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Yahoo! is to buy Overture, the paid-for-search pioneer, for $1.63bn in cash and shares. This is net of Overture's cash balance, which will be adjusted downwards to pay for two recent acquisitions.

Yahoo! is to expand its paid-for search presence using Overture as well as offering services such as small business hosting to Overture's 88,000 advertisers (most of which can be considered SMEs).

It will be interesting to see how MSN and Google respond to this deal. MSN's contract with Overture ends in December 2005. It seems unlikely that MSN will renew the contract - which means going to Google, or Findwhat.com/Espotting.

Both MSN and Google have sat on the sidelines in the vertical consolidation in the search engine and portal sectors. Overture, on target to hit $1bn revenues this year, has been an active player in reshaping the sector, as predator rather than prey. It cannot have foreseen Yahoo!'s approach - otherwise why would it have bought search engine technology from AltaVista in February?

So why accept Yahoo!'s offer? First, Overture depends upon Yahoo! for a huge chunk of its revenues - 65 per cent of turnover comes from contextualised search on Yahoo! and MSN.

Second, Overture's recent acquisitions of AltaVista and FAST's consumer search business show that it is, or was, trying to build its own vertically integrated operation. But it could never have built a portal as big as Yahoo! or MSN.

Rumour has it earlier this year that Yahoo! mulled over the purchase of Espotting (in a recent meeting with The Register a senior officer of the UK search company said reports were "bullshit"). Today's announcement shows that Yahoo! had much bigger fish to fry.

Yahoo! will now have two search engine platforms - last year it bought Inktomi. And it will also have a couple of new, almost certainly redundant, portals in the shape of AltaVista and AlltheWeb. ®

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