Is There a Future for LookSmart?


Former search giant LookSmart has reissued investor guidance
numbers for the last quarter of 2004. Posting lower revenues
than expected, the beleaguered firm admitted it overestimated
potential revenues by about $2million and underestimated
quarterly losses by about $700,000.

The erroneous projections, originally issued in late October
stem from poor management of sales assets and LookSmart’s
failure to find a way to combat the continued growth of Google
and Overture in the PPC market. Shares in LookSmart fell 22% in
after-hours trading opening this morning at $1.42, a 36 cent per
share decline.

The greatest recent contribution LookSmart has made to the
search sector is to let other companies know how not to do

Formed back at the dawn of the commercial Internet in October
1996, LookSmart was one of the originals. It established its
first foothold in the sector by providing listings to AltaVista
and HotBot starting in 1998. Within a year, it was distributing
listings to MSN.com, a highly lucrative deal that ended in late
2003. For SEOs, getting a site into LookSmart was critical to
seeing good placements at MSN and, as LookSmart was a
human-edited entity at the time, helped a great deal with strong
Google listings.

LookSmart was flying high going into the new millennium. As one
of the most influential places to be listed, LookSmart had
become extremely important, a fact that was not lost on their
sales, marketing and accounting departments.

Towards the beginning of 2000, LookSmart started charging $199
for its new Express Submission Service. A few months later it
phased out free listings, replacing them with a $49 submission
fee that increased to $79 and then to $99 over the span of a few
months. Shortly thereafter, the fees for their Express
Submission service jumped to $299/year. While the fees were not
charged retroactively, the sudden, frequent increases made it
very difficult for SEOs to guarantee their submission fees for
clients, thus lowering LookSmart’s credibility in the sector.
Even with a $99 basic submission fee or a $299 Express
Submission fee, LookSmart was still important enough to
recommend clients pay for the listing. With distribution of
listings to AltaVista, HotBot (which were still very popular at
the time) and to MSN, it looked like LookSmart was on the road
to long-term success with a business model that provided enough
revenues for stability and smart expansion of their services.
Like their corporate name, the search tool looked smart at the
time. This is about the point things started to go horribly

Without any warning to the SEO/SEM community, LookSmart made one
of the dumbest moves in search engine history. Months after the
sector adjusted to their habit of raising their rates, LookSmart
announced they were moving towards a pay-per-click model and
would thereafter charge sites $0.15/click. Sites that had
already paid to be listed were granted $15 worth of free-clicks
per month, promised over 18-months; hardly a bargain considering
$15 represented only 100 clicks. SEOs who had recommended their
clients spend $299 now had to explain to those clients that more
money would be expected in order to keep their LookSmart
listings alive. Keeping a listing at LookSmart alive meant
retaining strong MSN listings, therefore placing the client over
a barrel. This wasn’t the end to the sudden and unannounced
price increases but it did mark the beginning of the end for
LookSmart as an important search tool in the eyes of the SEO

The only positive outcome from these moves was a sudden
solidarity amongst SEO practitioners in the massive rebellion
that followed the announcement. Servers hosting SEO related
forums lit up like Christmas Trees as angry SEOs tried to figure
out what to do about LookSmart. It took about five minutes for
most of us working the web at the time to make the ultimate
decision; LookSmart had to go.

Since then, LookSmart has stumbled from one mistake to another
misquote. They were entirely unprepared to lose MSN as their
biggest client in December 2003 and now only supply directory
and paid results for two smaller search tools, Lycos and Excite.
Share prices, which peaked at $69.62 on March 10, 2000, have
fallen to the $1.50 range they are at today.

Earlier today, CEO David Hills announced a corporate
restructuring in the hopes of stopping the slide. A leaner
LookSmart will be focusing on sales and improving their search
products. Deborah Richman has been named the Sr. Vice-President
of Consumer Products and Bryan Everett has been named Sr.
Vice-President of Sales.