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Overture Buys Web Analytics Firm

In an effort to give its advertisers a deeper understanding of the value of keyword advertising, paid search giant Overture has bought a small Web analytics company and plans to introduce new products that calculate the return on investment of pay-per-click advertising.

A company spokesman said the deal to buy Keylime Software was struck earlier this month. Overture paid about $7.5 million in cash and assumed $2 million in debt obligations of the Carlsbad, Calif.-based company. Keylime's approximately 20 employees, mostly technologists, will join Overture.

Pasadena, Calif.-based Overture plans to use Keylime to expand its Direct Traffic Center (DTC), which gives its 73,000 advertisers metrics on their paid listings campaigns. The integration will give advertisers better metrics on how campaigns are performing on the various affiliates in the Overture network.

Keylime Software entered the crowded Web analytics market just five years ago, putting its ASP-based Web analytics service in competition with the likes of WebSideStory's HitBox and NetIQ's WebTrends. Despite the crowded field, Keylime carved out a high-end niche and boasted client relationships with companies like Adobe Software, CapitalOne and GE Capital. But it remained an also-ran in the sector next to the big players.

Now, it will buff up Overture's DTC, with a new product expected to be announced in the next few months, the Overture spokesman said. Instead of just providing click-through data, advertisers want paid-search providers to track user activity and sales.

"What [advertisers] are always asking for is tools that will help them with ROI," the spokesman said. "A few years ago, it was about getting in and getting listed. Now, it's about tracking."

Jupiter Research, which is owned by the parent company of this site, forecasts the analytics market will be worth $1 billion by 2006, nearly double the $585 million spent in 2002.

With the increased popularity of paid listings -- the Interactive Advertising Bureau estimates they tripled their share of online advertising spending to 9 percent in the second quarter -- advertisers have become interested in deeper metrics to track the performance of their campaigns running on many sites.

Matthew Berk, an analyst with Jupiter Research, said Overture's move would put pressure on its competitors, such as Google and LookSmart, to consider at buying a Web analytics ASP of their own.

As a sign of how paid listings have gone from the periphery of Internet advertising to a prominent position, Yahoo! credited its partnership with Overture for playing a large role in helping grow its marketing business by 31 percent in the quarter. In 2002, Sue Decker, the company's chief financial officer, said paid listings brought in $120 million -- 20 percent of the company's revenues.

Earlier this week, Overture announced that it would bring in higher revenues than expected in the fourth quarter but disappointed investors with news that its customer-acquisition costs would rise slightly, thanks to its partnerships with mega-portals Yahoo! and MSN, which command a more favorable revenue split with Overture.