H&Q Conference: LookSmart's Strong Talk

The Web directory wants to show the big boys how to do it. Also, Yahoo! scans the globe; AOL talks marketing.
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SNOWBIRD, Utah -- Getting investors to put their money into an obscure Web directory is a tough sell, but Evan Thornley is barreling ahead. Thornley, co-founder of

LookSmart

, says he hopes to take the company public in the second half of 1999. Sure, he knows that bigger companies are already sorting out the Web for people. But, he says, "we would just assert there's room to do that better."

Thornley doesn't talk in tentative terms. The Internet is divided into "useful stuff and crap," he said at the

Hambrecht & Quist planet.wall.street

conference. The 80% gross margins boasted by many Internet companies? Baloney, he says. They're closer to 10%, if you properly reclassify variable sales and marketing expenses, he said. And what's the impact of the Internet on direct-mail advertising? "Direct mail is toast," Thornley said.

Strong talk, but LookSmart claims strong numbers -- revenue that jumped from $1 million in 1997 to $6.5 million in 1998 and will jump past $40 million in 1999, Thornley says. Helping that along is

Microsoft's

(MSFT) - Get Report

recent selection of LookSmart to provide Web directory services for its Web sites. Thornley didn't disclose costs for LookSmart, but he made clear it wasn't cheap to put the directory together, and he said the company had a staff of 150 working on the site reviews and classifications.

Thornley says the Web directory is organized better than

Yahoo!'s

(YHOO)

, and it attracts a high-quality audience, 60% of which he called "female household-purchase decision makers." Thornley says the company, which relies on advertising and licensing fees for revenues, will jump-start e-commerce with an acquisition that's already in progress. The company has been able to get its product in front of people, he explains, not through a bunch of big deals but a lot of tiny ones. LookSmart is on the home page of 130 Internet service providers.

"I thought he presented a very compelling case that there's an opportunity for a second directory as compared to Yahoo!," said Colin McNay, technology portfolio manager at

Essex Investment Management

. "While starting later, it's able to study their history and emulate the positive aspects."

-- George Mannes

Yahoo!'s Overseas Expansion Plans

Yahoo! will "absolutely" make some sort of international acquisition, CEO Tim Koogle said, though he didn't offer any details. Koogle did say what he wouldn't buy: A technology company, if the technology that Yahoo! wanted was available from more than one stable source. With two competing suppliers, Koogle said, Yahoo! will license, not buy.

It's a difficult job, this acquisition business. As he answered a question about international acquisitions, Koogle prefaced his response with the comment, "I worked really hard for my gray hair."

That prompted a response from CMGI chairman David Wetherell, a man with hair darker than Koogle's but a mostly bald head. "I don't want to hear about it," Wetherell said.

-- George Mannes

Pittman Pontificates

"When I came to

AOL

(AOL)

a few years ago," said chief operating officer Bob Pittman, "people said AOL was finished because Net users would just cobble together online access, a browser and email from a variety of vendors. But I don't think that will happen. Just like I don't think

Heathkit

TVs are the leading television manufacturer.

"I am constantly reminding my people that consumers don't compare features to make purchasing decisions," Pittman said. "If that were true,

Coca Cola

(KO) - Get Report

wouldn't be No. 1.

Pepsi

doesn't just beat Coke in taste tests, so does

RC Cola

. It's all about marketing."

-- Cory Johnson