RealTime IT News

GoTo.com Should Search For More Revenues, Not IPO Cash

Hard as it is to imagine a Web search company challenging giants such as Yahoo!, Lycos, and Excite this late in the game, here comes GoTo.com with an IPO filed just last Friday.

Founded in September 1997 and based in Pasadena, Calif., GoTo.com is a creation of entrepreneur Bill Gross' Internet start-up incubator, idealab! (a better-known idealab! company, eToys, is expected to launch its IPO any time now).

GoTo.com hopes to raise $70 million the offering, which is being underwritten by Donaldson Lufkin & Jenrette, Salomon Smith Barney and Thomas Weisel Partners. Proposed Nasdaq ticker symbol is--you guessed it--GOTO.

Like every Web search service in the world, GoTo.com promises better results for users who don't want to wade through 10,000 hits, of which 9,975 are irrelevant to the information they seek.

But GoTo.com's real goal is to provide better results for advertisers. That's why search results are ranked according to the amount that advertisers pay GoTo.com for each customer clickthrough. In other words, the advertiser with the highest bid gets listed at the top of GoTo.com's search results, with other advertisers following in order of payment.

Gross has argued that this system is superior because a site that is willing to pay the most to attract viewers probably is the most serious site.

This, of course, is a dubious notion. Many -- maybe even most -- Web search users are looking for information, which isn't necessarily the same as looking for products and services from advertisers. They will bristle at being routed to a site that's trying to sell them something or boost traffic.

Financially, GoTo.com is just getting off the ground. Revenue in 1998 was only $822,000, while the cost of revenue alone was $1.4 million and net loss was $13.7 million.

The company also is in a trademark lawsuit with Disney and Infoseek over their use of "Go Network," which GoTo.com argues is a trademark violation. That's a formidable courtroom opponent, and proceedings could be expensive and ultimately unsuccessful for GoTo.com.

With little to show in terms of revenue growth history and accumulated debt of $13.8 million, GoTo.com appears to be making a premature IPO bid, no doubt spurred by the hot Internet stock market. The company needs more seasoning and more revenue.