MSN considers dumping Looksmart

• Aug. 18, 2003

Well, I can't really say I'm surprised.  Friday MSN UK announced plans that they will begin testing new search results which don't have Looksmart's paid listings, also called the MSN directory listings.  Once MSN began developing its own search my first question was how are they going to monetize this product?  After all, everyone knows there's no money in free search for the portal.  That's why Google has AdWords, and why Yahoo bought Overture.

Since we all know that Microsoft likes to own any market they enter, we figure they will dominate the search space in a few years.  And of course they don't want to share their money with anyone else.  That is why they are doing this "testing". 

But what if they have other plans in the works?  After all, Looksmart's share price dropped over $1 per share in one day on this announcement, or about $100 million in value for the company.  Could MSN do what Yahoo did to Inktomi?  That is devalue Looksmart to the point that they could make a lowball offer to the company which they can't refuse?

It would make sense after all.  MSN knows that they need some form of paid listings to make money on, since the free listings will be a money losing venture. And since Yahoo already scooped Overture, the only other paid supplier out there worth anything is Looksmart.  If Microsoft does move forward and dump Looksmart's listings, then the company will be worth virtually nothing as MSN is undeniably their largest customer.

So, MSN drops Looksmart listings in the coming months and Looksmart shares drop to $0.90 each making the company worth about a third of what it was on Thursday (which is the highest price it's been at in over 2 years).  This is a small price to pay to get a PPC component, allowing Microsoft to focus on building a free search rivaling Google.

Rob Sullivan
Production Supervisor
Searchengineposition.com
Search Engine Positioning
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