Shootout Brewing Between Paid Search Engines

LookSmart is revamping its offerings to cash in on paid listings and to go head-to-head with the market leader, GoTo.com.

The company’s new product, dubbed LookListings, incorporates keyword-based “featured listings” as well as directory and index listings, or “paid inclusion.” (Previously, the firm offered only the paid inclusion product.)

The two types of listings, both of which appear on the same page returned through a user’s search engine query, differ subtly but importantly. Through featured listings, Los Angeles-based LookSmart sells search engine keywords at a premium, with advertisers’ links appearing in the first three spots of a results page.

Below the featured listings — which are sold directly on a cost-per-click basis — appear paid inclusion listings. Those results are culled from LookSmart’s editor-picked Web sites, and results from distribution partner Inktomi’s own search engine results network.

It’s a remarkably different model from Pasadena, Calif.-based GoTo. For one, GoTo prices all of its search engine returns on an auction basis — that is, marketers bid for the amount they’re willing to pay to GoTo if a visitor clicks on their link, with higher-paying links appearing closest to the top of the page. Since the auctions are ongoing, marketers can outbid each other for the top spots, continually hiking up the amount they’re willing to pay.

On the other hand, LookSmart’s new listings product breaks down into segmented offerings for large businesses — which can afford to shell out for featured listings on a particular keyword — and smaller sites, which only pay to be included in the company’s directory/index.

Unlike GoTo, LookSmart’s featured listings are sold in an ad sales agreement, rather than via auction. That arrangement, says LookSmart’s vice president for marketing Dakota Sullivan, makes it easier for marketers, since they never have to worry about losing a high-traffic, top-three position for as long as their contract’s valid.

LookSmart also says its paid inclusion model is more equitable — and ultimately, more profitable — than GoTo’s, since it allows small businesses to purchase a spot in a results page without having to vie with larger firms for keywords. Instead, the advertiser need only pay a single fee for inclusion in the company’s database, which is ranked on a results page by query relevancy rather than keyword bid.

There’s an additional selling point to LookSmart’s paid inclusion listings, designed to appeal to e-tailers that manage large numbers of products, and for whom participating in an auction for each product area would be overly time-consuming.

For instance, Pottery Barn — a LookSmart customer — can have some thousands of products appearing in the listings, without having to bid on each individual keyword. As a result, search results on MSN (a LookSmart affiliate) could take a user directly to the individual auction pages within Pottery Barn’s site.

That’s a powerful incentive for online catalogers and merchandisers, and already LookSmart’s attracted eBay, Wal-Mart and Williams-Sonoma to the offering.

But the main question is whether LookSmart will be able to use its new product to grab a bigger share of the pie. GoTo.com has slightly more advertisers (42,000 versus LookSmart’s 35,000), but commands much greater name recognition and ten times the market valuation of the smaller firm. GoTo.com also posted a net loss of $6.7 million during the most recent quarter, while LookSmart’s was nearly double that.

LookSmart’s Sullivan says he’s optimistic that the new offering will pick up favor with online marketers.

“We believe most businesses will use [featured listings] and paid inclusion in concert,” he said. “A large retailer can use directory and index listings to drive qualified leads to thousands of product-level pages, while with featured listings they can select a smaller number of links to special promotions, high-level categories, and home pages to receive top-of-page prominence.”