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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition from ________________ to _________________

COMMISSION FILE NUMBER 000-26365

Overture Services, Inc.
(Formerly GoTo.com, Inc.)
(Exact name of registrant as specified in its charter)

DELAWARE		95-4652060
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

74 NORTH PASADENA AVENUE 3RD FLOOR
PASADENA, CALIFORNIA 91103
(Address of principal executive offices)

626-685-5600
(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.0001 par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [   ] NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price for the registrant’s common stock in the Nasdaq National Market on January 31, 2002, was approximately $1.5 billion. This calculation does not reflect a determination that certain persons are or are not affiliates of the registrant for any other purposes and assumes that shares held by affiliates include only shares held by executive officers, members of the board of directors (but not any fund of which any such persons may be a partner), holders of greater than 5% and all shares that have been reported on Schedule 13D, consisting of; Bill Gross’ idealab! or members of the group filing such Schedule 13D dated November 27, 2001; TCW Business Unit filing such Schedule 13D dated December 31, 2001; and RS Investment Management Co. filing such Schedule 13D dated December 31, 2001. The number of outstanding shares of the registrant’s common stock as of the close of business on January 31, 2002 was 57,673,375.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12 and 13 of Part III incorporate information by reference from the definitive proxy statement for the registrant’s 2002 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2001.

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OVERTURE SERVICES, INC.

FISCAL YEAR 2001 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

						Page
PART I
	ITEM 1.			BUSINESS			3
	ITEM 2.			PROPERTIES			11
	ITEM 3.			LEGAL PROCEEDINGS			11
	ITEM 4.			SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			12
PART II
	ITEM 5.			MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS			13
	ITEM 6.			SELECTED FINANCIAL DATA			14
	ITEM 7.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			17
	ITEM 7A.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			36
	ITEM 8.			FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			36
	ITEM 9.			CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			36
PART III
	ITEM 10.			DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT			36
	ITEM 11.			EXECUTIVE COMPENSATION			36
	ITEM 12.			SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			36
	ITEM 13.			CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			37
PART IV
	ITEM 14.			EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K			37
				SIGNATURES

Forward Looking Statement

     In addition to historical information, this Form 10-K contains forward-looking statements, including statements related to the expected growth of our affiliate program, the amount of traffic that will be directed to us from our affiliates in the future, the timing and amount of any increase in our average price per paid introduction, continued profitability, the timing and amount of our number of paid introductions, the amount of future advertiser spending with Overture, fluctuation in the price of our common stock, changes in our quarter-to-quarter financial results and future competition. We use words such as “anticipates, “believes,” “plans,” “expects,” “future,” “intends” and similar expression to identify these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, those discussed in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risks That Could Affect Our Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.

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PART I

ITEM 1. BUSINESS

OVERVIEW

     Overture Services, Inc. (formerly GoTo.com, Inc.) (the Company or Overture) is the leader in Pay-For-Performance search on the Internet. Overture operates an online marketplace that introduces consumers and businesses who search the Internet to advertisers that provide products, services and information. Advertisers participating in our marketplace include retail merchants, wholesale and service businesses and manufacturers. Overture facilitates these introductions through our search service, which enables advertisers to bid in an ongoing auction for priority placement in our search results after editorial approval. Priority placement means that the search results appear on the page ranked in descending order of bid price, with the highest bidder’s listing appearing first. Each advertiser pays Overture the amount of its bid whenever a consumer or business clicks on the advertiser’s listing in our search results. Advertisers pay Overture for each clickthrough, so advertisers bid only on keywords relevant to the products, services or information that they offer. Because each advertiser chooses the bid amount and advertisement placement that is optimal for its business, we believe the Overture marketplace provides advertisers with a cost-effective way to target consumers and businesses. Consumers and businesses access the Overture search service primarily through our affiliates, a network of Web sites that have integrated Overture’s search service into their sites or that direct consumer and business traffic to our site. Consumers and businesses can also access Overture’s search service directly through Overture’s Web site.

     The Company was incorporated on September 15, 1997 in the state of Delaware and officially launched its services on June 1, 1998. On October 8, 2001, the Company changed its corporate name to Overture Services, Inc. and changed its Nasdaq Stock Market trading symbol to “OVER.”

INDUSTRY OVERVIEW

EVOLUTION OF SEARCH SERVICES

     Search services enable consumers and businesses to search the Internet for a listing of Web sites based on a specific product, service or topic of interest. After e-mail, consumers use search services more than any other Internet application. Initially, these search services offered consumers and businesses the ability to efficiently locate desired information on Web sites. However, the companies who provide search services realized that increasing the number, frequency and duration of visits to their own sites, rather than sending consumers and businesses to other Web sites, yielded greater potential advertising and electronic commerce opportunities. Accordingly, these companies evolved into portals, or online media companies that, in addition to search services, deliver a broad array of content and other services designed to keep consumers and businesses at their sites.

UNMET SEARCH NEEDS OF CONSUMERS AND BUSINESSES

     We believe that consumers who are searching for products, services or information services are best served by receiving search results, which list Web sites relevant to their query. We believe that relevance is achieved by an online marketplace that allows businesses to pay for prominence on a Pay-For-Performance basis, since advertisers have economic incentives to ensure relevance, because they pay for each clickthrough. In turn, clickthroughs from relevant searches are more likely to convert into a sale for that advertiser.

     Other search tools, such as algorithmic search engines, which create search results by using software to search the Internet or editorial search engines, which rely on editors to categorize search results, are limited in their ability to provide relevant results, because they offer only one relevance filter. The algorithmic search tool places undue reliance on the ability of computer programs to categorize information in a method that will be useful to users, while the editorial search tool requires extensive human capital to categorize information.

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     Historically, businesses have found it difficult to generate high quality, self-qualified and highly measurable sales leads. Overture’s service allows businesses to actively manage the number of leads and price per lead that they pay. We believe that generally, the more a business pays, the more leads it generates. We believe that in the U.S., search provides more leads than direct mail or yellow pages. According to the Direct Marketing Association, direct mail receives approximately 1.7 million responses on approximately 10.7 million pieces read per day. According to data from the Yellow Pages Publishers Association, yellow pages advertisers receive approximately 25 million to 30 million phone calls on approximately 30 million to 40 million references per day. We estimate that through users searching on the Internet for products, services and information services, there are approximately 60 million to 70 million commercial leads on approximately 170 million to 180 million searches per day.

LIMITATIONS OF TRADITIONAL INTERNET ADVERTISING

     Historically, online advertising has failed to exploit many of the unique attributes of the Internet. To date, Internet advertising has primarily taken the form of banner or sponsorship advertisements, which, like traditional media advertising, are typically priced by advertisers, paying for exposures to potential consumers and businesses. This approach, which is called impression-based advertising, inefficiently exploits the Internet’s direct marketing potential, resulting in what we believe are low consumer clickthrough rates of approximately 0.3%, as reported by eMarketer, a market research service firm. Advertisers are therefore paying for exposure to many viewers who are not interested in the product or service advertised. In addition, sometimes banner advertising on certain key words or Web sites are sold on an exclusive basis, limiting the advertising opportunities for advertisers and limiting the number of advertisers who can participate.

OUTSOURCED INTERNET SERVICES

     Like many portals, other Web sites seek to attract and retain consumer and business attention and maximize the revenue opportunity represented by that attention; however, all but the largest Web sites are limited in their ability to do so. We believe that although Web properties other than the major portal sites, such as AOL, MSN and Yahoo, currently represent a majority of all page views on the Web, Internet advertising spending is concentrated on the portals.

     In an effort to more effectively capitalize on their consumer and business audiences and provide more valuable advertising vehicles, many Web sites are now outsourcing popular consumer and business services and content offerings. In traditional media such as television, radio, and print, syndicated content has been widely used by local media in order to augment their core programming and, in so doing, extend their audience reach and retention. On the Internet, providers have emerged offering Web sites syndicated services such as search, e-mail and mapping, as well as content, such as stock quotes and news wires. Web sites use these offerings to enhance consumer and business usage, loyalty and retention. In order to address issues of sales force scale for the specific content and targetability for advertisers, some companies that develop syndicated content also sell the advertising that goes with it.

THE NEED FOR AN ONLINE CONSUMER, BUSINESS AND ADVERTISER SEARCH SERVICE

     Advertisers find it increasingly difficult to cost-effectively acquire qualified consumer and business leads on the Internet for many reasons, including the diffusion of consumer and business attention across the Internet, the concentration of online advertising on large Web sites, the pricing of Internet advertisements on an impression basis with significant minimum expenditure requirements, and the frequent use of exclusive arrangements. This is particularly true for advertisers seeking to reach targeted markets, despite the unique abilities of the Internet to facilitate direct marketing. As a result, the needs of consumers and businesses and the desires of advertisers to meet those needs often go unmatched. Overture believes there is a significant need for a sophisticated, distributed search service to serve both of these constituencies by providing a targeted, cost-effective Internet advertising solution.

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THE OVERTURE SOLUTION

     We believe the Overture marketplace offers consumers and businesses quick, easy and relevant search results for products, services and information, while providing advertisers with a cost-effective way to target them. Key elements of Overture’s solution include the following:

     SEARCH PERFORMANCE. Overture is dedicated to assisting consumers and businesses. Since advertisers must pay for each clickthrough, or paid introduction, to their Web site, advertisers select and bid only on those search keywords that are most relevant to their offerings. These choices of keywords and bids are consistent with their economic incentive to secure high conversion rates, that is, to convert traffic or leads into sales. That same incentive encourages advertisers to write descriptions of their products, services and information services that describe their offerings as accurately as possible. Overture believes that its Pay-For-Performance advertising model efficiently aligns the interests of consumers, businesses and advertisers and improves the ability of consumers and businesses to quickly and easily find relevant search listings for products, services and information on the Overture service. Consequently, we believe Overture can provide more relevant and higher quality search results by requiring advertisers to assign a cost to their placement decisions.

     In addition, Overture believes it ensures relevant search results by having its product quality team of more than 100 people review and edit advertisers’ site descriptions and requiring that advertisers appear only on search results pages that relate to their site. Furthermore, by foregoing exclusive advertising relationships, Overture removes significant barriers and enables consumers and businesses to locate relevant information and pass quickly through our Web site or through our search service on other Web sites, which we call “affiliates,” to the desired information source.

     TARGETED PAY-FOR-PERFORMANCE ADVERTISING. Any advertiser in the Overture marketplace is able to specifically target those consumers and businesses who are interested in the products, services or information offered by the advertiser. We believe Overture enables highly efficient and cost-effective advertising expenditures. An advertiser pays only for consumers and businesses who elect to visit its Web site after searching targeted keywords on which the advertiser has bid. As a result, advertisers pay only for self-qualified leads rather than exposures to potential consumers and businesses, as with impression-based advertising.

     Advertisers maintain control on a real-time basis over the amounts of their bids for keywords they have selected and the aggregate amount spent on advertising with Overture. As a result, advertisers are able to precisely control their costs of customer acquisition using the Overture service. In addition, Overture does not enter into exclusive advertising arrangements, thereby enabling access to the marketplace by all potential advertisers.

     OUR AFFILIATE NETWORK. By offering our search service to other Web sites, we have created a network of affiliates that have integrated the Overture search service into their sites or that direct consumer and business traffic to the Overture Web site. Of Overture’s total traffic for the three months ended December 31, 2001, more than 95% came from affiliates as follows: approximately 40% came from our portal affiliates including Alta Vista, AOL, Excite.com, go.com, iWon, Terra Lycos and Yahoo; approximately 25% came from the browsers, Microsoft’s Internet Explorer and Netscape’s browser product; and approximately 35% came from other affiliates including Ask Jeeves, InfoSpace (including MetaCrawler and Dogpile) and our Web site. We generally provide our top three to five search listings, which we call Premium Listings, to the portals to offer in their search results. The contracts between Overture and the Internet browsers provide that the Overture search service is offered on the browser’s search page or as part of the browser’s search functionality. Affiliates can also provide Internet search capabilities by having an Overture search box on their sites, which either transfers their users to the Overture Web site or generates Overture search results while maintaining the look, feel and navigation features specific to the affiliates’ sites. This enables affiliates to enhance their users’ experience with search functionality and to generate additional revenue from the consumer and business audiences visiting their sites through the sale of advertising on search pages. The economics of these agreements vary from affiliate to affiliate. Because Overture focuses on deriving its revenue primarily from search results rather than banner advertising, Overture can provide these benefits to affiliates without conflicts for consumer and business attention for non-search content. Overture’s agreements with its portal and browser affiliates vary in initial duration from three months to three years, and depending on the agreement, may be terminable upon the occurrence of certain events, including for our failure to meet certain service levels, for general breaches of agreement terms, for changes in control or in some instances, at will. Through our network, we are building relationships with affiliates that are intended to increase the number of clickthroughs delivered to advertisers, which would increase the value of the Overture advertising proposition.

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MARKET SIZE

     We believe that Internet search in the U.S. generates more than $1 billion in revenue on an annualized basis, including all forms of search-based revenues: search listings, sponsorships and graphical advertisements. We believe search listings represent the fastest growing segment.

     We believe search listings also have tremendous growth potential, since by our estimates, only approximately 15% of leads, or clickthroughs to businesses are monetized today. We believe that improvements in the quality, relevance, breadth and depth of paid listings will likely drive growth for clickthroughs on commercial inquiries for the foreseeable future.

     We also believe that the price per paid introduction advertisers pay has growth potential. Relative to alternatives, a lead on Overture at an average price of $0.23 is less expensive, and yet more targeted and measurable. We therefore believe an Overture lead is more likely to convert from clickthrough to a sale.

     We believe that our business can also experience growth outside the US as Internet and e-commerce continues to grow in those territories.

OVERTURE STRATEGY

     Overture’s objective is to expand participation and increase transactions in its online marketplace. We believe that a critical mass of advertisers, consumers, businesses, and affiliates stimulates growth in the number of marketplace participants, which in turn can increase the efficiency of the Overture service. We further believe that this efficiency will increase the competition for prominent search result placement on our search service and may, thereby, increase the amounts advertisers are willing to bid for participation in the Overture marketplace. We believe that advertisers are attracted to Overture as a result of the large number of opportunities to reach interested consumers and businesses, and that consumers and businesses find Overture useful due to the breadth of relevant advertiser links displayed on the Overture service. A large and active base of paying advertisers increases Overture’s ability to generate comprehensive, relevant search results and to monetize consumer and business search requests. The resulting service quality and revenue opportunity provides the incentive for Overture’s affiliates to feature Overture search results on the their site. Elements of Overture’s strategy include:

     INCREASE ADVERTISER SPENDING. During December 2001, the Overture marketplace had approximately 53,000 paying advertisers. Overture intends to increase the revenue from advertisers through its sales force and leverage its reputation for Pay-For-Performance, targeting direct response market among advertisers and their intermediaries, such as search engine marketing consultants and media buyers. Overture reaches these constituencies through multiple marketing channels, including targeted online marketing, mailings, sponsorship of Web sites where advertisers congregate, participation at trade shows, appearances in advertising industry periodicals and agreements with companies who refer advertisers to us. We believe that the Overture marketplace is scalable and can support a broader and deeper array of advertisers than traditional online advertising solutions. Accordingly, Overture intends to capture a share of the advertising from the growing number of online businesses.

     EXPAND CONSUMER AND BUSINESS BASE WITH OUR AFFILIATE NETWORK. The Overture marketplace had approximately 442 million paid introductions in the fourth quarter of 2001. Overture believes it can increase the number of consumers and businesses participating in the Overture marketplace by enhancing the search service implementations with our current affiliates (more Overture search results, better placement, etc.), as well as by distributing the Overture search service on other Web sites not currently in our affiliate network.

     USE TECHNOLOGY TO EFFECTIVELY SCALE OUR CUSTOMER SUPPORT. The services Overture currently provides to advertisers include online account creation and keyword bidding, as well as a proprietary account management product that allows advertisers to log in to a secure Web site where they can perform account management functions, such as adding funds to their accounts, viewing performance reports and changing their bids in real time. Overture also offers account monitoring tools, which allow advertisers to track their total spending, account balance and clickthroughs in real-time. These tools also allow advertisers to manage their monthly spending plans and provide a forecast volume of clickthroughs for keyword and listing rank, based on activity history. Overture intends to utilize its technology to grow an efficient and scalable operations infrastructure enabling a high volume of advertisers at a high quality service level and at a relatively low internal cost. In addition, Overture plans to continue to enhance the services it provides to advertisers. Overture intends to increasingly automate the sale of advertising, enabling advertisers to have greater control over, and satisfaction with, advertising on the Overture marketplace.

     PROVIDE EXCELLENT SERVICE. We believe that Overture's sophisticated account management systems and processes are a competitive advantage. Accordingly, we believe that a high service level is attractive to advertisers. We believe that continued investments in our account management system and processes are an integral component of building a larger and more active advertiser base. In addition to providing high quality service to advertisers, we believe that reliable technical service is important to our affiliates and our ability to attract new affiliates.

     Overture offers Full Serve and Full Serve Advantage programs which offer the advertiser a customized plan with recommended terms and bid amounts for either 20 or 100 search listings and submission of their Web site to 12 additional search engines for maximum exposure. Overture has a product quality team of more than 100 people that review and edit advertisers’ site descriptions and ensure that advertisers appear only on search result pages that relate to their site. The Overture service uses proprietary analytical systems that are designed to exclude from an advertiser’s charges clickthroughs that are unlikely to be genuine leads. Overture provides additional tools to their advertisers, which allow online account creation and keyword bidding, as well as a proprietary account management product that allows advertisers to log in to a secure Web site where they can perform account management functions, such as adding funds to their accounts, viewing performance reports and changing their bids in real time. Overture also offers account monitoring tools, which allow advertisers to track their total spending, account balance and clickthroughs in real-time. These tools also allow advertisers to manage their monthly spending plans and provide a forecast volume of clickthroughs for keyword and listing rank, based on activity history. In addition, Overture plans to continue to enhance the services it provides to advertisers.

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     DERIVE STRATEGIC ADVANTAGE FROM EFFICIENT COST STRUCTURE. Overture believes that its business model provides a number of competitive advantages. The advertisers participating in the Overture marketplace can provide their own Web site descriptions and, through competitive bidding, with bid amounts visible at the Overture Web site to all participants, rank and set the prices paid for their position in the search results and, consequently, the amounts they pay Overture for each click on their search result. This reduces the costs Overture must pay to perform these tasks. In addition, for a fee, Overture will provide some of theses services for advertisers. In addition, our business model does not require us to carry any physical inventory. Overture is therefore able to direct the capital that would otherwise be used for these purposes towards growing our business, enhancing our services and pursuing other strategic opportunities.

     EXPAND THE OVERTURE SERVICE INTO INTERNATIONAL MARKETS. Overture believes that international consumers and businesses also desire quick, easy and relevant search results for products, services and information and that international advertisers can benefit from a cost-effective, targeted way to reach consumers and businesses using Overture’s Pay-For-Performance model. Overture also believes that its automated advertiser sign-up technology, distributed affiliate network model and efficient cost structure will enable it to replicate its U.S.-based marketplace in other countries. As a result, we launched the Overture service in the United Kingdom in November 2000 and launched our German-speaking search service in February 2002. We are considering launching our search service in Japan and France during 2002.

THE OVERTURE SERVICE

SEARCH TOOL

     Consumers and businesses use the Overture search service to locate desired providers of products, services and information, and can access the Overture search service from either the tens of thousands of Web sites that are Overture’s affiliates or from Overture’s home page. After entering a targeted keyword search, or performing a directory search from an affiliate’s Web site or from the Overture home page, consumers and businesses are presented with Overture search results.

BIDDING FOR PRIORITY PLACEMENT IN SEARCH RESULTS

     Overture search results for the search service are prioritized for consumers and businesses based on advertiser bids for placement of their search listings within the search results. Paying advertisers are listed in descending bid order, with the highest bidder appearing as the first search result. Bids are expressed as the amount advertisers pay Overture for each paid introduction. As of the end of December 2001, Overture’s proprietary database included approximately 8 million search listings.

     Overture promotes an open and efficient marketplace allowing advertisers to see the bids of other advertisers. Using the open bidding information, advertisers are able to determine the bids necessary to achieve their desired ranking, which enables competition among advertisers and promotes greater relevance for consumers and businesses.

ADVERTISING ON OVERTURE

     Overture offers a self-service, online form where advertisers can sign up and bid for search listings. Potential advertisers find the Overture Web site directly or through custom offer pages on our affiliates’ sites. On the welcome page of the sign up form, potential advertisers are able to access a frequently asked questions page that contains information about Overture’s guidelines for crafting relevant search results, instructions for opening a new account and account maintenance information.

     As part of the sign up process for new advertisers, advertisers enter basic contact information and select a unique user ID and password for accessing and maintaining account information online using Overture’s proprietary account maintenance product. Each advertiser will select one of three plans; 1) Self Service 2) Full Serve and 3) Full Serve Advantage. Under the Self Service plan, the advertiser enters keywords on which it wishes to bid, the bid amounts, with a minimum bid of five cents per keyword, and information about the advertiser’s Web site, including a title customized for the applicable keyword, a description of its Web site offerings and information necessary for hypertext linking. For $99, the Full Serve plan offers the advertiser a customized plan with recommended terms and bid amounts for up to 20 search listings. For $199, the Full Serve Advantage plan offers the advertiser a customized plan with recommended terms and bid amounts for up to 100 search listings and their Web site will be submitted to 12 additional search engines for maximum exposure.

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     During the sign up process, advertisers also enter payment information. Advertisers must currently commit to a minimum initial payment of $25 or $50. In addition, since March 1, 2001 every new advertiser is required to spend a minimum of $20 per month and every keyword (from both new and existing advertisers) require a minimum bid of five cents. An advertiser may choose to pre-pay by check, wire or credit card and in some cases, Overture may grant credit terms, in which case the advertiser is invoiced each month. After entering payment information, advertisers are presented the terms and conditions of advertising on the Overture service, which must be accepted before an order is processed. After the advertiser accepts these terms, a confirmation screen appears with a tracking number for the advertiser’s convenience. If an advertiser contacts Overture’s customer service, the tracking number enables us to quickly find the advertiser’s enrollment application. Once the sign up process has been completed, the advertiser receives a confirmation by e-mail that Overture received the sign up form.

     By automating the sale and maintenance of advertising accounts, Overture enables advertisers to have greater control over the advertising process, while simultaneously reducing Overture’s operating costs. Overture also employs a sales and support team to attract accounts, review advertising for relevance and assist advertisers in cases where more personal attention is required.

     Overture offers advertisers a variety of payment plans to ensure that advertisers maintain sufficient funds in their Overture account and remain active on the service. Advertisers on the Overture service pay for advertising in advance, or for qualified accounts, may elect to be invoiced. Overture notifies advertisers using its service by e-mail when account balances are running low so that they can add to their account balances. As an alternative, advertisers that prepay Overture may authorize Overture to charge them on a monthly basis to refresh their account or to charge them an additional fixed amount each time their account approaches a zero balance.

     To promote fairness and efficiency, Overture has adopted marketplace rules and policies. For example, advertisers are not permitted to bid on search results unrelated to their Web site offerings. Each advertiser’s compliance with these rules and policies is enforced in part by other advertisers participating in the service. The Overture service also uses proprietary clickthrough analysis systems that are designed to exclude from an advertiser’s charges, clickthroughs that are unlikely to be genuine leads.

MARKETING, SALES AND SERVICE

Consumers, Businesses and Affiliates

     Overture has established relationships with search engines and portals, including AltaVista, AOL, Ask Jeeves, go.com, InfoSpace (including MetaCrawler, Dogpile and Excite.com), iWon, MSN, Terra Lycos and Yahoo, that offer Overture’s Premium Listings as part of their search results. Overture has also established relationships with browsers that offer Overture search functionality as a default search service in rotation with other providers of search functionality.

     Web sites can become an affiliate in two ways:

     First, a consumer or business queries the Overture search service at an affiliate’s Web site and receives Overture’s search results with or without leaving the affiliate’s site, at the affiliate’s choice.

     Second, an affiliate offers the Overture search results as part of other search results that they provide their users. For example, as part of our affiliate network, we have established contracts with Web sites that aggregate the search offerings of several providers of search services. These contracts provide that our search service is included in the aggregated search offerings on these sites. Similarly, Overture has entered into contracts with portals, in which our Premium Listings are offered in their search results. Finally, in contracts with Internet browsers, like Microsoft Internet Explorer and Netscape’s browser product, our search service is offered on the browser’s search page or as part of the browser’s search functionality.

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     The economic arrangements with affiliates vary and may include:

	•		fixed guarantees, provided the affiliate meets and maintains certain performance standards;
	•		payment based on a percentage of revenue;
	•		payment for clicks on our search results;
	•		payment for impressions of our search results;
	•		payment for searches done on our service;
	•		payment for impressions of our search box; and
	•		combinations of the foregoing.

     We believe affiliates electing to host Overture search functionality on their sites can take advantage of any or all of the following benefits:

	•		obtain an economic advantage in monetizing search;
	•		experience superior technical and customer service;
	•		deliver to their users high quality and relevant search results;
	•		acquire turnkey search service without the need to develop and manage it in-house;
	•		generate revenue without the costs and challenges associated with building and maintaining the marketing, sales and service, and supporting functions and systems;
	•		enable rapid implementation of search functionality with no out-of-pocket investment; and
	•		build and maintain brand loyalty by delivering content with the look, feel and navigation features specific to each affiliate, creating the impression to consumers and businesses that they have not left the affiliate’s site.

     The following are Overture’s significant affiliate agreements:

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Advertisers

     Overture attracts advertisers through direct marketing efforts, which include mailings and other promotional material sent directly to advertising agencies and to targeted accounts. To build further advertiser participation, Overture will continue to leverage its reputation for Pay-For-Performance, and direct response marketing among advertisers and their intermediaries, such as advertising consultants and media buyers. Overture will continue to reach these constituencies through multiple marketing channels, including our direct sales force, targeted online marketing, mailings, sponsorship of Web sites where advertisers congregate, participation at trade shows and appearances in advertising industry periodicals. Overture also enters into referral agreements with companies that receive payment for each advertiser that they refer to us who becomes an advertiser of our service.

     We believe that Internet use is higher during the fourth quarter of the calendar year as opposed to other quarters, particularly due to holiday shopping patterns. We believe this seasonality of Internet use results in more traffic to our search service, which generates more paid clicks and revenues for us during the period from October through December. As a result, seasonal fluctuations in Internet use could affect our operating results.

TECHNOLOGY

     The Overture technical operating environment is designed to provide the best search experience on the Internet to consumers and businesses, advertisers and affiliates. Overture intends to continue investing in its technology infrastructure to maintain and enhance its competitive advantage.

     Overture makes its services available to advertisers, consumers and businesses through a combination of its own proprietary technology and commercially available technology from industry leading providers such as Sun Microsystems, Cisco, Oracle, and Kana. Overture also relies upon third parties to provide Web hosting services, including hardware support and service and network coordination.

     Any disruption in the Internet access or other services provided by third parties could have a material adverse effect on our business. Accordingly, our research and development efforts include the development and implementation of business continuity and disaster recovery systems, improvement of data retention, backup and recovery processes and systems and standardization of technology platforms. Overture also protects its computer systems by maintaining multiple serving sites which allow for global load balancing, designing our systems for peak loads and non-stop operation.

COMPETITION

     Overture competes with online services, other Web sites and advertising networks such as DoubleClick Inc. and 24/7 Media, Inc., as well as traditional offline media such as television, radio and print, for a share of advertisers’ total advertising budgets. We believe that the number of companies selling Web-based advertising and the available inventory of advertising space has recently increased. Accordingly, Overture may face increased pricing pressure for the sale of advertisements and direct marketing opportunities, which could have a material adverse effect on our business, operating results and financial condition.

     Overture also competes with providers of Web directories, search, and information services, all of which offer search services competitive to those provided by Overture, including, among others, AltaVista, AOL, Ask Jeeves, Inc., CNET, Inc., Fast Search &Transfer ASA, Google, Inc., Inktomi Corporation, LookSmart, Ltd., Microsoft Corporation (LinkExchange, Inc. and msn.com), Terra Lycos (including HotBot) and Yahoo!, Inc. In addition, Espotting Media, FindWhat.com, Inc., Google and PRIMEDIA, through its About.com Sprinks product, each offer a search-based pay-per-click advertising service. There are also other companies that offer directly competing services. We have affiliate arrangements with companies that currently provide other search and advertising services, which may indirectly compete with our offerings, and may in the future offer their own pay-per-click search service.

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     Recently, some of our search service competitors, such as Google and Terra Lycos, have introduced pay-per-click advertising services that are similar to ours. Although we believe that our large network of affiliates, number of advertisers, level of service and proprietary technology differentiate our service from those of these competitors, we cannot assure you that another search service will not successfully offer a competitive pay-per-click advertising product. We believe it is likely that there will be additional entrants to the pay-per-click search market. These new competitors will likely compete against us for affiliate arrangements and therefore may require us to enter into affiliate agreements with less favorable terms or we may lose traffic from some affiliates. These new competitors will also compete with us for users, which could reduce our number of clickthroughs and total revenues. In addition, these new competitors will also compete with us for our advertisers, which could reduce our number of advertisers or our advertisers' budgets, therefore possibly reducing our revenue. These new competitors could therefore have a material adverse effect on our business, operating results and financial condition.

     In addition, some of our competitors, as well as potential entrants into our market, have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Many of these current and potential competitors can devote substantially greater resources to promotion and Web site and systems development than we can. In addition, as the use of the Internet and other online services increases, larger, well-established and well-financed entities may continue to acquire, invest in or form joint ventures with providers of Web directories, search and information services or advertising solutions, and existing providers of Web directories, search and information services or advertising solutions may continue to consolidate. In addition, providers of Internet browsers and other Internet products and services who are affiliated with providers of Web directories and information services in competition with the Overture service may more tightly integrate these affiliated offerings into their browsers or other products or services. Any of these trends would increase the competition we face and could have a material adverse effect on our business, operating results and financial condition.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES

     Overture has been granted two patents and has filed for others.

     We seek to protect our copyrights, service marks, trademarks, trade dress and trade secrets through a combination of laws and contractual restrictions, such as confidentiality agreements. For example, we attempt to register our trademarks and service marks in the United States and other countries throughout the world. However, effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are made available online.

EMPLOYEES

     Overture had 559 full-time employees as of January 31, 2002. As of January 31, 2002, 145 of Overture’s employees were engaged in technical operations and product development, 300 in marketing, sales and service and 114 in finance, administration and operations. Marketing, sales and service employees include customer service representatives, salespeople, sales administration personnel, marketing and communications personnel and creative services personnel.

ITEM 2. PROPERTIES

     During 2001, Overture leased approximately 12,000 square feet of office space in San Mateo, California and approximately 2,000 square feet of office space in London, England and subleased approximately 58,000 square feet of office space from Bill Gross' idealab! in Pasadena, California. In March 2002, Overture entered into an arrangement with Parfinco EWA, LLC and Bill Gross' idealab! whereby Bill Gross' idealab! assigned their lease with Parfinco to Overture for the existing 58,000 square feet of office space in Pasadena, California and Overture entered into an arrangement with Parfinco for an additional 29,000 square feet of office space in Pasadena, California. The additional office space lease expires at the same time as our existing 58,000 square feet of office space, in October 2004. We believe our facilities are adequate for our current needs, but we may require additional facilities as we expand in the future.

ITEM 3. LEGAL PROCEEDINGS

     On June 19, 2001, InternetFuel.com, Inc. filed a complaint against Overture in the Superior Court of the State of California for the County of Los Angeles. The complaint alleges that Overture wrongfully terminated an agreement pursuant to which InternetFuel participated in Overture’s affiliate program. The complaint also alleges libel for messages allegedly placed by Overture on an Internet forum, and it contains claims of unfair business practices. The complaint seeks, among other remedies, monetary damages for the value of the terminated agreement and for alleged harm to InternetFuel’s reputation, punitive and exemplary relief and an injunction against alleged unfair business practices. In December 2001, Overture successfully moved the court to transfer the case to arbitration. The parties are in the process of selecting arbitrators. Overture believes that it has meritorious defenses to the complaint. Overture intends to contest the allegations vigorously.

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     On July 12, 2001, the first of several purported securities class action lawsuits was filed in the United States District Court, Southern District of New York against certain underwriters involved in Overture’s initial public offering, Overture, and certain of Overture’s current and former officers and directors. The Court consolidated the cases against Overture into case number 01 Civ. 6339. Plaintiffs allege, among other things, violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 involving undisclosed compensation to the underwriters, and improper practices by the underwriters and seek unspecified damages.

     Similar complaints were filed in the same court against numerous public companies that conducted initial public offerings of their common stock since the mid-1990s. All of these lawsuits were consolidated for pretrial purposes before Judge Shira Scheindlin of the United States District Court for the Southern District of New York. Judge Scheindlin has ordered that the time for all defendants to respond to any complaint be postponed until further order of the Court. Thus, Overture has not been required to answer the complaint, and no discovery has been served. Overture denies the allegations against it, believes that it has meritorious defenses to the complaint and intends to contest the allegations vigorously.

     On October 2, 2000, 800-JR-Cigar, Inc. (“JR Cigar”) served a complaint against the Company in the United States District Court for the District of New Jersey alleging that the Company has committed acts of trademark infringement, trademark dilution, unfair competition, consumer fraud and deceptive telemarketing. JR Cigar’s allegations are based on the Company’s allowing competitors to bid on the term JR CIGAR (and related terms) in order to obtain priority when an Internet user searches for cigar related Web sites. The Company denies that it has violated JR Cigar’s rights and is vigorously contesting the lawsuit. The parties have filed motions for summary judgment, which have been fully briefed and are pending before the court. A trial date has not been scheduled.

     On January 17, 2002, FindWhat.com (“FindWhat”) filed a lawsuit against the Company in the United States District Court for the Southern District of New York. The initial complaint was never served upon the Company. An amended complaint was served on the Company on January 25, 2002. The amended complaint seeks a declaratory judgment of invalidity, unenforceability and non-infringement relating to the Company’s U.S. Patent No. 6,269,361 (“the ‘361 patent), entitled “System And Method For Influencing A Position On A Search Result List Generated By A Computer Network Search Engine.” On January 25, 2002, the Company filed a complaint for patent infringement against FindWhat in the United States District Court for the Central District of California, Western Division. In this action, the Company seeks an adjudication that the ‘361 patent is enforceable, not invalid, and infringed by FindWhat. The Company also seeks a permanent injunction against FindWhat, an award of increased damages, and an award of attorney’s fees, costs and expenses. The Company has moved to dismiss FindWhat’s New York action in favor of the Company’s California action.

     On January 28, 2002, Mark Nutritionals, Inc. (“MNI”) filed a complaint against the Company in the United States District Court for the Western District of Texas. The initial complaint was never served on the Company. An amended complaint was served on the Company on February 6, 2002. The amended complaint alleges that the Company has committed acts of trademark infringement, trademark dilution, unfair competition, misappropriation and tortious interference with prospective economic advantage. MNI’s allegations are based on the Company’s allowing competitors to bid on the term “body solutions” in order to obtain priority when an Internet user searches for diet-related Web sites. The Company is indemnifying and defending an affiliate, who has been named a defendant in a related action. The Company denies that it has violated MNI’s rights and will vigorously contest the lawsuit.

     On January 31, 2002, a complaint was filed against the Company as a result of its acquisition in May 2000 of AuctionRover.com, Inc., and other defendants in North Carolina Superior Court by an individual, Paul Rony, relating to alleged trade secrets concerning interaction with Internet auction Web sites. The causes of action alleged against the Company include misappropriation of trade secrets, quantum meruit, and constructive trust. The Company denies liability and will vigorously contest the lawsuit.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

     Information required by Item 10 of Form 10-K with respect to executive officers of the Company is set forth below. The following table sets forth certain information with respect to the executive officers of Overture as of January 31, 2002.

     Ted Meisel has served as a Director and as Chief Executive Officer since February 2000 and he has served as President since May 1999. From December 1998 until January 2000, he also served as Chief Operating Officer. From April 1996 to November 1998, he served in a variety of roles at Ticketmaster Online-CitySearch, Inc. (formerly CitySearch, Inc.), an online provider of city guides and live-event ticketing, most recently as Vice President of the Products and Technology Group. From November 1991 to March 1996, he worked at McKinsey & Company, a management-consulting firm, most recently as an Engagement Manager. Mr. Meisel holds a B.A. in History from Dartmouth College and a J.D. from Stanford Law School.

     Jaynie Studenmund has served as Chief Operating Officer since January 2001. From February 2000 to December 2000, Ms. Studenmund was the President and Chief Operating Officer for PayMyBills, a leading Internet bill management company, where she was responsible for all line, technology, operations and staff functions. From 1997 to 1998, she was the Executive Vice President for Retail Banking at Home Savings of America, and from 1996 to 1997, served as an Executive Vice President for Retail Banking at Great Western Bank. From 1991 to 1996, Ms. Studenmund served as an Executive Vice President at First Interstate Bank of California. Ms. Studenmund has a B.A. in Economics from Wellesley College and a M.B.A. from Harvard Business School.

     Todd Tappin has served as Chief Financial Officer since October 1998. From March 1992 to October 1998, Mr. Tappin served as Senior Vice President of Finance for News Corp.-Twentieth Century Fox, where he oversaw all Finance, Strategic Planning and Business Development for the Home Entertainment and Interactive Divisions, and as the General Manager of Twentieth Century Fox’s Home Entertainment Division in Canada. Mr. Tappin began his professional career as a certified public accountant at Deloitte, Haskins and Sells. He holds a B.S. in Business from the University of Colorado.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock has been quoted on the Nasdaq National Market since our initial public offering on June 18, 1999 and currently trades under the symbol “OVER.” From June 18, 1999 to October 7, 2001, our common stock was quoted under the symbol “GOTO.” In conjunction with our name change from GoTo.com, Inc. to Overture Services, Inc., our common stock began trading under the symbol “OVER” on October 8, 2001. Prior to June 18, 1999, there was no public market for our common stock. According to records of our transfer agent, there were approximately 603 stockholders of record as of December 31, 2001 and we believe there are a substantially greater number of beneficial holders. The following table sets forth the high and low per share sale prices of our common stock as reported on the Nasdaq National Market for the periods indicated:

     We have not paid dividends and do not anticipate declaring dividends on our common stock in the foreseeable future.

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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)

     The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements appearing elsewhere in this Form 10-K. The statements of operations data set forth below for the years ended December 31, 2001, 2000 and 1999 and the balance sheet data at December 31, 2001 and 2000 are derived from our audited financial statements included elsewhere in this Form 10-K. Certain changes have been made to the description and presentation of the Statement of Operations during the current year. The line item “Cost of Revenue” has been renamed “Search Serving”, the “Gross Profit” line item has been removed, the “Search Serving” line item is now shown as a component of operating expenses, and “Traffic Acquisition” has been separately reported from “Marketing, Sales and Service.” Prior year presentation has been changed to conform to current year presentation. These changes to the description and presentation of the Statement of Operations had no effect on net income or loss. The historical results are not necessarily indicative of results to be expected for any future period.

																				SEPTEMBER 15, 1997
																				(INCEPTION) TO
				YEAR ENDED DECEMBER 31,																DECEMBER 31,
				2001				2000				1999				1998				1997
				(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue				$	288,133			$	103,052			$	26,809			$	822			$	22
Operating expenses:
		Search serving			20,962				13,109				6,213				1,429				6
		Traffic acquisition			162,072				66,433				14,290				—				—
		Marketing, sales and service			28,078				28,098				20,169				9,645				65
		General and administrative			44,917				33,798				12,467				1,655				24
		Product development			12,811				13,523				3,689				1,232				46
		Amortization of deferred compensation			849				1,376				3,585				1,199				—
		Write-off of acquired in-process research and development			—				7,550				—				—				—
		Amortization of intangible assets			1,192				115,600				—				—				—
		Impairment of intangible assets			—				309,253				—				—				—
		Loss on closure of GoTo Shopping			1,002				—				—				—				—
		Loss on disposition of GoTo Auctions			2,008				—				—				—				—
					273,891				588,740				60,413				15,160				141
Income (loss) from operations					14,242				(485,688	)			(33,604	)			(14,338	)			(119	)
		Interest income, net			4,260				5,809				3,777				316				—
		Other income			2,561				21,259				566				—				—
Income (loss) before provision for income taxes					21,063				(458,620	)			(29,261	)			(14,022	)			(119	)
Provision for income taxes					900				1				1				1				1
Net income (loss)				$	20,163			$	(458,621	)		$	(29,262	)		$	(14,023	)		$	(120	)
Historical basic net income (loss) per share				$	0.38			$	(9.54	)		$	(1.04	)		$	(1.36	)		$	(0.01	)
Historical diluted net income (loss) per share				$	0.36			$	(9.54	)		$	(1.04	)		$	(1.36	)		$	(0.01	)
Weighted average shares used to compute historical basic net income (loss) per share(a)					53,363				48,065				28,207				10,296				9,869
Weighted average shares used to compute historical diluted net income (loss) per share (a)					55,533				48,065				28,207				10,296				9,869
				2001				2000				1999				1998				1997
	If deferred compensation were allocated to expense categories, it would be allocated as follows:
		Search serving		$	1			$	4			$	16			$	24			$	—
		Marketing, sales and service			157				381				670				265				—
		General and administrative			664				922				2,673				745				—
		Product development			27				69				226				165				—
		Total amortization of deferred compensation		$	849			$	1,376			$	3,585			$	1,199			$	—

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			DECEMBER 31,
			2001				2000				1999				1998				1997
			(IN THOUSANDS)
BALANCE SHEET DATA:
	Unrestricted cash, cash equivalents, short-term investments and long-term investments		$	170,287			$	54,973			$	110,255			$	16,357			$	87
	Working capital			102,874				52,956				95,165				15,215				18
	Total assets			231,927				121,413				129,512				19,969				214
	Long-term capital lease obligations			—				78				768				183				—
	Total stockholders’ equity		$	179,443			$	88,095			$	112,774			$	16,397			$	123

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QUARTERLY RESULTS OF OPERATIONS

     The following table sets forth certain unaudited consolidated quarterly statement of operations data for the eight quarters ended December 31, 2001. These unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown, except for the write-off of approximately $7.6 million of in-process research and development associated with Overture’s acquisition of Cadabra in the first quarter of 2000, other income of approximately $21.5 million from the settlement of Overture’s trademark infringement lawsuit against The Walt Disney Company in the second quarter of 2000 and an impairment of intangible assets of approximately $309.3 million in the fourth quarter of 2000. The consolidated quarterly data should be read in conjunction with our audited consolidated financial statements and the notes to such statements appearing elsewhere in this report. The results of operations for any quarter are not necessarily indicative of the results of operations for any future period.

					FOR THE THREE MONTHS ENDED
					DECEMBER 31,				SEPTEMBER 30,				JUNE 30,				MARCH 31,				DECEMBER 31,				SEPTEMBER 30,				JUNE 30,				MARCH 31,
					2001				2001				2001				2001				2000				2000				2000				2000
					(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue					$	101,188			$	72,523			$	62,463			$	51,959			$	39,776			$	25,050			$	21,011			$	17,215
Operating expenses:
		Search serving				5,042				6,050				5,157				4,713				4,381				3,310				2,813				2,605
		Traffic acquisition				51,911				38,551				36,929				34,681				30,780				15,500				11,289				8,864
		Marketing, sales and service				8,063				6,412				6,709				6,894				7,985				5,685				6,978				7,450
		General and administrative				13,030				10,769				12,053				9,065				10,464				9,012				8,055				6,267
		Product development				3,104				2,768				3,240				3,699				3,526				3,534				4,262				2,201
		Amortization of deferred Compensation				198				213				202				236				265				311				375				425
		Write-off of acquired in-process research and development				—				—				—				—				—				—				—				7,550
		Amortization of intangible assets				291				292				292				317				35,667				35,401				30,578				13,954
		Impairment of intangible assets				—				—				—				—				309,253				—				—				—
		(Gain)/loss on closure of GoTo Shopping				(497	)			—				1,499				—				—				—				—				—
		(Gain)/loss on disposition of GoTo Auctions				(104	)			—				2,112				—				—				—				—				—
						81,038				65,055				68,193				59,605				402,321				72,753				64,350				49,316
	Income (loss) from operations					20,150				7,468				(5,730	)			(7,646	)			(362,545	)			(47,703	)			(43,339	)			(32,101	)
		Interest income, net				1,295				1,177				833				955				1,159				1,592				1,511				1,547
			Other income (expense), net			73				479				2,017				(8	)			(306	)			8				21,512				45
Income (loss) before provision for income taxes						21,518				9,124				(2,880	)			(6,699	)			(361,692	)			(46,103	)			(20,316	)			(30,509	)
Provision for income taxes					$	750				150				—				—				1				—				—				—
Net income (loss)					$	20,768			$	8,974			$	(2,880	)		$	(6,699	)		$	(361,693	)		$	(46,103	)		$	(20,316	)		$	(30,509	)
Historical basic net income (loss) per share					$	0.37			$	0.16			$	(0.06	)		$	(0.13	)		$	(7.27	)		$	(0.94	)		$	(0.42	)		$	(0.67	)
Historical diluted net income (loss) per share					$	0.35			$	0.15			$	(0.06	)		$	(0.13	)		$	(7.27	)		$	(0.94	)		$	(0.42	)		$	(0.67	)
Weighted average shares used to compute historical basic net income (loss) per share						56,652				55,552				50,906				50,217				49,768				48,998				48,007				45,323
Weighted average shares used to compute historical diluted net income (loss) per share						59,685				58,324				50,906				50,217				49,768				48,998				48,007				45,323
If deferred compensation were allocated to expense categories, it would be allocated as follows:
Search serving costs					$	—			$	—			$	—			$	1			$	—			$	1			$	1			$	2
Marketing, sales and service						32				35				36				54				63				67				148				103
General and administrative						159				169				166				170				189				224				214				295
Product development						7				9				—				11				13				19				12				25
Total amortization of deferred compensation					$	198			$	213			$	202			$	236			$	265			$	311			$	375			$	425

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     In addition to historical information, this Form 10-K contains forward-looking statements, including statements related to the expected growth of our affiliate program, the amount of traffic that will be directed to us from our affiliates in the future, the timing and amount of any increase in our average price per paid introduction, continued profitability, the timing and amount of our number of paid introductions, the amount of future advertiser spending with Overture, fluctuation in the price of our common stock, changes in our quarter-to-quarter financial results and future competition. We use words such as “anticipates, “believes,” “plans,” “expects,” “future,” “intends” and similar expression to identify these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, those discussed in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risks That Could Affect Our Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.

OVERVIEW

     Overture is the leader in Pay-For-Performance search on the Internet. We introduce consumers and businesses that search the Internet to advertisers who bid for placement in our search results, which are ranked by the advertisers’ bid price. Advertisers pay us only when consumers and businesses click through to the advertisers’ search listings, so we refer to our service as Pay-For-Performance search. We provide consumers and businesses with relevant search results by charging advertisers for each paid introduction, or clickthrough, and by requiring advertisers to bid only on keywords that are relevant to their offering. We distribute our search results to consumers and businesses through our affiliates, a network of portals, Web browsers, Internet service providers and other Web properties, as well as through our own Web site. We believe our service offers advertisers a highly targeted, controllable and cost-effective marketing solution and provides affiliates with incremental revenue and a relevant search service.

     Overture was incorporated in September 1997 and has approximately a four-year operating history. We launched a proof-of-concept version of our search service in the fiscal year ended December 31, 1997. Our Pay-For-Performance service was announced in February 1998, and following further proof-of-concept testing, was officially launched in June 1998. Overture has devoted significant resources to launching and expanding its search service, including developing an infrastructure and building a management team. On October 8, 2001, GoTo.com, Inc. changed its name to Overture Services, Inc.

     Through the acquisition of Cadabra in January 2000, Overture operated a comparison-shopping site, GoTo Shopping. On April 30, 2001, Overture closed its comparison-shopping site. Through the acquisition of AuctionRover in May 2000, Overture operated an auction service, GoTo Auctions. On June 29, 2001, Overture completed a management buyout of GoTo Auctions, whereby the operating management of GoTo Auctions purchased GoTo Auctions’ assets from Overture. The newly formed company is called ChannelAdvisor Corporation. Overture retains a minority stake of 8% in this new corporation, whose goal is to provide online and offline businesses with the ability to leverage online auctions as a channel of distribution. In connection with the disposition of GoTo Auctions and closure of GoTo Shopping operations, Overture incurred net one-time charges of approximately $2.0 million and $1.0 million, respectively, in the year ending December 31, 2001. In 2000, the Company incurred total losses of approximately $432.4 million which includes non-cash charges of approximately $115.6 million of amortization of intangibles resulting from our acquisitions of Cadabra, AuctionRover and the assets of SearchUP; a write-off of approximately $7.6 million for acquired in-process research and development; and a $309.3 million write-down of impaired goodwill associated with the Cadabra and AuctionRover acquisitions.

     A significant component of our expenses consist of costs incurred to attract consumers and businesses to our service through our affiliate network. We expect to continue to rely upon these sources for the majority of searches conducted on our service. Our future success is dependent upon increasing the revenue we derive from this traffic. A significant portion of the Company’s traffic is and has been generated from a small number of the Company’s larger affiliates. If we are not successful in renewing any of these agreements, or if they are renewed but on less favorable terms, it could harm our business and ability to generate revenue.

International Expansion

     We launched our service in the United Kingdom in November 2000 and launched our German-speaking search service in February 2002. We are considering launching our search service in Japan and France in 2002. We expect our international expansion will require continued investment to build internal infrastructure and grow our advertiser and affiliate bases overseas.

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RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000