Report on Microsoft Sinks Overture Stock

Shares of Web search firm Overture Services Inc. tumbled Wednesday after an analyst said one of its biggest customers, Microsoft Corp., would create its own search technology, a report both companies refuted.

Overture’s stock initially dropped 24% before Microsoft executives intervened, saying the Redmond, Wash., software giant has no plans to develop its version of Overture’s search engine, which is used by MSN.com.

Shares of the Pasadena firm recovered somewhat, though they still lost $1.74, or 11.4%, to close at $13.49 on Nasdaq.

The report, from SoundView Technology Group, said Microsoft planned to develop technology that would place paid advertisements alongside impartial search results, eliminating the need for Overture’s services.

The report also stated that Microsoft planned to eventually triple the number of employees working on search technology to 200 from 70.

“We believe the SoundView report is simply wrong,” Overture spokesman Al Duncan said. “The fact is, we have a strong and growing relationship with Microsoft.”

Overture gets 66% of its revenue from Microsoft and Yahoo Inc.

Microsoft uses Overture to generate search results from paying sponsors and relies on Inktomi Corp. for impartial search results.

But since Yahoo said it purchased Inktomi in December, observers have speculated that Microsoft would eventually develop its own search capabilities rather than rely on technology belonging to a key rival.

Microsoft has denied those rumors.

“We are committed to these relationships,” said Bob Visse, MSN’s marketing director. “We have no plans to develop our own paid search listings platform because we’re committed to Overture. And today, we’re happy with the relationship we have with Inktomi. We have no plans to do anything differently.”