One of the amazing commercial success stories in Internet search so far has been that of Overture, which has focused on paid search placements, and ended 2002 with revenues of USD 668 million. More from a News.com story:
Overture began as the brainchild of Bill Gross, whose start-up investment company, Idealab, incubated one-time Internet highfliers like eToys. He founded the company as GoTo.com in September 1997 and a year later, launched its search advertising service with results appearing on GoTo.com and partners including Netscape Communications.
The company compares its service to the Yellow Pages, the phone book that offers a useful resource even as it serves the marketing goals of its advertisers.
The company claims its goal is to create a win-win situation for customers and Web surfers, enforced by self-interest. Because advertisers are required to pay a fee each time someone clicks on one of their links–a practice known as pay for performance–companies are discouraged from misleading readers.
In a world driven by advertising revenues, the importance of what Overture started and others have followed is highlighted by a recent Business Week story:
Placing ads near search results offers the simple appeal of the Yellow Pages, but with different economics. Search-engine companies such as Overture, Google, Ask Jeeves, and LookSmart charge most advertisers by the click. These ads can be presented among the search results, looking like any of the other Web links that have been rounded up. That’s known as paid inclusion. More often, other search-related ads are featured as “sponsored listings” at the top or side of the search results. Advertisers say that search-related ads, whether overt or camouflaged, attract far more interest than regular scattershot Internet ads. Why so? They give people what they’re already looking for.
Search advertising is also cheap. At an average of 35 cents a click, paid search undercuts the $1-per-lead average for Yellow Pages ads. The money is split between the portal, which generates the traffic, and its search-advertising provider.
Changes in Internet usage also power this trend. As Web surfers grow more sophisticated, they focus on specific tasks, such as checking mail or finding a recipe. More are using search engines to hurry through their to-do lists. The percentage of Web site visitors who arrived via search engines nearly doubled in the past year, to 13%, says analytics firm WebSideStory. Increasingly, says Jupiter Research analyst Gary Stein, “people are tuned out on banner ads and tuned in to search results.”
A May 2002 Fortune article on Google, now Overtures main competitor, puts the battle between the two for revenues in perspective:
Overture and then Google started selling something called sponsored links, which is a fancy name for a classified ad with an Internet link. Sponsored links cost nothing to produce, load easily through a narrowband connection, and make a more subtle pitch than banner ads. They’re also more popular with advertisers, which pay based on how many times people actually click on the ad. With banners, advertisers have to pay based on how many times the ads were displayed, which gives no indication of how the ad is doing. Google took the model a step further, marrying the text-based ads with its search results, something Overture did not have. In other words, if you do a search on Google for, say, Botox, an ad and link for Laserlightrx.com comes up alongside your search results. The upshot was something that Website operators had been trying to accomplish since the beginning of the Internet: meaningful search results accompanied by relevant advertising.
Tomorrow: DMOZ and Microsoft