LOK looksmart limited

Article from the Age today

  1. 2,070 Posts.
    LookSmart bounces back from the dot-com crash
    November 4 2002

    Garry Barker reports on how one Internet company survived the tech wreck.

    Billions of dollars were made and lost in the dot-com crash and the tech wreck. An industry that once seemed to have no limit to the riches it could generate is now a sad and chastened shadow of its former glittering self.

    Entrepreneurs who sold out at the top of the market still wear $500 shirts and ride the biggest Harleys, but tens of thousands of others who rode the rocket are now unemployed.

    Yet there are phoenixes rising from the ashes, among them LookSmart, the Internet search and portal company.

    LookSmart was Australian and it was making it big. It moved to the US, then went global. The founders, Evan Thornley and his wife Tracey Ellery, became rich as the company prospered and its share value soared.

    Now, as they had always forecast, Thornley and his family are back in Melbourne, living in Malvern but reported to be about to move into Amberley, an 1886 East Melbourne mansion recently sold for $7 million. Thornley remains chairman but is no longer chief executive.

    The shares, which on the ASX traded as high as $5.50 in July 2000, are now listed at 14.5 cents. Today, according to the new Australian chief executive, Damian Smith, the boomtime euphoria has gone, and things are more austere and realistic. Perhaps remarkably in these depressed days, the company exudes confidence of a bright and thriving future. But survival has meant rebuilding the business from the ground up.

    In the boom days LookSmart hauled in millions from website banner ads. Alliances were made with Reader's Digest, British Telecom, US YellowPages, Yahoo! and Web entrepreneurs in Finland, Belgium, Sweden and elsewhere. From its headquarters in San Francisco it spread globally, opening offices in New York, Los Angeles, Detroit, Montreal, London, Melbourne and Sydney.

    "LookSmart went through the dot-com boom and was a beneficiary of that," Smith said. "But, about two years ago, we realised that the business we were in did not have a sustainable future."

    Banner ads had developed a deafening death rattle. "We had hoped to build an advertising audience on what was essentially a cable TV model," he said. "But we realised that if we kept on that course, in the US particularly but also in Australia, we would collide with some great consumer brands - MSN, AOL and Yahoo! for instance - that had huge customer loyalty and very deep pockets.

    "We decided that the main value of the medium was not in banner ads but in the search results. Our value was not in carrying banner ads but in sending our clients leads," Smith said. "The mind-shift was to realise that we were a direct marketing medium, not a brand medium.

    "People often ask me about the demographics of search engines. I don't really care. Unlike branding media where you need to know the demographics to know what to target, with us the users target themselves. It's not exact science, but it is a remarkably good targeting device."

    That single realisation shifted LookSmart into what now looks like steady success instead of decline into the tech wreckage." Growth has been steady double digits for the past 10 quarters in the US and a somewhat dramatic 475 per cent in Australia.

    In its previous life, Looksmart and its competitors were judged on how long they could keep a user on a site. Today the recipe is delivering prospects to clients quickly. "We are now merely a doorway. Our job is to get customers through it, to the client, quickly and in large numbers."

    LookSmart's clients pay "per click". That has meant development of accurate "click-tracking" systems, rethinking hardware, software and business processes. "It has taken us two years to get the revenue back to where it was at the height of the boom," Smith said. "The growth rate is now faster and it is profitable growth. It cost us a lot to rejig our business, but we now have stronger margins. It's a lot more recession-proof ," he said.

    "TV and other brand media spends move up and down with the business cycle, but direct marketing spends tend not to be as volatile.

    "The other key factor was our realisation that it is not a good idea to compete with our partners.

    "In Australia our two biggest partners are ninemsn and Yahoo! We recognised we could not, and should not, compete with their brands. So we offer them a white label solution."

    LookSmart supplies the search function on Optus and Telstra, delivers a database to ninemsn, and provides the first three results of a search to Yahoo! "But you won't see any sign of LookSmart. We're the engine in the background," Mr Smith said. The per-click fee is paid to LookSmart, which splits the revenue with its portal operator clients such as Telstra and Yahoo!

    Mr Smith says research shows that the return from LookSmart-style direct marketing is more effective than unaddressed junk mail and more accurate and economical than addressed advertising flyers. With 58 per cent of Australian households now on the Internet, and nearly 70 per cent of small to medium business (corporate enterprises are 100 per cent connected) the Internet has the potential to give the printing industry and direct marketing distributors a headache.

    FOOTNOTE: LookSmart reported US quarterly results last week, showing a 13 per cent increase in revenue to $US23.8 million ($42.5 million), a 35 per cent rise over the third quarter, 2001.

    Growth in listings continued to be double-digit for the tenth consecutive quarter and were up 23 per cent on the quarter and 105 per cent over the third quarter 2001.

    Paid listings now represent nearly 80 per cent of total revenue. Small business listings were up 44 per cent and paid clicks up 37 per cent to 120 million, compared with 51 million in the third quarter of 2001.

    New customers gained in the US in the quarter included Federal Express, IBM, United Airlines and Radio Shack.
 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.