John Battelle recently posted a blog entry questioning the declining performance of Tier 2 engines. This entry wondered why the smaller players haven’t been able to tap into the stock frenzy experienced by Google and Yahoo!, questioning what these players were doing wrong. Ultimately the entry was the sum of some disparate networks, seeming “birds [...]

John Battelle recently posted a blog entry questioning the declining performance of Tier 2 engines. This entry wondered why the smaller players haven’t been able to tap into the stock frenzy experienced by Google and Yahoo!, questioning what these players were doing wrong. Ultimately the entry was the sum of some disparate networks, seeming “birds of a feather” that in no way flock together.

FindWhat’s current financial health and stability in no way resembles that of LookSmart. FindWhat’s revenue in the fourth quarter of 2004 increased 179 percent over the same period last year – totaling $59 million, the highest in the company’s history. The company is on the rise and holds great promise for the future.

LookSmart, on the other hand, just reported a first-quarter loss of $4.3 million, or 4 cents a share, vs. a loss of $7.1 million, or 7 cents a share, a year ago. Revenue for the quarter was $12 million vs. $23.7 million last year.

Here are some additional facts that distinguish the two players, and the immensely different paths they’re walking:

FindWhat

• FindWhat is in the midst of launching a Pay Per Call program through Ingenio and a contextual program with premiere content providers like USA Today.
• FindWhat.com also signed a recent contract with Verizon to incorporate their Superpages directories into emerging local products.
• Their deal with eSpotting will help them compete in the European market in ways that traditionally-thought Tier 2s have never dreamed of.
• Beginning in late December and continuing through Q1, FindWhat has systematically dropped partners from their network who were not converting up to advertiser standards. This happened at the rate of $70-80K a day, and was reflected in their stock price ever since they made this news public. This is a smart move in the long-run, though the company’s getting clobbered in the short-term for their diminished volume.
• FindWhat’s stock being on the decline seems an unfortunate casualty of the greater zeitgeist.

LookSmart

• This is due to one factor alone, that LookSmart lost their MSN contract and was never able to replace their distribution.
• While LookSmart said they’d cease carrying its paid inclusion listings in mid-January 2004, as part of MSN’s overhaul of its search strategy, the distribution did languor, which delayed the sharp drop-off of revenue.
• Without the distribution, they’ll be unable to replenish that sales volume and grow back into the LookSmart of days past.

To speak to the broader point John was making, we’d suggest that the unbridled growth of companies like Yahoo! and Google may have simply squeezed out the smaller guys. People are still wary about dot-com, yet even the most hardened investor finds Google and Yahoo! so irresistible with their ongoing analyst upgrades. The Tier2s simply can’t provide that of shareholder wealth or growth of such scale, mainly due to challenges of distribution. But the more credible Tier 2s are finding work-arounds, expanding their business through international coverage and product development. With that, we’re predicting a widening chasm between the engines that are embraced by Wall Street and those that are not.

Randy Schwartz is Director of Strategic Development at Reprise Media.

This entry was posted on Wednesday, May 4th, 2005 at 10:28 am and is filed under Search: Innovations. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.