Looksmart is left without its most important partner.
LookSmart's agreement to power the main Web search results for MSN in the U.S. and elsewhere was extended for just over a month. The contract now runs through mid-January of next year. But LookSmart listings will be dropped from the MSN Search UK site by the middle of this month, according to MSN.
Earlier this year, Microsoft announced plans to build its own crawler-based search engine to power MSN results. The announcement cast uncertainty on LookSmart's future. A late move by LookSmart to release a new paid listings product didn't help the renewal negotiations.
Losing MSN is a major blow. The deal accounted for about 65 percent of LookSmart's listings-driven revenue. It leaves the company with distribution on a much smaller set of Web properties, such as meta search sites operated by InfoSpace and home pages viewed by Road Runner ISP subscribers.
MSN's deals with its other search partners, Overture and Inktomi, are unchanged. MSN continues to take paid listings from Overture, and to use Inktomi for some of its Web search results.
MSN's Next Moves
Inktomi results are due for a promotion from MSN. When LookSmart listings are dropped, Inktomi will carry the full burden of handling MSN Web search results. The MSN crawler remains in development and won't be ready to take over LookSmart's functions.
Asked if results from the MSN crawler might go live in January 2004, MSN Product Manager Karen Redetzki replied, "It's going to happen later than that. It's not ready yet. We're still working through letting the MSN crawler crawl the Web. We're going to continue to test the formula."
Inktomi's more prominent role on MSN won't last in the long-term.
"When our algorithmic [Web crawler] piece comes into play, Inktomi won't be providing those results for us then," Redetzki said.
MSN has plenty of time to prepare its crawler. Its contract with Inktomi runs through December 2005. MSN has previously stated it can terminate the agreement early, if it chooses. That's likely to happen, given Inktomi is now owned by MSN rival Yahoo
Relevancy Over Revenue
Why drop LookSmart now? MSN said tests conducted at the MSN Search UK site earlier this year found that dropping those listings increased relevancy.
"The testing was conclusive that the more relevant results were outside the LookSmart listings," Redetzki said. "We're not going to talk publicly about how they [MSN Search UK] measured the relevancy or the methodology, but we did see that the test results showed that the relevancy improved."
LookSmart's listings are heavily monetized in comparison to Inktomi's. Nearly all LookSmart's commercial listings are sold on a recurring cost-per-click basis. Inktomi results remain overwhelmingly dominated by "free" listings found by crawling the Web. So dropping LookSmart is likely to cost MSN revenue in the short-term.
MSN says it doesn't know about the bottom line in this instance and, importantly, says it doesn't care.
"We actually aren't looking at it form that perspective, so we can't answer that [how much revenues may drop]," Redetzki said. "This goes back to more of the algorithmic piece and the relevancy needed there."
In other words, MSN's first priority is to ensure it has good, relevant search results that come from crawling the entire Web. With solid content, it hopes it can make money from users who become loyal to the service and, as a result, may choose paid listings that are also offered, when they're deemed relevant.
"We do believe that when you have some more relevant results for consumers, the more satisfied and happier the end user is, you'll have more people coming to your Web site. That translates into revenue," Redetzki said.
This column was adopted from ClickZ's sister site, SearchEngineWatch.com. A longer, more detailed version of this column, is available to paid Search Engine Watch members. Click here to learn more about becoming a member.
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Danny Sullivan left Search Engine Watch as of Dec. 1, 2006.