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Yahoo began offering this service after acquiring Overture Services, Inc. (formerly GoTo.com). GoTo.com was an Idealab spin off and was the first company to successfully provide a pay-for-placement search service following previous attempts that were not well received.
In February 1998, GoTo offered advertisers the option of bidding on how much they would be willing to pay to appear at the top of results in response to specific searches. The bid amount was paid by the advertiser to GoTo every time a searcher clicked on a link to the advertiser's website. By July 1998, advertisers were paying anything up to a dollar per click. In June 1999, GoTo launched a tool set direct traffic centre (dtc) to enable advertisers access to keywords and real time bidding.
GoTo's business model was based on the idea that its paid listings would make it more relevant than other services, especially for general searches, and web sites that pay more are probably better sites. A similar service had been offered by Open Text in 1996, but this precipitated outcries and bad publicity because searchers at the time did not want the search process more commercialized.
In contrast, GoTo's pay-for-placement model was very successful. Commentors theorised that the web had matured in the intervening two years, and these type of economic models were more acceptable since the web was no longer just a place for academic research, but also a place for buying products. GoTo founder Bill Gross speculated at the launch that GoTo would succeed because, as a relatively new service, it had no reputation to taint with paid listings, unlike Open Text.
On October 8, 2001, GoTo.com, Inc. renamed itself Overture Services, Inc. GoTo's chief operating officer Jaynie Studenmund said "We also felt it was a sophisticated enough name, in case our products expand."
Through partnerships, Overture enabled portals such as MSN and Yahoo to monetize the hundreds of millions of web searches made each day on their sites. Indeed, these partnerships proved highly lucrative, and in a period otherwise marked by dot-com failures, Overture became a substantial profit driver for portals like Yahoo
On October 7, 2003, Overture was acquired by its biggest customer, Yahoo!, for $1.63 billion. The old brand name of Overture has now been phased out as Yahoo re-brands many of its products under the Yahoo name. The exception to this is in Japan and Korea where the local businesses continue to use the Overture brand.
In May 1999, GoTo.com filed a patent application titled "System and method for influencing a position on a search result list generated by a computer network search engine". The patent was granted as US 6269361 in July 2001. A related patent has also been granted in Australia and other patent applications remain pending.
The lawsuit against Google related to its AdWords service. In February 2002, Google introduced a service called AdWords Select that allowed marketers to bid for higher placement in marked sections - a tactic that had some similarities to Overture's search-listing auctions.
In 2013, the Tenth Circuit Court of Appeals held in Lens.com, Inc. v. 1-800 Contacts, Inc. that online contact lens seller Lens.com did not commit trademark infringement when it purchased Yahoo and Google AdWords search advertisements using competitor 1-800 Contacts' federally registered 1800 CONTACTS trademark as a keyword. In August 2016, the Federal Trade Commission filed an administrative complaint against 1-800 Contacts alleging, among other things, that its search advertising trademark enforcement practices have unreasonably restrained competition in violation of the FTC Act. 1-800 Contacts has denied all wrongdoing and is scheduled to appear before an FTC administrative law judge in April 2017.
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In April 2003, Overture announced a three-year partnership with Gator Corporation, (now Claria Corporation) an adware company. Under the partnership, Gator's software monitored a web-user's activity on web sites and search engines (even sites such as Google that are not affiliated with Overture) and grabbed search keywords. These keywords were submitted to the Overture search engine. As a result, advertisers who paid for listings in Overture found their products advertised through Gator's Search Scout software, even if they wanted nothing to do with Gator. Overture faced a great deal of criticism for entering into this partnership.
When Yahoo acquired Overture, the Claria software impaired the operation of Yahoo's services. For example, when a user with a Claria application installed used Yahoo Search, they received a standard set of Yahoo results with sponsored listings at the top supplied by Overture. The user would then receive a full-screen pop-under window from Search Scout. Since Search Scout uses Overture's paid listings as well, Claria's window has exactly the same listings as the Yahoo search results.
Subsequently, Yahoo came out with the Yahoo Toolbar, which allows users to remove adware and spyware from their system. The toolbar affected the operation of Claria's software and may have put stress on the relationship between the two companies. Claria's website does not list Yahoo as a partner and a March 2006 press release states that they are exiting the adware business.
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