Looksmart is a directory developed by editors. In that way, it is seen as the antithesis of Google which used algorithms to determine the relevancy of searches. In recent years it has relied on the hard work of thousands of volunteers in building up the associated Zeal directory. Critics of Zeal argue that DMOZ is a more democratic version of a volunteer produced directory. Looksmart points to the role of certain extremists in determining the content of DMOZ.
Looksmart initially aimed at replacing Yahoo! Then it presented as a women and family friendly version of Yahoo. It did not create a consumer brand of any significance and then built its new strategy around licensing its search directory to popular and successful portals such as Lycos and Infospace. Much of Looksmart's revenue stemmed from their primary client, Microsoft. In 2003, Microsoft announced its support would be withdrawn, resulting in a loss of as much as 90% of Looksmart's revenue. LookSmart says it's nearer 60%, although that fails to include the expected decrease in advertising revenue from those advertisers who are now going directly through MSN.
In that time, some of the founders and senior executives made tens of millions of dollars selling what most thought to be its overpriced stock even though the accumulated losses of the company approached one hundred and sixty million dollars. Some critics say it was wrong for them to profit from the sale of free shares while the company was producing massive losses.
Subsequently, the founders Australians Evan Thornley and Tracey Ellery had resisted a palace coup on the board from independent directors unhappy the husband and wife team intended to remain on the board. The independent directors resigned in protest at what they saw as inappropriate corporate governance. They were also concerned about class action lawsuits from Looksmart's once loyal customer base alleging consumer fraud and securities fraud lawsuits from Looksmart's shareholders against analysts who had advised the purchase of Looksmart stock which fell from $80 a share in 2000 to as low as $1 in 2002.
The consumer fraud class-action lawsuit, brought on behalf of customers who had paid a one-time fee to be listed in the directory and were switched to a pay-per-click model, was settled in September 2003. Claims are expected to reach up to $250,000 with Looksmart's legal bills topping $600,000.
Looksmart - as a result of a 2000 investment from BT they later wrote off - had significant cash reserves. Although many analysts question Looksmart's ability to survive the loss of their only significant client. The joint venture used tax havens - such as Barbados - in order to minimise taxes on the hoped for profit from a listing of the company. The use of tax havens is interesting given the founder Evan Thornley's stated interest in left-wing politics, evidenced by his purchase of loss-making, left-wing publisher Pluto Press Australia.
Looksmart is regarded by most financial markets observers as likely to be acquired at near cash value or to collapse following the loss of Microsoft's support. Some shareholders questioned how Evan Thornley had allowed it to become so dependent on one client.
The company has recently sold its Australian business to Australian telecommunications giant Telstra for a token sum and is closing most offshore operations. Its Chief Executive Jason Kellerman resigned, replaced by Evan Thornley's friend Australian Damian Smith.
With Looksmart challenged by rapidly declining revenue, lawsuits, layoffs, increased competition and staff morale issues, the Australian based and highly paid Chairman Evan Thornley agreed to resign in June 2004 and was replaced by Teresa Dial, a former CEO of Wells Fargo.
