Bits and Bytes for June 4, 2004

WhenU Exploring Possible Sale, Investment

Adware firm WhenU has hired the Perseus Group investment bankers to “explore various possibilities to take its business to the next level,” according to a company spokesperson.

While the hiring of investment bankers often signals a company’s failure to gain traction, a WhenU spokesperson its decision was motivated by “tremendous recent interest as a result of Claria’s S-1 filing and the general market interest in out-of-browser desktop strategies.” Potential investors and several public companies interested in “a strategic dialogue” have recently approached the company.

WhenU competitor Claria filed for a $150 million IPO in April, making public its financial results for the first time and drawing increased attention to the adware space. It’s an arena WhenU predicts will be the next hot industry sector.

“The company anticipates this market segment to grow as fast as paid search over the next few years,” said a WhenU spokesperson.

One of the options WhenU is exploring would involve investors sinking $50 million into the company, some of which would go to purchase a small portion of the founders’ shares.

The space has also gotten attention as of late for continuing legal wrangling. WhenU sued the state of Utah to get its recently passed anti-spyware law declared unconstitutional. Meanwhile, lawmakers in California and at the federal level are considering regulating spyware themselves. Both WhenU and Claria have been plagued for years by lawsuits over their pop-up ads.

LookSmart Searches for UC Berkeley

Search firm LookSmart will provide a branded search property for University of California, Berkeley (UC Berkeley) students, alumni, faculty and staff to support the school’s athletic program.

The property, CalBears Search, will supply search results starting this summer via two different Web sites and a toolbar application. Every time a user clicks on a paid listing, a percentage of the revenue will go to Cal Athletics. The search function will also provide free access to LookSmart’s article database, a potential boon for students. The service is free to all users.

The paid search listings are supplied by LookSmart, which has a proprietary paid listings product and a keyword-based auction system similar to those of Overture and Google. About 30,000 advertisers are on board currently, according to Dakota Sullivan, VP of marketing for the company. The property will launch in the next couple of months, he said.

The key issue is adoption, Sullivan acknowledged, because so many users are already in the habit of using major engines such as Google and Yahoo

LookSmart did some research around loyalty to different search engines last year when exploring the possibility of working with Cal Athletics, Sullivan said. The study indicated that people may be willing to use a different search engine that benefits them in ways additional to providing relevant search results, Sullivan said. Also, he said, over the past year the relevancy of Yahoo’s and LookSmart’s results has gotten closer to the relevancy of Google.

The students, alumni, faculty and staff of UC Berkeley are a notoriously loyal bunch, and it is this loyalty that LookSmart is banking on. There are 20,000 UC Berkeley faculty and staff and 165,000 alumni living in the San Francisco Bay Area. Though anyone will be able to use the property, it is primarily geared toward this audience.

Sullivan declined to say what percentage of income from each click would go to Cal Athletics. However, he acknowledged that the amount is commensurate with the industry standard for publisher sites, which is in the 50 percent range.

An integrated ad campaign for CalBears Search will launch in August. The campaign will include online ads, print and radio ads and email and viral efforts as well, Sullivan said.

This potential source of income comes at a time that UC Berkeley finds itself, like other formerly state-funded programs, in need of additional revenue because of the state of California’s budget shortfall.

Indeed, the innovative program is an example of necessity being the mother of invention for both entities.

In October 2003, Microsoft’s MSN opted not to renew its contract with LookSmart, leaving the company reeling. LookSmart had depended on MSN for about 70 percent of its revenue. But it has been fighting back ever since.

As part of its recovery strategy, at the end of April, the company acquired filtering software product Net Nanny. Previous to that, in December 2003, the company announced plans for drastic layoffs. The head count has now been reduced to 152 people, according to Bill Lonergan, the company’s CFO.

The strategies appear to be helping. The company beat Wall Street estimates and revised its guidance for 2004 upward in its first quarter earnings report.

It has yet to be seen if the Cal Alumni partnership will substantially contribute to a turnaround. Sullivan described the partnership as a pilot project. LookSmart is exploring the possibility of similar partnerships with other universities, according to Sullivan.

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