SEARCH: The billion-pound monopoly match - who's turn is it?

While the sector is no stranger to consolidation this is the first deal that, if it goes ahead, will create a viable contender for Google's search crown. But the battle is not just about search, it is about ownership of the web audience - it is about destination.

Google is mooted to be planning a float this November and one suggestion is that it could find itself valued at between $15bn and $18bn. Access to massive funds is its only current weakness having sewn up both the consumer and back-end search markets - and remains the only chink through which Yahoo!/Overture can strike any kind of blow.

However, the two have very different visions. Yahoo! is buoyed by its success in premium services such as personal ads and plans to enhance these. It sees itself as a competitor to TV, radio and press for share of advertising audience. Google meanwhile has its eyes on a more basic prize - classifieds. As the world's yellow pages, Google will hope to have every single business on the planet advertising on its platform and the battle to get on Google's front page is liable to get messy. If you are an SEO company - you're gonna need a bigger boat.

Yahoo! clearly wants to make damn sure the Overture buy goes ahead and that is by no means a certainty. It was revealed yesterday that Yahoo! has written in a $65m penalty should Overture succumb to a higher offer. This follows suggestions that Yahoo!'s bid was merely a defensive trump of a previous bid by MSN of $1.5bn. Will MSN respond with more - it certainly has more than an extra $100m spare? A research note published this week suggests not.

SoundView Technology Group says: "Microsoft decided to move forward with its own effort rather than to counter Yahoo!'s bid. Moreover, it has not shown a tendency to make a hostile bid for any company, especially one without significant and scarce technical resource."

If this rules out a new bid for Overture, then all eyes turn to the newly-merging Findwhat.com and Espotting for MSN's route to a search powerbase. Some might look to MSN's own search technology, MSNbot, which is in development now. But it is not thought it will provide a viable search index within two years. To wait such a length of time is not an option.

Also worth watching is what happens to the cosy deals, newly extended, that MSN has with Overture for the provision of search listings. It is thought that deal contained its own clause - should Overture get bought by a rival, it could be scrapped.

The new merger is of course likely to have an impact on all the remaining search players, both in pure algorithmic search, where Google reigns, and also the rapidly growing pay-for-performance search market, which already makes up around a third of internet advertising revenues, and is expected to grow to be worth $5bn by 2006.

Firstly, it is likely to make it harder for smaller players, such as AskJeeves, LookSmart and FindWhat, which recently snapped up European firm Espotting in a $163m deal, to survive unless they are acquired. Yahoo! itself was linked with Espotting, but it clearly had bigger fish to fry with the Overture deal.

The deal also increases the likelihood that Yahoo! will sever its own ties with Google as soon as is feasible and start to compete head-to-head, something that has been anticipated since the Inktomi deal. Google currently supplies the pure algorithmic search part of Yahoo!'s offering.

Google is not under the same pressure as Microsoft to respond to the deal as it already has its own technology, holds over half the global market share for web search, and has also made significant inroads into the paid-listings market. On top of that, it also remains one of the most respected brands on the web.

Ask Jeeves (Teoma), Looksmart, and FindWhat are no doubt parading themselves for the leering eyes of these potential sugar daddies as we speak. But the potential sugar daddies number not three, but four.

For, alongside Google, MSN and Yahoo!, we should not forget AOL. It still has no discernible strategy other than to get away from its Connie-defined past. It would be no surprise should it decide to hang it all and use its financial might to leap right in at the deep end of the modern internet. Its one problem may be in persuading the traditional media bosses now at its head that the online arm should be allowed out once more. After all its woes in the past year, it is most likely still grounded.

Whatever the next move may be - and we must assume it is MSN's go - the search market is shaping up for a fierce battle and looks enormously likely to provide the big bang behind the new internet boom.

14 July 2003:

18 June 2003:

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