Thursday, February 06, 2003
Beginning of the End for Overture?
The announcement that many small advertisers feared came quickly today. Today I received a "personal" e-mail from Paul Schulz, Senior Vice President, Marketing at Overture announcing that the minimum bid for purchasing paid keywords is rising from 5 cents to 10 cents. That represents a 100% increase.
I read yesterday on CNET that Overture's UK division had already instituted the higher minimums. The author of the article also speculated that the move would soon happen in the U.S., too. Well, exactly one day later, that has already happened. In another article on CNET today, we learn that Overture's revenue has skyrocketed, but that their profit declined because their affiliate partners such as Yahoo are taking a larger chunk of the pie.
So what do they do? They pass the buck to the ever-screwed community of small businesses who can't afford to have a large stable of 10-cent keywords. The minimum bid increase will surely pad Overture's bottom line at our expense, but I suspect that this is also the beginning of the end for the pioneering paid search company. They will likely see increased profits in the short term, but they may be jeopardizing long-term growth by pushing the minimum bid out of the reach of thousands of loyal advertisers, who may have to compensate by weeding out all but their most relevant keywords.
This development also points even more to the eventual fate that many analysts believe Overture will face: With their distribution partners taking an ever-increasing piece of the pie, Overture becomes more and more dependent on companies that could sink it by starting their own paid search programs. Overture has no choice but to accept the demands of its partners, who are expected to take 64% of what Overture earns.
Yahoo recently hired away a key Overture exec, and it seems inevitable that the portal will develop its own paid search program, perhaps in conjunction with a revamped Inktomi, which Yahoo also recently acquired.
The writing is on the wall for Overture, and thanks to the minimum bid increase, I'm sure many disaffected advertisers couldn't care less.
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