MIVA Searches for Answers

There's a problem at MIVA (Nasdaq: MIVA  ) . Its bread-and-butter contextual advertising business is having no problem generating more clicks, but its advertisers keep paying less and less for those leads.

Last night's quarterly report didn't put an end to that troublesome trend. Its U.S. media business is now generating $0.065 per ad click. That's well below what market leaders Google (Nasdaq: GOOG  ) and Yahoo! (Nasdaq: YHOO  ) are commanding, as well as what MIVA itself was once capable of.

The company is generating a little more revenue per lead in Europe, but the trend there also points to lower revenue per click.

The company still managed to grow its top line during the final quarter of 2006. Revenue inched 1% higher to $43.5 million, on the strength of its MIVA Direct business of private-branded desktop software applications. It posted a loss of $0.20 a share for the quarter.

MIVA is trying, and that includes the humbling announcement back in January that it would begin serving Google ads on some of its content pages. Smaller players have realized that it's often easier to turn to companies with wider ad networks to populate pages with targeted text ads. Companies like Answers (Nasdaq: ANSW  ) have teamed up with Google, and the results can be pretty inspiring. The parent company of Answers.com found revenues soar 242% higher last year.

This doesn't mean that smaller paid-search specialists like MIVA and Looksmart (Nasdaq: LOOK  ) should throw in the towel, letting Google make the most of their traffic forever. However, right now it seems to be the most logical way for MIVA to start growing its revenue per click again.

Companies like Google are growing way too fast for smaller players like MIVA to be denied a ride on the coattails. Let's see what they do before Google gets those coattails hemmed higher.

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Longtime Fool contributor Rick Munarriz still believes in the paid search sector. He does not own shares in any of the companies mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.