LookSmart’s Dave Hills: “We’re Turner, Google Is CBS”

Last week’s article on vertical search was actually only half the story. While SearchLine reported on the presentation JupiterResearch analyst Patti Freeman Evans gave last week at Internet Retailer 2006, we didn’t reveal that she was joined on that panel by LookSmart CEO Dave Hills.

That’s because we managed to sit down separately with Hills and discuss some of his thoughts on vertical Web sites. We felt they were worth writing up on their own, along with other reflections on his company’s place in the search marketing ecosystem.

LookSmart operates three lines of business: a network of 181 vertical Web sites in 18 categories such as finance, family, health and education; a pay-per-click ad network; and a social search/ tagging/ bookmark-sharing technology platform called Furl.net. The company’s been around longer than Google and been through a number of directional changes.

It’s also been through the wringer: Microsoft’s decision in 2003 to drop LookSmart search in favor of building its own MSN algorithm, and a seriously flawed reputation among advertisers as a result of questionable click traffic, especially from affiliates. That began to change when Hill arrived as CEO in 2004, coming from a job as president of media solutions for 24/7 Real Media.

SearchLine: How do consumers and advertisers use vertical sites or a vertical search property like LookSmart differently than general Web search?

Dave Hills: Searches come in two groups: those that are navigational in nature, and others that are informational or definitional. When someone’s researching something for the first time, they want to go to Google. We and the other vertical search engines do well at definitional or informational things. If somebody already knows what they want—say, a 4-wheel-drive vehicle—they’re more apt to want information about which model is the right one for them than they are in looking at a lot of brochure ware. As a vertical search site, we sit right in the middle of that purchase process.

SL: How is that difference in search aim reflected in the type of marketing advertisers do on your sites?

DH: Advertisers are realizing that they need one message when they’re catching someone navigationally and another when the appeal is informational. There was a posting on [the blog] “Search Engine Watch” a little while ago in which someone said his company, in the home/hobby category, was getting really good value with LookSmart. We had nothing to do with it, but I looked at what this advertiser was doing on a few different engines. For definitional search on the general engines, this person used ads that focused on the URL and some top-line benefits of the product. For a definitional search, he took you to a page other than the home page and reflected that change with different copy.

SL: Is that interest in informational search, and in finding out about a topic or researching a product beyond the basic stats, linked to social networking or tagging?

DH: The fact that you’ve got a deep interest in something probably means that you wouldn’t mind meeting up with other people with the same interest So to the extent that sites, systems or technologies can connect those people, there’s a chance to form sub-groups that let people share information, opinions and documents. We have that platform in Furl.net, and later on this year we’re going to use it more to focus on connecting people under different topics. We’ll use those shared interests to inform the search results we return.

That social organization is becoming necessary on the Internet. At 100 million Web pages, [search engine] Alta Vista worked great. At one billion pages, you needed link analysis to get good results; Google’s a link analysis search engine, just as we are. At 10 billion pages, it all starts to fall apart, because it’s too big and the ability to find that first really, really good page of results is limited.

A lot of people are saying that they want something else to inform really good search. You can see that now with social search like Google Co-op, My Yahoo! and our sites. We think Furl.net will be a large part of that for us.

SL: Google and Yahoo! have gotten a lot of coverage for recent introductions of specialized vertical sites in areas like finance and health. How will LookSmart’s vertical search fare as the big search engines roll out more products like those?

DH: The large players have the same problem we do: They have to get increased usage in order to make more money. I think they’re wind up doing that by putting out different applications that will provide a solution for people’s broad needs. But they’ll still have narrower needs, and they’ll continue to look for other places to fulfill those.

I’m asked all the time if a Google Co-op or Yahoo! My Web wind up eating our lunch. I don’t think so. The media industry shows that if the content’s good, the consumer will stay loyal to it and so will the advertiser. So we’re banking on the fact that this search industry will develop the way TV did with cable. We’ll still be able to differentiate ourselves from them and do just as good a job at what we do. I view Google as CBS and us as Turner Broadcasting.

SL: LookSmart has posted net losses for several years now. What progress are you making in making the company profitable again?

DH: We announced that in Q1 2006 our audience on the consumer sites grew to 12 million from 9 million in Q4 ’05, so we’re pleased with that, and paid-listings activity grew also. [LookSmart reported that clicks on its sponsored ads grew to 74 million for the quarter, up from 72 million in Q 4 ’05, although average revenue per click held at 12 cents.] So we’re pleased with that.

I took the company through some very hard bumps. It bounced back, it’s starting to grow now, and everybody wants to know which line of business is going to grow the fastest and lead us back to profitability. As soon as we have a full understanding of that, we’ll let Wall Street know. But I’m pleased with where the operation is now.

LookSmart, the online media content and technology company that has been struggling for a place at the search table since losing its contract with MSN in 2003, has launched 161 new vertical search sites for content in 13 “clusters” such as health, home, automotive, food, cities, sports and travel.

The new verticals join 20 sites launched last spring in the LookSmart Money and Education content clusters.

LookSmart’s strategy is to develop these “clusters” of content into interesting and useful sites that will draw visitors and, of course, advertisers. The company’s hope is that advertisers will find the highly targeted sites a good place to place ads aimed at readers who are more qualified than those at general search portals.

Dave Hills, LookSmart CEO, compared the state of search today with the television industry before the rise of cable TV. “Back then, everybody thought you’d wind up with four television networks and that cable would fail,” he says. “Then grudgingly, people started admitted that maybe there was a place for a news channel, a sports channel, an entertainment channel. Nobody every envisioned that the consumer could handle—or the advertiser would buy—65 cable networks, which is functionally what you have today.”

The same conditions that made cable TV ripe for expansion in 1980 apply to online search today, Hills believes. “You’ve got a vibrant distribution system, you’ve got a lot of advertiser demand, and consumers continue to show their prowess at being able to manage many different media choices,” he said. LookSmart decided that consumers would use—and advertisers would value—a set of sites that crawled, aggregated and generated topical content relevant to their ongoing interests more consistently than they need the broad search capabilities of a Google, Yahoo! or MSN.

“When I’m researching something for the first time, I’ll go to Google or Yahoo!,” said Hills, formerly the CEO of Web content site About.com. “But over the course of time, I’m going to want what’s essential versus what’s exhaustive for subjects that I’m passionate about or have a repeated need for.”

The new sites carry the tagline “Where to Go for What You Need”, and offer users buttons that allow them to find, save and share the articles their LookSmart searches unearth. Those last two functions are the province of Furl.net, LookSmart’s proprietary content tagging service that lets users save pages and forward them to friends. By crawling these saved documents, LookSmart is able to locate what users think are the most pertinent articles on a topic and put those high up in its Web index.

LookSmart already operates FindArticles.com, which the company claims archives 10 million online articles from 900 publications. Hills said Web publishers who’ve had a good financial experience with that LookSmart product will also be willing to offer their content up for the vertical sites. Besides linking to those existing articles, the new vertical sites will generate original Web content.

Advertisers on the LookSmart network will be able to buy both paid listings by keyword, sold by auction, and three types of display ads on the new vertical.

LookSmart was a major name in Web search in the late 1990s, but its heavy reliance on paid inclusion led users to defect to the big search brands that pushed relevance over revenue. When MSN ended its relationship in preparation for rolling out its own algorithmic search product, LookSmart faced critical decisions on its future direction in a search industry that was quickly aligning into a top tier and then everybody else.

A year ago, the company hired a new CEO in Hills, an alumnus of both About.com and online marketing firm 24/7 Real Media. Since coming on board, he has placed emphasis on rehabilitating the quality of LookSmart’s distribution system and implementing the vertical search strategy.

While the company’s Q3 results, announced earlier this month, beat analysts’ expectations, Hills told an analyst teleconference that “No one in this shop is declaring victory.”

One small win might be avoiding de-listing from Nasdaq for allowing its share price to drop below $1. Later the same month, the company’s shareholders approved a five-for-one reverse stock split. That should satisfy the share price requirements for maintaining the company’s Nasdaq listing, Hills told a conference after the Q3 results. (The final Nasdaq recommendation should arrive about the time this SearchLine goes to press.)

Along with polishing up its content network, LookSmart has also begun to license its technology platforms. The New York Times now offers the Furl.net platform for users to bookmark its Times Select online content. And LookSmart’s Q3 report confirmed what had already been rumored: that it is operating as the seller of sponsored listings on the newly revamped Ask Jeeves search network.

As for how it will market its new clutch of vertical sites, Hills say LookSmart will fly somewhat below the radar with targeted press releases, some marketing into relevant vertical communities, and just good search optimization that will get the sites up high in the search results on the major broad engines where users can bump into them. In the same way, Hills hopes advertisers will be attracted by the very ubiquity of the LookSmart verticals, especially in comparison to other smaller second-tier ad networks.

In other words, there’ll probably be no prime time TV brand-building in LookSmart’s future. “You won’t see us during the Super Bowl next January,” Hills says.