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LookSmart pays portals to use its service

Undercut by a free, open-source competitor, directory provider LookSmart has gone from charging portals for its data to paying them to use it.

Undercut by a free, open-source competitor, directory provider LookSmart has gone from charging portals for its data to paying them to use it.

The switch was dramatically illustrated by today's announcement that AltaVista, a unit of CMGI, has signed a deal making LookSmart its exclusive directory provider. Whereas AltaVista once paid to use LookSmart's editorially produced Web directory, LookSmart will now pay millions of dollars for the privilege of providing that data to AltaVista.

The move has turned the world of directory licensing upside-down for the second time in just over a year. In April 1999, the volunteer-compiled Open Directory Project (ODP) rocked the search and directory market by scoring major portal Lycos as a client of its free offering.

AltaVista in October gave the open-directory concept a shot in the arm by adopting the ODP. Launched by NewHoo, the ODP was acquired by Netscape Communications, which was subsequently acquired by America Online.

Now the tables have turned again, this time back to commercial directories with the wherewithal to lure customers with financial incentives.

"It's gone from 'Why would I pay LookSmart for something if I can use the ODP?' to 'Why should I use ODP when I can make some money off LookSmart?'" said Danny Sullivan, editor of SearchEngineWatch.com.

LookSmart acknowledged that the advent of the free ODP had forced it to adapt.

"The Open Directory comes along and is free," said Chris Tucher, senior vice president of business development for LookSmart. "So LookSmart has developed ways to make the LookSmart database better than free. There are ways we help (companies) monetize their directory traffic."

These include the sale of advertising served on directory pages and shared revenues from premium consideration for listings, Tucher said. Today LookSmart launched "Express Submits," which lets Web sites pay $199 to make sure their sites are evaluated--with no promise of being included in the directory--within 48 hours.

But Tucher bristled at the notion that LookSmart is paying to regain business it lost to the Open Directory.

"We don't go out and go buying our way onto those distribution points where the ODP is," Tucher said. "We're going to generate revenue, and there's a dollar deal structure behind that. Whether we pay that in advance or in arrears or both--I have examples of every flavor. But the answer is no, we're not going out and paying cash to displace free competitors."

AltaVista stated unequivocally that it was paid to come back into the LookSmart fold.

"We are definitely getting paid for the deal," said AltaVista spokeswoman Kristi Kaspar. "We have not disclosed all the details, but it's a multimillion dollar." Kaspar said the deal extended over "several years," but would not be more specific.

LookSmart maintains that by its close supervision of the editorial process, it produces a better database than can the rough-and-tumble open-source effort coordinated by the ODP. Moreover, AltaVista stressed the value of LookSmart's ability to develop customized offshoots of the directory tailored for specialized, or "vertical," markets.

Being paid was "not the driving factor for switching," said Kaspar. "The primary reason was to help us to customize the directory and build on top of what they already provide, to build out in vertical areas."

Editorial integrity
Netscape defended the quality of its ODP, citing its noncommercial character as a guarantee of editorial integrity.

"It is our model to provide the most comprehensive directory on the Web free of charge to anyone," said Chris Tolles, director of marketing for the ODP. "The ODP neither charges nor pays for placement for its directory. Are users going to like the resulting directory if your main Web directory is not built for the users? It's a question of whether users will accept that model."

Analysts agree that the practice of paying for consideration--or for expedited consideration--may give the impression that results are editorially skewed.

"The big concern is that they don't want people to think they're selling off the directory," said SearchEngineWatch's Sullivan. "I'm not too concerned yet. I still haven't had the feeling that this has been a big problem to the point where it's subverting the listings, where you've done a search and it's been obvious that someone paid to have a listing be there."

The battle over directories has heated up since various challengers launched competitive attacks on Yahoo's massive lead. In addition to Netscape's acquisition of the ODP, Inktomi one year ago began selling its own Directory Engine, software that mechanically generates directory listings.

With the various directory options at their disposal, portals are looking for a qualitative edge to distinguish themselves from Yahoo, analysts say.

"You're seeing a lot of the portals trying to compete with Yahoo doing so with better-quality search," said Patrick Keane, analyst with Jupiter Communications. "With the OPD there are issues of quality and policing, and an editorial team that's hand-selected probably makes more sense."

Whatever the quality of the various directories, LookSmart may have an advantage in its marketing resources and positioning. The ODP enjoys mostly hands-off backing from AOL, which is in the awkward position of hawking a free product to its fiercest portal competitors.

"We are solely focused on directories and?we aggressively market this, too," said LookSmart's Tucher. "We have people doing nothing but going after these deals. We're focused on these distribution partners, and we don't get tripped up on multiple agendas. AOL is a portal company. AOL also owns this asset they got with Netscape. Put yourself in a portal's shoes--now you're relying on this from a portal you compete with."

LookSmart boasted a handful of expanded deals today in addition to the AltaVista agreement: The directory is now the "primary" directory for Excite.com, the Web portal for Excite@Home, meaning that LookSmart results will generally turn up first in Excite searches. The company said that small and midsize businesses can submit their sites through Microsoft's MSN portal, Excite.com, AltaVista and iWon, a portal that offers sweepstakes-type prizes to visitors.