Overture wins MSN deal extension

Overture Services Inc, which sees its shares jump around whenever a new deal is announced in the online paid-search advertising market, yesterday said it has renewed its distribution deal with Microsoft Corp's MSN service. Its share price increased 7% on the news.

There had been a question mark over the relationship since July, when the companies said they had temporarily extended the deal while they negotiated for a longer renewal. Some observers expected to seen Google Inc muscle in on MSN, or for Microsoft to take the feature in-house.

The deal that sees Overture provide paid search listings to the "search pane" of the Internet Explorer browser has been extended until December 2003, and the deal to feature listings in the MSN search site until December 2004. The two deals were to expire yesterday and in December 2003, respectively.

Overture aggregates links from thousands of advertisers, each of which bid to have their links featured prominently against selected keyword searches. Overture splits the cash-per-click with its portal partners, including Yahoo! Inc, AltaVista Co and United Online Inc.

The cash paid to partners is accounted for as a "traffic acquisition cost". Overture said yesterday that its July 2002 forecast of a 60%, rising to 62%, traffic acquisition cost this year and next will be unaffected by the MSN deal. This suggests it was not obliged to significantly increase MSN's slice of the pie in order to win the renewal.

The deals have also been expanded to include MSN properties in Germany and France, as well as the US, Canada and UK. The companies have agreed to test the service in Japan, where MSN has a presence but Overture has not. Overture expects to launch in Japan some time this quarter as a result of the deal, one quarter ahead of schedule.

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