It has been a banner year for Ted Meisel, head of search-engine company Overture. While rivals like AltaVista and Inktomi have struggled, Overture (GOTO) is on track to log more than $170 million in gross sales in 2001, a 70% boost from year 2000 and enough to put the company into the black. The strong results in the face of a general Web malaise validate Overture's unique business model.
Overture sells placement in search returns to the highest suitable bidders -- a controversial strategy, but one that seems to please its clients. Meisel argues this approach actually improves search results for many topics by creating a competitive marketplace. At the same time, Overture delivers surfers primed to buy precisely what the listing bidders are offering. But the company has eschewed promoting itself as a stand-alone search destination, instead selling its search technology and results to AOL, TerraLycos, and a host of others. Recently, BusinessWeek Online Technology Editor Alex Salkever sat down with Meisel to discuss Overture's future. Here are edited excerpts from their conversation:
Q: Why did you change your name? You used to be called GoTo.
A: A bunch of things. We're a distributed search service. Less than 5% of our traffic comes directly to GoTo.com. And that's explicit strategy. Our distribution partners want to know that we're sincere about that. We announced our intention to change our name not quite a year ago, and in part, to allay any fears that we were a wolf in sheep's clothing competing with our own distributors such as AOL and MSN. Second, "Go" anything is a crowded space. Crowded space also means legal wrangling. You put all that distraction together with the fact that it's good for our partners and our strategy...and it made sense.
Q: Give me the quick sales pitch.
A: You can be where your customers are asking for you. Higher return on investment. Effectively, this is a cost-per action vehicle, because you can determine what price you're willing to pay for each click-through or any number of other metrics.
Q: So you get what you pay for?
A: You get what you pay for. It's the ultimate direct-response vehicle. And since you set your own price, there's no reason not to participate and get introduced to potential customers at the price you think is fair.
Q: What kind of return are your customers seeing for paying for high placement?
A: Almost 50% of advertisers using pay-for-performance search engines have a greater than 50% return on investment. Supposedly it's measured by gross margin dollars.
Q: How can you customize these types of placements?
A: Take the case of this travel consolidator that I don't want to name but is a customer of ours. They wanted to bring hotels they had in their stable to a bigger audience, and the last thing they wanted to do was have to engage in brand advertising. We set up a program for them so that every time they added a set of hotels in another city, we'd help them to add those keywords to Overture's database. They could make sure they were getting the right number of leads to match against the inventory. They ended up with 2,000 keywords and spent more than $1 million last year. For most of their keywords, they stayed in the top three listings -- which enabled them to appear on sites like AOL.
Q: How do you ensure quality of listings if everything's for sale?
A: We do check companies out before we allow them to list on our site. You'd be surprised how many we reject at first because their bids are not suited or the way they want to use keywords doesn't meet our standards. Then there is this perpetual competition among businesses for user attention through the bidding process. It actually creates some quality measures. Companies try to craft their message and the best tend to bid highest.
Q: Don't smaller businesses sort of get trampled if they're playing in larger spaces?
A: Actually, it works better for them. A portal would say, "O.K., we can sell you a travel package that includes a set of advertisers, banner advertising, and 2,000 keywords." So, they would only sell to the big guys in that way, which meant that the little guys did get trampled, because there was no way in to travel, period, without bidding directly against the big guys. What this allows is, the specialist in venture travel to outbid Expedia and Travelocity, for, say adventure travel on a specific set of keywords. They can sell their business on specifics far better.
Q: How many search engines can the market support? There's a bazillion of them. They just keep coming and coming and coming.
A: I don't know the answer to that. I think some of it depends on how cheap hardware gets. Some of it has to do with better strategies for dealing with high volume and enhanced reliability. If everything gets cheaper with better strategies, then more search engines will be supported.
Q: What's the future for search engines?
A: Well, I think that Internet search and company search -- or let's call it "internal search" -- will be two different markets. And you might see players cross over. So, an Alta Vista's trying to cross over, Google's trying to cross over. But Verity is a pure play.
Q: On the internal search side?
A: Right. My guess is, knowing a little bit about enterprise software, at some point it's going to be hard to play both sides real well for some of these companies. I mean, it just gets real specialized, doing the enterprise stuff. So I guess it can still be under the same company, but the advantages of being part of the same company start to diminish. It also might attract some big fish such as an Oracle or an IBM.
The internal search side is very different from Internet search. Your revenue streams come from advertising and potentially subscriptions, as opposed to enterprise sales, where you need professional services to support it. Your mindset about how you do product development is different. Having been inside of a company that tried to do both, it was very difficult.
Q: Which company?
A: CitySearch. We actually were the city guide for The Washington Post. We supplied the software. And we were doing that at the same time that we were a destination, a media company. And it is not easy to maintain both of those threads.
Q: Do you think it's tough to sell search services to other companies and be a destination search site at the same time, as Google is doing right now?
A: Yes, I think so. For example, my understanding of AOL and other big destinations is, they don't want to help someone that's going to compete with them unless they have to. It's simple. You don't want to compete with your customers.