July 26, 2003

Microsoft's MSN Web portal will maintain its relationship with paid search partner Overture Services while it explores long-term alternatives, a top executive reaffirmed this week.

Microsoft Vice President Yusuf Mehdi's comments came Thursday at the company's analyst conference, countering speculation that MSN would immediately dump Overture, given that rival Yahoo launched a $1.63 billion bid last week to buy the commercial search provider.

Mehdi said MSN has no plans to end its agreement with Overture, which is slated to provide sponsored text listings within MSN search results through 2004. But he added that in the long term, the portal will consider building its own commercial search operation.

That strategy would mirror Microsoft's approach to algorithmic Web search. When Yahoo bought MSN's Web search partner Inktomi earlier this year, the Microsoft unit did not sever its relationship with the company immediately, as many analysts had expected. But MSN has recently started erecting its own Web search technology, hiring software specialists to build out the service. It has yet to say whether it will replace Inktomi, but many industry observers assume that it will do so.

MSN has outsourcing alliances with search partners such as Overture, Inktomi and LookSmart. With Overture, MSN holds an option to back out of its deal early. According to financial analysts, there is an "out" clause built into the contract that allows the MSN unit to withdraw if Yahoo buys Overture. The clause obliges Overture to pay Microsoft $50 million in the case of a buyout, one analyst said.

Yahoo has hinted that it considered the possibility that Overture might lose MSN as an affiliate partner before announcing its intent to acquire the company. MSN brings in as much as one-third of Overture's annual revenue. This year, its contribution is expected to be $350 million.

Factoring in that potential loss, Yahoo has said it still expects that, by building out the sponsored search results on its network of sites, it will make the Overture deal worthwhile. But it says it plans to fully support the search company's affiliate partnerships.

Story by Stefanie Olsen
Source: C-Net News

        

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