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Last Updated: Monday, 14 July, 2003, 14:34 GMT 15:34 UK
Yahoo pays $1.6bn for tech rival
Yahoo is to pay $1.6bn (1bn) for Overture, a firm that provides marketing services via search engines.

The deal, one of the few big takeovers in e-commerce since the collapse of hi-tech investor sentiment in 2001, is the latest sign of the unexpected liveliness of the sector this year.

Yahoo last week reported a doubling in profits, saying it was benefiting from the continued popularity of its sponsored web searches, which mention advertisers' names in conjunction with certain search results.

This is the business that Overture specialises in, an area Yahoo said was "the most dynamic and fastest growing segment" of the market.

Change of mood

Sponsored searches have taken off in the past couple of years, since they generate more cheap hits than expensive online advertising.

In all, the market could be worth $5bn this year, analysts reckon.

But the real significance of the deal lies in the rarity of large takeovers in the online business in recent years.

Starved of cash, big internet firms have tended to avoid expansionary mergers, focusing their attention on slashing costs and narrowing down their business.

Over the past couple of months, however, the mood has turned far more positive, and the tech-heavy Nasdaq stock market has increased in valued by more than one-quarter.

As big US firms once again enter the season when they report their results, many analysts will be watching to see if the cheerful mood translates into hard cash.

Gearing up

Under the system employed by Overture, formerly known as GoTo.com, advertisers bid for the right to have their links displayed under specific search terms.

The auction determines the order in which the links are displayed on a web page.

The firm licenses its technology to a number of other search engines, including Yahoo itself.

In buying Overture, Yahoo is taking another step to beef itself up, and diversify its revenues away from long-disappointing advertising.

The firm is aware that Google, a rival firm that focuses on refined searching, may be planning to float on the stock markets at some point.

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