Despite the fact that Overture’s net profit margin has dropped from 20% to 5% and their quarterly net income has dropped from $30 million to $5 million, they’re on a buying spree. Overture spent $400 million to buy a couple of search companies, one failed and and one for people too cool to google.
The speculation is that Overture plans to offer “algorithmic” search to their paid search customers. What they plan to do with Altavista and Alltheweb, which now compete with their customers, is less clear.
Despite what others may think, the problem is that Overture’s relationship with its customers is asymmetrical. Overture needs its customers a lot more than they need it. That’s why Overture’s margins are collapsing and why they’ve pulled this stunt. Search and ad sales are commodities. Traffic is not. Yahoo, MSN, AOL, and Google have traffic. Overture has search and ad sales. You do the math.