Looksmart to lay off half its staff!

Embattled LookSmart to Lay Off Half
By Zachary Rodgers

Facing the impending loss of Microsoft’s MSN as a client of its paid inclusion service, struggling search firm LookSmart (Quote, Chart) is preparing to lay off half its employees.

The layoffs will impact all LookSmart offices domestically and abroad, and the company said it might implement additional restructuring in 2004 to further reduce operating costs. The company revealed its plans in an amended quarterly report to the Securities and Exchange Commission filed Wednesday. LookSmart’s staff numbered 368 when it last made that information public, according to Reuters Investor.

In early October, Microsoft (Quote, Chart) opted not to renew its licensing and distribution agreement with LookSmart, though it agreed to a brief extension that calls for the listings to continue until January 2004. The decision to drop LookSmart followed a period during which MSN had begun testing a revamped search results page that did not use LookSmart’s directory listings. Microsoft has declared its intentions to develop its own search technology and has been hiring aggressively, though it hasn’t said whether it’s concentrating on algorithmic search or whether search marketing products were part of its plans. MSN recently renewed its deal to distribute Overture’s paid listings.

Microsoft accounted for more than 65 percent of LookSmart’s business. Further revenue slippage is likely to come as a result of expiring distribution agreements with Google’s Sprinks, ending this month, and Yahoo’s (Quote, Chart) Inktomi, ending February 2004. Those deals accounted for approximately 11 percent of LookSmart’s listings revenues in the third quarter of 2003.

LookSmart’s SEC filing said the company’s first significant revenue decline would occur in January 2004, although the removal of its listings from UK MSN would have some negative effect on Q4 2003 results.

The search player warned it would likely say goodbye to profitability next year, and the extent of its net loss would depend on its success at rebuilding its network of distribution partners while simultaneously developing new search products.

LookSmart also said it would aggressively push the paid listings service it launched two months ago, a new practice it hopes will let it compete in the lucrative paid search market now dominated by Google and Yahoo-owned Overture.

In order to regain profitability, the company said in its filing, “we will need to continue expanding our listings business or significantly reduce our operating costs.”

The search player may be an attractive acquisition target, as the value of its shares drops over the coming year. In fact, the report warned the company expected its stock price would inevitably fall.