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LookSmart: Looking for Money from Content

In the Net world, content has become a dirty word. The big money is in B-to-B, infrastructure and transactions, right? Well, the fact is that there are many opportunities in the content space.

One company to look at is LookSmart (LOOK).

Recently, the company announced that its directory has over 1.2 million unique URLs (apparently, there are about 6-8 million unique URLs on the Web). LookSmart has a group of 180 editors, who scour the Web, making sure that its directory has relevant information. In other words, the site really doesn't create content; rather, it makes sense of content.

Core to the company is making sure it uses the best technology for its directory. For example, yesterday LookSmart announced that it would no longer use some of its in-house solutions and instead integrate technology from Fast Search & Transfer, so as to produce faster and more relevant searches.

Of course, the company is losing lots of money. Last year, the LookSmart had a net loss of $19.4 million on $20.1 million in revenues.

But the company should be able to greatly improve the numbers. The main reason is that the business model is highly viral; that is, the technology is developed so as to easily integrate with many other systems.

For example, LookSmart recently signed a deal with LodgeNet, a company that provides in-room interactive entertainment/Net services for hotels. Essentially, LookSmart will use its directory technology for the LodgeNet system, which will reach thousands of hotel rooms.

In fact, LookSmart has signed key distribution deals with the heavies, such as Netscape, MSN, Excite@Home, and AltaVista, and has agreements with 220 Internet Service providers, such as NetZero and IBM.net.

Traffic numbers have exploded. In late September, LookSmart announced that traffic soared 112 percent from December 1998 to July 1999. In all, LookSmart garners over 10 million unique visitors per month. With all this, it is no surprise that LookSmart has been able to attract major content players as investors, such as Cox Interactive Media and Reader's Digest.

On Wednesday, LookSmart will release its earnings report. A rule of thumb for IPOs is that the first earnings report is usually not negative. I suspect this will be the case with LookSmart (the company had its IPO in the middle of August), as the company has been quickly positioning itself as a leader in the online directory space.


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