Overture’s Dominance of Industry Faces Big Threats

0

Overture’s Dominance of Industry Faces Big Threats

By ANTHONY PALAZZO

Staff Reporter

In an instant last week, the balance of power in the paid-listings world shifted.

America Online’s decision to drop Overture Services Inc. in favor of Google.com as its provider of sponsored search results may not destroy the Pasadena-based search service, but it does signal the lightning-fast evolution of a market that Overture built, still dominates, and now will have to fight harder to control.

As investors quickly realized, the easy money in paid listings has already been made.

“I think there are going to be many challenges for these companies,” said Danny Sullivan, editor of Searchenginewatch.com.

As Overture’s 36 percent stock decline illustrated, holding onto the major Internet portals that make up its distribution network is a key challenge for Overture. Another battle will be fought over advertisers.

To date, Overture’s paid-listing advertisers have been happy just to find an alternative to the ineffective banner ads that marked the first generation of Internet commerce.

With its ability to auction off search-result listings by keyword, Overture has attracted 60,000 such advertisers, adding 7,000 in the first quarter alone. It also struck deals with major portals MSN, Yahoo! Inc. and AOL, which welcomed a way to generate revenues from search results. Overture claims to reach 85 percent of the online audience, even after AOL’s defection.

To customers still discovering the paid-listings platform, “Overture looks like a godsend,” Sullivan said. For others, though, the honeymoon is quickly giving way to more mundane concerns.

Just as banner ads gave way to targeted banners, and targeted banners gave way to paid search, paid search is now evolving as Google and others market additional features that Overture is struggling to match.

“Advertisers clearly want a number of tools at their disposal to help them with their advertising,” said Cindy McCaffrey, vice president of corporate marketing at Google. “We will continue to enhance and develop tools so that advertisers can get what they need to maximize their return on investment.”

Enhanced feature

A key Google feature is its AdWords Discounter. The mechanism ensures that a customer pays the lowest price possible to maintain a position in its paid-search results. At Overture, by contrast, customers must constantly monitor auction-like bids, either manually or with a third-party software program. Even then, it’s not perfect.

Last Thursday, for instance, GMAC Insurance came up as the No. 2 listing on Overture for the search “auto insurance.” Each time a user clicked through, GMAC paid $5.58 to Overture. The advertiser in third position, Esurance.com, paid only $3.07, meaning GMAC was paying $2.50 per click higher than it needed to maintain its spot. It should have been paying $3.08.

“We do a pretty good job of staying on top of it but no one does a great job,” said Kevin Keller, vice president of Internet marketing at GMAC Insurance. “It’s not a perfectly efficient market; the better players are the ones who can go out and manage it effectively.”

Some Overture advertisers complained about these hidden costs previously, but until now they lacked an alternative. The Google-AOL deal has gotten their attention.

“I didn’t know that Google had a program,” said Kyle Garrett, director of marketing and admissions at Utah College of Massage Therapy.

Garrett’s generally happy as an Overture customer. By using Overture and optimizing its site to show up higher in unpaid search results elsewhere, the college now generates more than 50 percent of its leads on the Internet, Garrett said.

The college pays 65 cents to Overture every time a “lead,” or a user, clicks through to its site. However, Garrett hasn’t figured out how to determine which sites in Overture’s network the user came through. If leads coming through Yahoo! had a higher “close” rate than other sites, the college would adjust its marketing strategy, he said.

‘Rudimentary’ tracking

“The more information we could get the better, especially in relation to tracking leads,” Garrett said. “Overture’s tracking is rudimentary.”

Overture officials dispute this. It’s easy to track where traffic originates, said Lisa Morita, the company’s senior vice president and general manager of online business and marketing. But she admits it’s harder, though possible, to track online sales generated through Overture leads.

Morita also acknowledges hearing from customers who complain about spending too much to maintain a top position in Overture’s listings.

“I think it’s fair to say we’re exploring those areas,” she said. “We are constantly listening to (advertisers’) feedback. We will do the right thing for the advertisers.”

The increased scrutiny is a natural outgrowth of competition in a developing market, Sullivan said. Now that advertisers are spending significant amounts of money on paid listings, they’ll be asking more in terms of results. “It may be that you’re going to get enough large advertisers who are going to say, I want greater control, and if I don’t get greater control, I will pull my budget for a time.”

Conor Dougherty contributed to this story

No posts to display