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  1. The secret is in the last paragraph, it's all about relevence....

    Paid Results Pay Off For Search Engines

    BY PETE BARLAS

    INVESTOR'S BUSINESS DAILY

    Consumers' Web clicks are paying off handsomely for Internet search companies.
    Web search firms are posting record revenue and profit by selling listing space on their pages to advertisers.

    Advertisers, meanwhile, aren't getting a bad deal. In most cases, they pay only after a consumer clicks on their listing. That pay-for-click model is helping bring more advertisers back to the Web, reversing a trend of declining ad dollars.
    "We are totally convinced that this business is gaining more interest," said Ted Meisel, chief executive of search company Overture Services Inc. "We see a multibillion-dollar opportunity."

    Overture and rival FindWhat.com are already turning a profit with the pay-for-click model. Other search companies, such as Ask Jeeves Inc. and LookSmart Ltd., are using variations on the theme to boost revenue and inch closer to the black.
    The business model gives advertisers a way to see whether their pitches resonate with users, says Ted Meisel, chief executive of Overture.

    Overture is biggest and most successful in selling these paid search services. The company's produced five straight quarters of profit, and its revenue has more than doubled.
    In the third quarter, Overture posted a profit of 28 cents a share, up 75% from 16 cents a year ago. Sales rose 138% to $172.7 million.

    About 73,000 advertisers place listings with Overture. That compares with 49,000 a year ago.
    And those advertisers are spending more. On average, advertisers pay $2,500 a month vs. $1,500 a year ago.

    Advertisers flocked to Overture after it locked up two of the largest partners on the Web.

    High Rates Of Return
    In the last year, Overture contracted with Yahoo Inc. and Microsoft Corp.'s MSN - two of the Web's largest portals - to carry Overture's paid search listings.
    The growth in ad spending shows that companies believe in paid listings as a legitimate form of online advertising, says Meisel.
    "It's got a high rate of return for advertisers," he said.

    But Overture did take a hit in the third quarter. The company had to absorb the loss of AOL Time Warner Inc.
    The world's largest Internet service provider ended an agreement to carry Overture's paid listings earlier this year. AOL now has a deal with Overture rival Google Inc.
    Without AOL, Overture's number of consumer clicks slipped from 587 million in the first quarter to 500 million in the third quarter.

    Meisel attributes the drop both to AOL's departure and the typical fall in Internet use by consumers in the summer months.
    But it hasn't hurt sales, he notes.
    "We never saw a downturn in revenue from the ad slump," he said. "Search marketing is so powerful."

    Most Internet users jump on search engines to find and buy products, says Safa Rashtchy, analyst for investment bank U.S. Bancorp Piper Jaffray Inc.
    "About 40% of all searches are commerce-related," he wrote in a recent report. "And as there are more advertisers, there are likely to be more paid clicks."

    FindWhat.com is another firm seeing a record windfall.
    It reported a third-quarter profit of 9 cents a share, up 125% from 4 cents a year ago. Revenue rose 102% to $11 million.
    FindWhat is much smaller than Overture. But it's getting the attention of big advertisers. Some 45% of its total revenue in the quarter came from large advertisers vs. 10% a year ago.

    "Larger advertisers are looking more closely at FindWhat," said Chief Executive Craig Pisaris-Henderson.
    The company ended the third quarter with a total of 18,500 advertisers vs. 12,400 a year ago.

    The average amount advertisers pay when a consumer clicks on a search result also increased. It was 18 cents vs. 15 cents a year ago.
    And FindWhat increased the number of distribution partners - other Web sites that carry its search listings. It now has more than 200 vs. 125 a year ago.

    Proving To Be Lifeline
    Last year, many larger advertisers passed on FindWhat because it didn't have enough distribution partners, says Pisaris-Henderson. That's no longer a problem, he says.
    "Companies would say 'I have $100,000 a month to spend,' but the (distribution) inventory wasn't enough for a company to come in and buy that much," he said. "It would have taken them a year to spend it."

    Paid search results are helping resuscitate the financial fortunes of search companies like Ask Jeeves.
    Ask Jeeves reported a third-quarter loss of 8 cents vs. a loss of 19 cents in the year-ago period. Revenue rose 15% to $17.8 million.
    The company is beefing up its paid listings, phasing out pop-up ads and posting banner ads on sites that relate better to the advertisement.

    By year-end, pay-per-click search results will be half of the company's revenue. That's up from about 20% a year ago.
    "Paid listings are growing the fastest of all of our revenue streams," said Chief Executive Skip Battle.

    LookSmart is also cashing in on paid clicks. In the third quarter, the company collected 120 million paid clicks, a 134% increase over the same period a year ago.
    LookSmart handles its pay-per-click program a little differently than other search companies.
    Unlike Overture and others, LookSmart doesn't sell the top of the search results to the highest bidder. Advertisers still pay per click, but each paid search result appears solely on the relevance of the topic.

    How much an advertiser pays has nothing to do with the ranking in the search results, says Jason Kellerman, chief executive of LookSmart. "Our paid-for placement business is about relevance," he said.
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