October 6, 2003 4:40 PM PDT

Microsoft drops LookSmart search tool

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Microsoft will not renew a contract to use LookSmart's Web search results on its MSN site, the search technology provider announced Monday.

The loss of the MSN deal is a severe blow to LookSmart, given that Microsoft was its largest customer. The relationship with the MSN Internet division accounted for 65 percent of LookSmart's listings revenue and all of its licensing revenue in the second quarter ended June 30, according to the search technology company. LookSmart reported revenue of $38.4 million in that quarter.

The companies will remain partners until Jan. 15, after which LookSmart's listings will no longer appear in the directory layer of search results on the MSN Web site. Given that time frame, San Francisco-based LookSmart said it will not revise its 2003 revenue projections.

"We are very disappointed with the outcome of efforts to renew our agreement with Microsoft," Jason Kellerman, chief executive officer of LookSmart, said in a statement.

The dropping of LookSmart comes as Microsoft sets its sights on the Web search niche, both for its potential revenue and future tie-ins with the Windows operating system. In July, Microsoft quietly launched a software program called MSNBot, which scours the Web to collect links and organizes them into a search directory. Executives at the Redmond, Wash.-based company have indicated a desire to create their own search engine to compete with industry leader Google.

More importantly, Microsoft is hoping to incorporate its search technology into the next version of its Windows operating system, called "Longhorn."

A Microsoft representative was not immediately available for comment.


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