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Cash in on the next Yahoo!... Buy GoTo.com at the offer and watch it fly through the gates!
by Siu-Yee Ng
The Net has grown like a Sunbelt city in the past three years. Some of the hottest Internet IPOs of 1996 were search engines -- online librarians that track down information for you.
The International Data Corporation (IDC) estimates that the number of Internet users will grow from approximately 97 million in 1998 to approximately 320 million worldwide by the end of 2002.
Commerce conducted over the Internet has grown and is expected to continue to grow exponentially. IDC estimates that the percentage of people buying goods and services on the Internet will increase from approximately 28% at the end of 1998 to approximately 40% in 2002. And that over the same period of time, the total value of goods and services purchased over the Internet will increase from approximately US$32.4 billion to approximately US$425.7 billion.
Now imagine, for a moment, getting in on IPOs like Yahoo at US$13.00 in 1996. Or buying Lycos at US$16.00, Excite at US$17.00, or Infoseek at US$12.00. Even if you bought in the aftermarket at a slightly higher price, you would be doing pretty well today. (And if Taipan had had an IPO column back in 1996, imagine the noise level created by our testosterone-laden editors -- and marketers! -- pounding their chests...)
Stop, shop, and save
Back in the old days, Search Engines' purpose was to quickly sort through the millions of pages on the World Wide Web and deliver to the Internet users the requested information. Things have changed. Just about all the search engines (now called portals) are dressed up for a night at the opera.
What exactly is a portal? Take a search engine. Add personalization, stock quotes, sports scores, free e-mail, even a free webpage for the user, and you have a portal. Yahoo! is the premier example.
Portals' point is one-stop shopping. "Surfing" is dead: Most Net users don't go beyond a few familiar sites. Who has the time? The more features a commercial website can add, the longer users will stay. That drives ad revenues.
But what about all those Internet users who prefer a quick and efficient one-stop search on the Net without all the window dressing? GoTo.com, a spin-off of Idealab, focuses on an online marketplace where any participating advertiser can bid in an ongoing auction for introductions to self-qualified prospective consumers.
Internet advertising has primarily taken the form of banner or sponsorship advertisements which, like traditional media advertising, are typically priced on an impression basis with advertisers paying for exposures to potential consumers, with low consumer click-through rates averaging approximately 1%.
Results are not too impressive and advertisers are increasingly concluding that portals do not represent an effective Internet advertising solution. Jupiter Communications estimates that less than 5% of companies are likely to renew their current advertising agreements with portal sites.
Bidding for rank
The GoTo.com marketplace serves the needs of three constituencies: Internet consumers, advertisers and destination Web sites.
GoTo.com improves a consumer's ability to quickly and easily find relevant search listings for advertisers of information, products and services while also providing advertisers with a cost-effective way to target potential consumers.
Also, GoTo.com outsources its search service to destination Web sites as part of its Search Syndication Network, consisting of over 40,000 destination Web sites operated by third parties across the Internet.
Advertisers are attracted to GoTo.com as a result of the large number of consumer acquisition opportunities, and consumers are attracted to GoTo.com by the breadth of relevant advertiser links displayed on the service. The GoTo.com Search Syndication Network affords destination Web sites the opportunity to enhance their users' experience and to generate additional revenue from its consumer audiences.
Search results on the GoTo.com service are rank-ordered through a competitive bid process whereby each advertiser's bid represents the amount it will pay GoTo.com for each consumer click-through. The advertiser with the highest bid is listed first in the search results, with the remaining advertisers appearing in descending bid amount order.
Since advertisers must pay for each click-through to their Web site, advertisers select and bid on those search terms that are most relevant to their business offerings, which leads to relevant results for consumers. The GoTo.com service has grown to support over 6,000 advertisers bidding on over 150,000 keywords generating nearly 200,000 paid click-throughs per day.
No secrets
Founded in September 1997, GoTo.com launched its proof-of-concept version service in December 1997. Its "pay-for-performance" model was announced in February 1998, and following further proof-of-concept testing, the service was officially launched on June 1, 1998. Many industrial analysts thought GoTo.com would meet the same fate as its predecessor, Open Text, based in Waterloo, Ontario. Consumers thought it was immoral to get a higher placement for paying more.
But that didn't stop this little baby from maturing. Less than six months after its launch, the GoTo.com site boasted more than 3 million visitors a day. Open Text probably failed because it was at the wrong place at the wrong time. Remember, the Internet is still an infant. When Open Text attempted its "pay-for-placement" search engine, the Web was not commercial enough to support the concept.
Also, for all those who have visited the site, you would have noticed that next to every paid result is a label noting not only that the linked site is an advertiser but also the amount paid for the advertisement.
And for all those egghead purists out there, this pay-for-placement concept in nothing new. Think about advertisements in the Yellow Pages. Don't you think businesses pay more for a bigger advertising placement?
Third-party consultants these days claim they can improve the chances of getting a site into the top results of Excite, Lycos, AltaVista, etc -- and charge up to US$500 a month for their service. They can do this by creating so-called "bridge pages," web pages constructed with the right balance of search terms to ensure placement on a search's site results list. Think about it.
Would a Web developer pay US$500 per month or GoTo.com's pay-for-performance deal -- no money changes hands until a searcher clicks on a link from GoTo.com's results page? And GoTo.com's referral fee can be as low as 11 cents. BizTravels's director of customer acquisition said, "The visitors generated through GoTo.com signed up to become members at a rate three to four times higher than the average visitor. They are also purchasing at a higher rate than average."
Quick and easy
The home page of GoTo.com's stand-alone Web site features a prominent search box and no banner advertising, enabling the page to load quickly. In addition, consumers can access the GoTo.com service from any of the over 40,000 Web sites currently participating in its Search Syndication Network.
Now even for those who have a modem with the minimum today of 28.8 KBPS or even those old timers with 14.4 KBPS will be able to download the home page quicker than some of those so called portals.
Revenues consist of search listing advertisements and banner advertisements. Search listing advertisement revenue is determined by multiplying the number of click-throughs on paid search results by the amounts bid for applicable keywords. Banner advertisement revenue is recognized when earned under the terms of the contractual arrangement with the advertiser or advertising agency, provided that collection is probable. Like many Internet start-up companies, GoTo.com has not achieved profitability and losses will continue
This is still a young company, so investors will not have many financials to evaluate, but what I see so far is not too shabby.
Growing like a weed
Revenue for the first quarter of 1998 was attributable to banner revenue generated during an early proof-of-concept version of its Web site, which was introduced during fiscal 1997 and continued into the first quarter of 1998. After officially launching its site on June 1, 1998, revenues declined in the second quarter of 1998 as a result of the company's de-emphasis of sales of banner advertising during this period in favor of developing its search-listing marketplace.
Revenue increased in the third and fourth quarter of 1998 as a result of significant growth in search listing revenue which increased as a result of growth in advertiser base and an increase in the number of consumers using its service. Revenues increased to approximately US$822,000 for the twelve months ended December 31, 1998 compared to approximately US$22,000 for the period from inception to December 31, 1997.
Grand slam team
The President and CEO of GoTo.com was a founder and served as Chief Technology Officer of Ticketmaster Online-CitySearch, Inc. (formerly CitySearch, Inc.).
The Chief Operating Officer served in a variety of roles at Ticketmaster Online-CitySearch, Inc., such as vice president of the products and technology group.
The CFO served as Senior Vice President of Finance for News Corp.-Twentieth Century Fox, where he oversaw all finance, strategic planning and business development for the home entertainment and interactive divisions, and as the general manager of Twentieth Century Fox's home entertainment division in Canada.
Directors here include the managing director of private equity investments at Moore Capital Management, Inc., the founder and former managing director of Draper Fisher Jurvetson, the managing director of idealab!, a general partner of Bill Gross' idealab!
GoTo.com will trade on NASDAQ under the proposed ticker symbol GOTO.
This will debut in late June and the underwriters are Donaldson, Lufkin & Jenrette, Salomon Smith Barney, and Thomas Weisel Partners LLC. DLJDIRECT will also be facilitating Internet distribution.
For more information on GoTo.com after its quiet period contact them at: 140 W. Union St., Pasadena, CA 91103, phone: 626-685-5600, fax: 626-685-5601, web site: www.goto.com.
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