LookSmart Ltd., dealt a blow earlier this week when Microsoft Corps MSN portal decided to drop its search listing, is pushing ahead with additional paid search services in a bid to build more advertisers and draw a larger base of Web sites that use its search listings.
On Tuesday, the company officially launched a new bid-for-placement service called Sponsored Listings, where advertisers can bid on keywords to return its listings, as it hopes to capitalize on the growth of search engine marketing.
The push is LookSmarts entry into pay-for-placement services, where it will compete against heavyweights Google Inc. and Overture Services Inc. Yahoo Inc.s announcement in July that it intended to acquire Overture bolstered LookSmarts plans. LookSmart, of San Francisco, is positioning itself as the independent alternative for Web site distribution partners who might view Yahoo, with its portal site, and Google, with it search site, as competitors.
Yahoo was expected to complete its Overture acquisition on Tuesday.
"Weve been hearing from our distribution partners, many of whom compete with Yahoo, of the need for another large-scale, proven, independent player in the paid-for-placement space," said Dakota Sullivan, LookSmart vice president of marketing.
LookSmart had begun a beta test of pay-for-placement search with a couple hundred of its 30,000 advertisers in early 2002 and decided to evolve it into an auction model, Sullivan said. In that model, an advertiser could bid on a keyword, starting at a bid of 15 cents per click, he said. LookSmart uses a combination of the highest bid for a given keyword and the click-through rate on a given listing to determine placement.
The pay-for-placement listings appears in a separate section above LookSmarts traditional paid inclusion search results, where advertisers pay to be included in the search database.
"Someone with a more relevant listing may be able to bid less than another advertiser and still list higher," Sullivan explained.
Industry analysts and users said LookSmarts push into the paid performance search space is a smart long-term strategy, but it is unclear if it will help the company regain the distribution it is losing from MSN in the short term. MSN plans to end the use of LookSmarts search results as of Jan. 15.
That news sent share of LookSmart stock plummeting 52 percent on Tuesday, to close down $1.58 at $1.44 on the Nasdaq exchange. MSN accounted for 65 percent of LookSmarts listings revenue and in the second quarter of 2003, for all of its license revenue.
"Most marketers are probably going to be looking elsewhere to fill that (MSN) gap," said Kevin McCarthy, president of SearchMarketing.com, a search engine optimization consulting company. "It would be nice to have a viable third party with a good distribution network."
Without MSN, most of LookSmarts other Web sites using its listings are lower tier with far less reach, McCarthy said. LookSmart has about 85 distribution partners. Among those using the new Sponsored Listings services are CNET, Road Runner, InfoSpace, Cox Internet, Mamma.com, Alltel and its own LookSmart.com site.
LookSmart is moving in the right direction by working to be the independent player in search, said Charlene Li, principal analyst at Forrester Research Inc. With the new paid performance service, it is the only search provider that allows marketers to manage multiple types of search marketing in one place and to be able to compare their success, she said.
"LookSmart has its challenges ahead of it, but the market dynamics are shifting enough and growing fast enough that I would not say this is the end for LookSmart," she said. "I think theres a role for them to play."
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