Overture Partnership Key for Yahoo!

Yahoo has credited its financial turnaround in part to the tremendous growth shown in paid search thanks to its partnership with Overture Services . In a regulatory filing on Thursday, the portal revealed just how much it has benefited from the relationship, the fruits of which accounted for nearly one fifth of its revenues in the first quarter.

In its 10-Q filing with the Securities and Exchange Commission (SEC), Yahoo said that revenues from keyword listings served through Overture accounted for 19 percent of revenues, up from 12 percent a year ago.

While investors have pummeled Overture Services over the past year for its reliance on Yahoo and MSN for two thirds of its revenues, the filing brings to light just how central search has been to Yahoo’s much-ballyhooed financial turnaround on Terry Semel’s watch.

Yahoo has devoted much attention under Semel into diversifying its revenue streams, developing a system that has three “buckets”: marketing, fees and listings. While the fees portion of its business has shown the highest growth rate — it increased 61 percent in the first quarter, year over year — marketing services still accounts for more than 67 percent of revenues and fees for 23 percent.

In its quarterly report last month, Yahoo reported that its growth in marketing services, which has far outstripped that shown in the overall interactive ad space, was a result of both the strength of paid search and an increase in branded advertising. Its financial filing shows just how much paid search has been the driver: Of the $52 million that marketing services increased in the first quarter compared to last year, Overture accounted for 73 percent of the growth. Yahoo reported that click-throughs on its Overture listings increased 210 percent from the same period in 2002.

Yahoo hopes to expand the revenues it wrings from search with its retooled search, unveiled last month. The company has said it remains committed to the Overture partnership, which runs through April 2005, while also emphasizing that it is a “flexible” arrangement. Some have taken that caveat to mean that Yahoo would look to monetize search outside of the Overture, which takes an estimated 30 percent of the revenue generated by each click.

The increasing share of revenues generated through the Overture partnership, however, would make it difficult for Yahoo to strike out on its own and disrupt a key driver of its growth. Last year, search accounted for $140 million of Yahoo’s revenues.