Yellow Pages Look Green to FindWhat Investors

Pay-per-click search engine operator FindWhat.com FWHT announced a deal with Verizon's VZ yellow pages business Wednesday.

The agreement, under which FindWhat.com will enable Verizon to sell keyword-targeted ads in its SuperPages.com online phone listings, sent FindWhat.com's stock soaring.

The announcement once again spotlights the promise of locally targeted Internet advertising -- a market that companies from Microsoft MSFT on down have attempted to tap for years, without a significant payoff.

The news also highlights a business strategy first publicized more than a year ago by FindWhat.com, which is a distant contender in the paid search business to industry leaders Google and the Yahoo! YHOO-owned Overture Services. In addition to operating a pay-per-click search engine that appears on various Internet publishers' sites, FindWhat.com has sought to build a private-label search business by licensing the technology, originally to Terra Lycos TRLY and now to Verizon.

The usual industry practice would have FindWhat.com selling the keyword-based advertising that appears on Verizon's site, then sharing the ad revenue with Verizon. But under the private-label deal, Verizon itself will do the ad sales -- say, an ad for Krispy Kreme KKD that pops up when a SuperPages.com user searches for "donuts" -- then pay a percentage of that as a licensing fee to FindWhat.com.

On Wednesday afternoon, FindWhat.com's shares were up $2.40, or 16%, to $17.26.

The two companies didn't disclose the financial terms of the agreement, which is set to take effect on SuperPages.com early next year. FindWhat.com also has neither broken out the financial performance of, nor announced long-term targets for, its private-labeling business. But, says FindWhat.com corporate development head Rick Szatkowski, private labeling "is a very important part strategically" of the company's product offerings.

Potentially, a private-label search engine might be attractive to large publishers able to sell search-engine or keyword-targeted advertising on their own. But FindWhat.com has a long way to go before it can upend the paid search industry. The company expects revenue of $70 million for the year -- less than a tenth of what Overture was expecting, before its acquisition by Yahoo! -- to reap in 2003.