LookSmart in big trouble

The loss of the MSN account may be the end of LookSmart.

(October 7 2003) As Pandia reported last week LookSmart is in the process of switching to another business model, becoming a pay per click search engine like Overture and Google AdWords. We reckoned that this move was partly motivated out of fear of loosing their biggest client: Microsoft.

We argued that Microsoft's MSN network need to improve the quality of their regular search results to compete with Google, and using LookSmart paid directory entires as the primary source for "regular" search results does not fit the bill.

Like Google, MSN would probably go for a combination clearly marked pay per click text ads (Overture) and regular search engine results (Inktomi today, the new MSN search engine tomorrow).

LookSmart would probably have liked to replace Overture as MSN's pay per click provider. If this is the case, the strategy did not work.

Yesterday LookSmart announced that Microsoft will not renew its distribution and licensing agreement with LookSmart. LookSmart and Microsoft have agreed to extend the terms of the current agreement through January 15, 2004, after which the agreement will terminate.

"We are very disappointed with the outcome of efforts to renew our agreement with Microsoft," says Jason Kellerman, chief executive officer of LookSmart.

He has every reason to be. According to LookSmart Microsoft accounted for approximately 65 percent of listings revenues, and all of LookSmart's licensing revenue in the second quarter of 2003.

This is going to hurt. LookSmart's stock fell by more than 50 percent after the news was made public. LookSmart is now trying to find new partners and has been talking to companies like AOL and Ask Jeeves.

LookSmart may actually not survive this blow, or it could be reduced into one of many pay per click search engines delivering data to metasearch engines, smaller portals and shopping sites.

It would be an exaggeration to say that LookSmart would be missed by the search and research community. LookSmart once was a decent Web directory, but is now nothing more than an index of paid text ads. It helps portals and search sites to get more revenue -- which is important -- but the search results delivered can easily be replaced.

LookSmart has also angered webmasters and online marketers with its pricing policy.

It would be sad to loose the Zeal directory, though. The Zeal army of volunteer "zealots" are currently feeding non-commercial listings into the LookSmart directory, giving added value to the world of searching.

LookSmart also owns WiseNut, with a rather decent search engine technology. The question is: are there any buyers?

MSN Agreement With LookSmart to End January 15, 2004 (Press release)
LookSmart Says Losing Key Microsoft MSN Deal (Reuters)
MSN To Drop LookSmart (Search Engine Watch)

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