Applied Semantics – a deal to hurt Yahoo!

Google has acquired Applied Semantics, a company that provides domain name, contextual advertising and enterprise search solutions. Whereas terms of the deal were not disclosed I would expect the price to be north of $100 Million, as the acquisition gives Google new traffic for its paid listings, new strengths in the contextual advertising space, which Google entered into last month, and also potentially hurts major Google-competitor Overture.

Applied Semantics is one of Overture’s top ten partners, generating traffic for Overture’s paid listings through its DomainPark program. It seems unlikely that Google will allow Overture’s paid listings to remain part of the DomainPark program in the long-term. That would deny Overture traffic while simultaneously giving Google new exposure.

In addition, the purchase gives Google a presence in Southern California, where it hopes to recruit new engineering staff. Overture is already based in the area, and its Pasadena headquarters is only 30 miles from Santa Monica-based Applied Semantics. The close proximity means that if Google and Overture are both after a particular engineering candidate in Southern California, accepting a Google offer will no longer require relocation to Northern California.

When this article was originally written, Overture had not yet responded to questions about the impact the acquisition may have on the company or whether it had been considering a purchase of Applied Semantics itself. Since then, Overture has said that Applied Semantics is no longer one of its top ten affiliates nor that it expected the sale to have a “material impact on revenue.” The company also did not see Google opening an office in Southern California as hurting its recruiting efforts. A follow-up SearchDay story provides more detail from Overture’s perspective.

As for Google, it had no comment about the potential impacts of the purchase on Overture, not even to say if this was a consideration in the purchase. Instead, Google played up the “fit” between itself and Applied Semantics, in terms of technology, ad programs, corporate culture and even a personal connection. Google cofounder Sergey Brin has long been friends with Applied Semantics cofounder Gil Elbaz, Google pointed out.

Domains Make Money For Applied Semantics

Interestingly, both Google and Applied Semantics had similar beginnings, as search engines with funky names launched in the late 1990s. However, they soon headed down different paths. Google focused on web-wide search and developed into today’s incredibly popular service. In contrast, Oingo (as Applied Semantics was formerly known — it changed names in 2001), remained a relatively-unknown showcase site to demonstrate the company’s categorization technology to would-be enterprise search customers.

Today, Applied Semantics still provides enterprise search products. But the company also found a new and apparently profitable service of applying its content-classification and taxonomy technologies to domain names. Throughout 2000 and 2001, Applied Semantics signed agreements with various domain registrars to help those companies suggest good domain name alternatives to customers when top choices were already registered.

Domains also provide revenue to Applied Semantics in another way. The company uses its technology to help web sites with good domain names but no real content of their own. Through the DomainPark program, paid listings from Overture (and perhaps other providers) are shaped into directory-like categories. This gives the web sites in the program revenue-generating content, money that Applied Semantics shares in.