This week, I talked to the founder of a fast-growing comparison shopping site. "Several years ago," he said, "I used LookSmart
In October 2004, when David Hills came on board as CEO of LookSmart, he realized he needed to change this quickly. It was a painful process (who wants to give up revenue?), but he knew it was critical.
Now, the company is seeing progress. In the fourth quarter, LookSmart posted revenues of $10 million, which was a 9% increase from the third quarter. The company expects year-over-year growth in revenue for 2006.
But the company is still losing money, with a fourth-quarter loss of $0.17 per share or $3.8 million. This compares with a net loss of $4.3 million or $0.19 per share in the third quarter.
The problem with LookSmart's ad network business is the low margins. Here's how it works: The company gets leads from many partners such as InfoSpace
That's why LookSmart is expanding into two higher-margin revenue streams. First, the company is licensing its sophisticated advertising management software to major publishers, such as Viacom, Ask Jeeves, and New York Times
Next, LookSmart launched 181 vertical websites. The sites cover 13 categories, such as autos, health, music, money, and travel. The sites are fairly low-cost since they're heavily automated. Another attraction: Advertisers can better target an audience (in terms of gender, age, and interests). At present, these sites are chock-full of content, and the obvious challenge is in developing and delivering on relationships with advertisers.
It's still early for LookSmart's initiatives, and experimentation and mistakes are likely to occur. Yet the company has the wherewithal to pursue its strategies -- with $51 million in the bank, moderate operating expenses, and a solid technology platform. But most importantly, LookSmart finally has a coherent strategy for growth.
CNET is a Rule Breakers pick. Take the newsletter for a 30-day free spin.
Fool contributor Tom Taulli does not own shares mentioned in this article.