Prior to Hills time at LOOK, revenue was from primarily from one...

Prior to Hills time at LOOK, revenue was from primarily from one source (Listings on distribution partner sites) and primarily from one partner (MSN).

In 2005, Hills restructured the company to gain revenue from other sources:

- Licensing Ad Center technology
- Licensing Search technology
- Licesning Furl technology
- Growing Looksmart's owned network
- Banner advertising
- Listings advertising
- Contextual advertising
- Skyscraper advertising.

Now in the 2005 report, two further new revenue streams are revealed:

- Affiliate revenue: Looksmart get a commision on sales from affiliate partners when users navigate to a partner site and make a purchase

"By participating in affiliate programs, we generate revenues when Internet consumers make a purchase from a participating merchant's web site after clicking on the merchant's listing in our search results"



- Software distribution revenue : Looksmart allow software publishers to ship Looksmart technology in their proprietary consumer products in return for royalties.

"We record royalties when distribution network partners ship products incorporating our software, provided collection of such revenue is deemed probable... Revenue for products sold on a subscription basis is recognized ratably over the subscription period"


They also note a "a 94% increase in revenue from the sale of our consumer products".




This is all good news. Particularly the affiliate program. Not only is that revenue stream immune to click fraud, it is also self fulfilling.

LOOK have gone to great lengths to increase the quality of their traffic, turning away partners with low conversions. That means they are one of the few search engines in a position to leverage affiliate programs.

So the higher conversion rate they get on their traffic not only leads to higher rpc, but also a disproprtionately higher income from affiliate programs. An affiliate percentage of a $50 sale is MUCH higher than a 15c click!

A stroke of genius really - you do not have to "sign up" an affiliate advertiser - they are begging you to link to them. And if they realise they are giving LOOK too much money in kickbacks, then they can opt to advertise ppc with LOOK instead and only pay ppc rates. Worst case scenario is you have gained a ppc advertiser, and some affiliate cash along they way.

Way to go Hills. Don't forget this came in at the end of LAST year so is kicking in already -looking for a good Q1! No wonder insiders are buying!

Also, it is apparent that all the many new revenue streams are actually growing faster than was apparent, but were offset by large decreases in listing revenue due to the pruning of their network stripping out non converting traffic partners.

Now that the "network pruning" is out of the way, and they expect TAC to be constant for 2006, we will see how fast all these new revenue streams really are growing.

LOK is a strong buy IMO.