relationship with Yahoo," he said.

Cadogan's move has raised eyebrows on Wall Street. Some analysts are wondering whether the hiring signals a significant step by Yahoo to compete in Overture's business of selling commercial search results. Currently, Yahoo and Overture are partners on pay-for-search services, with both benefiting financially from the deal.

"His experience may (lead) Yahoo to build its own platform some day for paid search, possibly phasing out its relationship with Overture over time, if that's in Yahoo's economic interest," said Jordan Rohan, an analyst at SoundView Technology Group who first reported Cadogan's hiring in an investor note Tuesday.

The hiring underscores Yahoo's efforts beef up its bedrock search business. Besides reaching a deal with Overture, Yahoo has taken other steps to build its search product, most recently in the form of its $235 million acquisition of Inktomi.

Yahoo's agreement with Overture lasts until April 2005. Over the past year, Overture has contributed tens of millions in cash to Yahoo's quarterly results and has helped Yahoo achieve three consecutive quarters of profitability.

Under the agreement, Yahoo gets paid every time one of its users clicks on a featured search result served by Overture. Given the number of people who use Yahoo's search engine, the relationship helps both companies.

However, the success of the deal also poses some problems for Overture. Last October, Overture said its two biggest distribution partners--Yahoo and Microsoft's MSN--accounted for 63 percent of its revenue. Any changes in Overture's Yahoo and MSN deals could have a substantial effect on the company.

Yahoo currently sells paid commercial links to companies, albeit on a much smaller scale than Overture. But the implications of Yahoo building out its own business modeled after Overture could significantly shape the landscape of an increasingly profitable business.

Analysts such as SoundView's Rohan are concerned that Yahoo's influence in Overture's business, coupled with growing competition from search rival Google, exposes vulnerabilities in its future.

Google's own commercial search business has begun showing promise. Last week, for instance, search engine Ask Jeeves reported its first quarterly profit as revenue jumped 48 percent from the previous year. Wall Street analysts have attributed that growth to a paid-search agreement with Google.

"Overture's between a rock and a hard place," Rohan said. "The revenue concentration of Yahoo and Microsoft are the rock, and the competitive intensity of Google is the hard place."

 

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