LookSmart Still Isn’t Dead; Finds New Role “Mining Diamonds from the Dirt” in the World of Second-Tier Search Engines

10/4/10Follow @wroush

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take a look and find out why it went from 500 clicks per hour to 10,000 clicks per hour, and let’s not expose our advertisers to it until we’re comfortable with it.’”

The more instances of click fraud the company can detect, the better its filters get, Brown says. “What we have been able to do, especially in the last year, is really weed our traffic and understand it click by click. We have quality standards that we abide by, and work with customers on a service level so that if there is any problem we follow up on it immediately, which has not traditionally occurred in this space.”

If you’re wondering why any of this worth the trouble, when advertisers could simply put their ads on Google or Bing, well, it’s all about costs and benefits. Because there are fewer bidders for Tier 2 ads, and the competitors are smaller, the per-click prices advertisers end up paying are lower, which can offset the added risk of click fraud. Also, Tier 2 includes “a lot of solid traffic sources that provide real conversions for people,” says Brown.

“I had a customer about a year and a half ago who put it to me in a way I really like. He said, ‘The real leader in Tier 2 is going to be the company that helps me mine the diamonds from the dirt.’ Right now you’ve got a big pile of dirt, with a few bad guys down at the bottom end that can cause problems. The company that will win, like LookSmart, has got to be able to use technology as well as humans to combat that, and give the best possible odds of great clicks coming through. ”

Brown says he thinks that LookSmart’s volatile years are behind it. The company has $25 million in cash from operations in the bank, is stable at 70 employees, and most of its stock is held by a small group of “very loyal institutional investors,” he says. The company’s goal now, he says, is to become known as “the crown jewel of that Tier 2 space.” And maybe even to emerge as something new: what he jokingly calls a “Tier 1 and a half” advertising network—”a bridge between the Tier 1′s and the great unwashed masses.”

Aside from its technology, the company has one other thing going for it, Brown says—the power of a once-familiar brand that most people assumed was dead. “All the big advertisers and agencies, they all used to be with us,” he says. “So it’s not tough when you call them on the phone. Their reaction is the same as yours and mine. They say ‘Wow, I haven’t heard from anyone at LookSmart in six years. Come on in, I just want to see what you look like!’ We get a lot of that—but I’ll take that meeting every time.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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