Traffick - The Business of Search Engines & Web Portals
Blog Categories (aka Tags) Archive of Traffick Articles Our Internet Marketing Consulting Services Contact the Traffickers Traffick RSS Feed

Wednesday, May 07, 2003

The trouble with LookSmart: flat click pricing

In the latest quarterly report, we learned that LookSmart is still hovering around break-even and projecting a so-so year. A number of theories have been put forward to explain its weakness, ranging from lack of moral fiber to its dependency on MSN. There may be some truth to those charges, but I'm surprised that no one has put their finger on what may be the fundamental reason that LookSmart's progress has stalled after it saved its bacon with a shift into the pay-per-click model: its failure to adopt the same market principle that has driven the growth of competitors Overture, Google Adwords, and Findwhat.

When LookSmart shifted from "pay for inclusion once" to a "pay for inclusion and then pay for clicks" model, it priced clicks at a flat 15 cents. Sound reasonable? It isn't.

Keywords and click-throughs all look sort of the same on paper, but the difference between getting exposure on the words "soy milk" and the words "mortgage refinancing" could be as different as getting exposure on a bus stop bench in a lightly-traveled road in a heavy-industry district and getting exposure on national television. It could be as different as dropping leaflets on a large city of illiterates and handing out free Blackberry pagers to Fortune 500 CEO's. You can't put a flat price on this stuff.

Because pay-per-click advertisers now track everything, they are aware of metrics like cost-per-customer-acquired, cost-per-order, cost-per-lead, etc. The price of the clicks is virtually irrelevant, except that for costs per lead to be in line with profitable targets and industry averages, some businesses need really cheap clicks (10 cents might be too high), and others will be willing to pay $1.50 per click to get exposure ahead of their competition who also track their results and are willing to bid as high as $1.45 a click.

What is probably happening right now, given the likelihood that LookSmart-generated traffic doesn't, on average, convert as well as Overture or Google traffic, is that a certain percentage of LookSmart advertisers have seen their conversion data and now know that fifteen cents is no bargain. So they suspend, or at least, fail to increase, their LookSmart budgets. The remaining advertisers - those who do turn a profit at fifteen cents - might be willing to outduel one another and bid prices up to 40 and 50 cents or more. But LookSmart is content to give it to them at fifteen cents, thus permanently limiting their upside.

That's not LookSmart's only problem, but clearly, adoption of the market principle is something that LookSmart must consider if they are to realize the same success with the pay-per-click model that others have. Clicks are worth vastly different amounts to different businesses targeting different consumers. Does a local television station charge $50,000 for a 30-second spot at 2 a.m.? More to the point, can you get a 30-second Super Bowl spot for $200?

The MSN dependency is a serious issue too. No matter how hard LookSmart works on its product quality, customer service, etc. - the fact is that when you begin charging by the click, you are now a little less like search and a little more like an advertising network. An advertising network must find places to put its ads. LookSmart currently is short on distribution partners.

Boxed into this tight spot, LookSmart could deke its way out of danger by merging with similarly-valued FindWhat. FindWhat could advise them on how best to implement the market principle in their product offering, and, of course, deliver a sizeable number of distribution partners to LookSmart. Lately, LookSmart has been acting like a company with $400 million in the bank, making "high-minded" acquisitions of little search companies and cool "projects." Time for a reality check.

Posted by Andrew Goodman




View Posts by Category

 

Speaking Engagement

See Andrew Goodman speak at eMetrics Chicago 2014

Need Solid Advice?        

Google AdWords book


Andrew's book, Winning Results With Google AdWords, (McGraw-Hill, 2nd ed.), is still helping tens of thousands of advertisers cut through the noise and set a solid course for campaign ROI.

And for a glowing review of the pioneering 1st ed. of the book, check out this review, by none other than Google's Matt Cutts.


Posts from 2002 to 2010


07/2002
08/2002
09/2002
10/2002
11/2002
12/2002
01/2003
02/2003
03/2003
04/2003
05/2003
06/2003
07/2003
08/2003
09/2003
10/2003
11/2003
12/2003
01/2004
02/2004
03/2004
04/2004
05/2004
06/2004
07/2004
08/2004
09/2004
10/2004
11/2004
12/2004
01/2005
02/2005
03/2005
04/2005
05/2005
06/2005
07/2005
08/2005
09/2005
10/2005
11/2005
12/2005
01/2006
02/2006
03/2006
04/2006
05/2006
06/2006
07/2006
08/2006
09/2006
10/2006
11/2006
12/2006
01/2007
02/2007
03/2007
04/2007
05/2007
06/2007
07/2007
08/2007
09/2007
10/2007
11/2007
12/2007
01/2008
02/2008
03/2008
04/2008
05/2008
06/2008
07/2008
08/2008
09/2008
10/2008
11/2008
12/2008
01/2009
02/2009
03/2009
04/2009
05/2009
06/2009
07/2009
08/2009
09/2009
10/2009
11/2009
12/2009
01/2010
02/2010
03/2010
04/2010

Recent Posts


Not to be outdone, Overture plays shell game with ...

Xtreme Advertizing 2 Kidz: Kiss Your $$$ Goodbye ...

A Premium Content Search Engine? This man has a...

Look out, LookSmart Things had been looking up ...

New Traffick Article Posted: "History of Search En...

Lace and sunshine and hammers and nails Speakin...

Stupid or not, though, keywords matter to your bus...

You know, search engines really are pretty stupid ...

It's Not Easy Being Purple Seth Godin's noodlin...

A Glimpse of Yahoo's Anti-Spam Efforts This mor...

 


Traffick - The Business of Search Engines & Web Portals

 


Home | Categories | Archive | About Us | Internet Marketing Consulting | Contact Us
© 1999 - 2013 Traffick.com. All Rights Reserved