MSN Drops LookSmart

LookSmart's distribution and licensing deal with Microsoft for search listings will end in January.

LookSmart Ltd. on Monday said that its distribution and licensing deal with Microsoft Corp. for search listings will end in January after Microsoft decided not to renew the contract.

LookSmart, of San Francisco, had been negotiating for the past couple months to renew the 5-year-old deal in which it provides paid-for-inclusion search results to Microsofts MSN portal.

Losing the contract is a big blow to LookSmart, which relied on the deal for 65 percent of its listings revenues and, in the second quarter of 2003, for all of its license revenue. Microsoft paid a license fee to access LookSmarts search directory, and LookSmarts paid-inclusion customers paid a flat fee when MSN users clicked on their listing, a LookSmart spokesman said.

"No one at LookSmart could have worked any harder to renew this agreement, and I will say that we were surprised by MSNs decision, said Jason Kellerman, chief executive officer of LookSmart, during a conference call. "We pursued every possible strategy...but in the end they made the decision to move in a different direction."

Kellerman would not comment on Microsofts reason for ending the relationship, and MSN officials did not directly address why it decided to drop LookSmart. Starting in October, MSN is ending the LookSmart Web directory on its United Kingdom site and will cut it from the U.S. site in mid-January, said Lisa Gurry, MSN group product manager, in an e-mail.

Microsoft has made indications in recent months that it is rethinking its search strategy for MSN. Reports came in June that the company had begun crawling Web sites with its own MSNBot technology and launched a Web site answering questions about the Web crawler.

The move has led to speculation that Microsoft may move its search technology and efforts in house. Microsoft also has search partnerships with Inktomi Corp., Overture Services Inc. and Inc. Portal rival Yahoo Inc. acquired Inktomi in March and in July announced plans to buy Overture.

Gurry said the LookSmart decision does not affect any of the other search partnerships. After LookSmarts listings end, advertisers will be able to gain placement on MSNs search through MSNs Search Featured Sites program or Overture, she said.

LookSmart learned in a letter on Friday that Microsoft would terminate the deal as of Jan. 15, two weeks after original end date. The company did not revise its revenue and earning guidance for the 2003 fiscal year but said that its business would be adversely affected once the MSN deal ends. The company has about $60 million in cash.

Kellerman said LookSmart will continue to focus on integrated paid inclusion and a new pay-for-placement search. The company plans to announce more details on Tuesday about its pay-for-placement service, which Kellerman said the company would work to cross sell to its base of more than 30,000 advertisers.

LookSmart, which competes with search heavyweights Google Inc. and Yahoo, also distributes it search listings to 85 partners other than MSN, including Lycos Inc., About Inc. and InfoSpace Inc.

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