Berk Sure Has A Way

Putting my mouth where my money is.

Intel – Chipper Long-term Prospects

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Intel is unloved right now.  AMD is kicking its butt on the low end and making inroads in high end chips.  Inventory is building up in the channel, margins are compressing, and analysts are downgrading the stock.  Intel’s stock has made very little progress in the last nine years.   However, on a PE basis INTC is cheaper than it has been since 1996. It is trading at below a 15 PE – even less if you back out its cash.  INTC has over $10 billion in net cash and is actively buying $25 billion of its own stock.  The dividend is 2%.  Apple is using Intel chips (and gaining share).  Windows Vista is about to be released which could drive a new upgrade cycle in PCs.  Intel’s competitive troubles with AMD may take longer to sort out, but INTC has the resources and infrastructure to out-innovate AMD.  AMD may be ahead on performance, but Intel is pulling ahead in price-performance, power consumption, and smaller chip-making infrastructure.  Intel is expanding via consumer electronics (with VIIV), NAND memory (a JV with Micron), and mobile chips (with XScale).

In short, Intel is a contrarian play.  Sure, it could get worse before it gets better as AMD continues to steal share and the inventory backlog gets worked out.  But with INTC buying back shares, you should rejoice if the price keeps declining – you and Intel can buy more for less.

Is Asia the Fountain of Youth?  My take is that Asia presents the greatest opportunity for Intel. Intel CEO described China as the fountain of youth for computing. China, India and the rest of Asia comprise an opportunity more than twice the size of the current developed world over the coming 20 years.  With less than 10% of each country online and likely less than 5% with computers, the long term opportunity is huge.  It is my belief that almost every household in the world will have a computer at some point (just like TV’s in the US today). Heck, even Russia has a computer penetration of only 20% according to BusinessWeek.

Will Desktop Linux and OpenOffice remove the Microsoft software tax?  In more price sensitive foreign countries, a computer fully loaded with Microsoft software could be prohibitively expensive.  As free open-source alternatives to Microsoft’s products become viable for third world consumers, prices of computers with pre-installed software will drop (Microsoft will likely drop their prices in these countries too).  Fortunately for Intel, every computer still needs a processor!  Admittedly, many of these processors may be on the low end, but there will be a spectrum of demand.

Currency play? Asia’s share of Intel’s sales is now 60% and growing – they are selling to the manufacturers.  Given that Asian currencies are expected to strengthen over the next decade as China’s currency policy allows for floating, Intel’s stock could be a very smart bet on strengthening Asian currencies.  As Asian currencies strengthen, Intel will get a boost to dollar denominated revenue and profits. Intel does hedge currency fluctuations for 12 months forward, but over the medium to long term, they should benefit tremendously.

Disclosure: I am long INTC and MSFT.  I also own calls on MSFT.  I was recently long AMD but have almost sold out of my position (all I have left is spoken for via in-the-money covered calls).

Written by Kevin Berk

March 8, 2006 at 8:43 PM

Posted in Picks and Pans

Marchex Earnings – Red Flags

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I’ve been silent on MCHX for a while (been busy with a new baby), but I have another interesting post coming up soon!   In recent news, however, Marchex released earnings last week and have seemingly continued to convince investors that they are a growth business.  While their direct navigation top-line growth was intriguing (see marketing analysis below), I still contend that Marchex is overvalued and their stock price will correct.  Below are some of the red flags from the press release and conference call.

  • 117% or 35%?The press release (and the business press too) proclaims that revenue was up 117% for the year.  However, if you look deeper, you can see that pro forma revenue (including all the acquisitions) was only up 35% for the year and a even smaller 27% Q4 over Q4.  Revenue growth is not robust and is decelerating.  For the businesses MCHX started the year with (Enhance, Goclick and Trafficleader) revenue was up only 9% Q4 over Q4 – going from $15.1 million in Q4 2004 to $16.4 million in 2005.  The Q4 over Q3 was a paltry 2% in those businesses – what happened to the famous Q4 bump? See my posts on their slow growing old businesses and lack of overall organic growth.
  • High PE with modest growth?  Pro forma revenue is projected to grow 19-27% from 2005 to 2006 ($105 mil growing to $125-133 mil).  That is pretty low growth rate for a company trading at EV/FCF ratio above 50.  If you take Q4 on a run rate basis (4x 29.8 mil = $119.2 million), growth will be in the 5-12% range – hardly the growth rate of Google or Yahoo.  Theoretically, it should be easier to grow a business off the smaller revenue base that MCHX has.  See my post on their cash flow ratios.
  • One million shares of dilution!  Another quarter and another million shares in dilution.  Shares outstanding went from 38.3 to 39.3 million from Q3 to Q4.  That is over $20 million in value dilution.  Marchex didn’t even have $30 million in revenue yet shareholders suffered over $20 million in dilution.
  • Eye-popping marketing growth!  Q4 sales and marketing expenditure skyrocketed by 261% year over year and 59% over Q3.  Marketing as a percentage of reported revenue has doubled from a recent 7.3% to 14.7%.  If you look at the businesses they acquired this year, the numbers are even more dramatic with marketing as a percent going from basically nothing to 22.4% of revenue from new businesses.  Management has indicated that they have been purchasing sponsored listings to drive traffic to their direct navigation domains.  This arbitrage window should close as CPCs rise on the terms MCHX is buying.   Is MCHX basically buying short term revenue growth?

Mchx_marketing

I own puts on Marchex shares at various prices.

Written by Kevin Berk

February 28, 2006 at 11:40 AM

Posted in Picks and Pans

Has Slashdot traffic spiked because of Digg?

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I am always looking for good investment data sources so I checked out a cool Google homepage module called Alexa Rank and noticed it pulled four years of Alexa data.

Turns out you can hack Alexa’s standard URLs and change the range parameter to get up to ~4.5 years of traffic data.  This is particularly valuable for investors in web companies to see year over year growth in website traffic.  I’ve been following Slashdot and Sourceforge traffic since I first purchased LNUX in late July.

To see Slashdot’s historical traffic, you change the range parameter of the URL of the two year chart from "range=2y" to "range=5y".  See below:

I added Digg.com as a comparison.  Interestingly, traffic has surged at Slashdot around the same times that Digg saw big increases in traffic.  My theory is that press coverage of Digg and user-generated content has lifted the interest in the old school Slashdot.  The Digg effect seems to have vaulted Slashdot to new heights but also underscores the impressive growth of Digg, surpassing Slashdot’s historical traffic highs in less than a year!

Slashdot_vs_digg_1

I own LNUX shares – and should have blogged about it before the run-up!

Digg this!

Written by Kevin Berk

February 21, 2006 at 10:12 PM

Foolish MCHX Myths

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Motley Fool’s Rick Aristotle Munarriz had an article about Marchex this week. I thought I would address some of what Rick said. All quotes in this article are his and the full article is here.

Rick: “Anyway, Marchex certainly wouldn’t seem to be a company in need of fixing. The stock has shot up nearly 80% since bottoming out in August. Marchex is profitable and, last month, posted a 110% spurt in revenue.  The company toils away in the lucrative online advertising market. It owns a few contextual pay-per-click marketing outfits like IndustryBrains and Enhance Interactive.”

Myth 1: 110% spurt in revenue – this is not on a pro forma basis. Y/Y revenue growth was 25% and the business has only grown 7% from Q1 to Q3 of this year. See my post about the lack of organic growth at MCHX.

Myth 2: lucrative online advertising business – this is true only for traffic owners. Enhance, IndustryBrains and GoClick are low margin businesses that need to share most of their revenue with their partners. In the case of Enhance and GoClick, these partners are likely low quality traffic sources. Less than a third of Marchex’s revenue comes from traffic they own.  See my post on Enhance and GoClick.

Rick: “Anyway, if you want to know why I bought Marchex, it’s because one of its biggest domains is hardware-update.com. It may not exactly roll off the tongue, but it was a site that Microsoft (Nasdaq: MSFT) used to send users of Windows 2000 to when they received hardware-related error messages. Some schmuck at Microsoft forgot to renew the domain, and a company that Marchex went on to acquire gobbled it up.

However, if you go there, you’ll see that the sponsored listings have little to do with Windows operating system problems, computer upgrades, or attractive peripherals. No, most of the ads in the main body of the page are for replacement windows for the home. Talk about a blown opportunity. I have no idea how poorly targeted the other Marchex properties may be, but although this might be indicative, my excitement is still there. It’s an easy fix, and it represents untapped profit potential that will come around once the company wakes up from its shortcomings.”

Myth 3: All of MCHX’s domains have long term value. Some of MCHX’s domains have inherent value (debts.com for example) as type in direct traffic destinations. But some of MCHX’s domains (e.g. hardware-update.com) are expired links with residual traffic from existing links on the web. Without the external links from Microsoft, no one would ever find hardware-update.com. Marchex could invest in making these domains more targeted, but over time (usually a few years) expired domains lose almost all of their traffic as links are removed or replaced. See the Alexa traffic chart below to see how this domain has lost traffic over time – even though it has been mentioned in a few articles recently it still is not in the top million sites even though it used to be. Revenue from these domains with expired links will need to be replaced with new sources or prove to be a drag on MCHX’s revenue and profits.

Hardwareupdate_traffic

I own puts on MCHX shares.

Written by Kevin Berk

December 8, 2005 at 10:06 AM

Posted in Picks and Pans

Domain tasting leaves a bad taste

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An ICANN board member, Joi Ito, has brought up some interesting topics on his blog about parked domain monetization. He describes a practice call domain tasting. Essentially, anyone can register a domain, determine if it earns money and get a refund after five days if it doesn’t perform to their liking.

I think domainers have a right to register domains. I don’t think they should be able to do it with no risk and no cost. Domains are a public good and no one should get a free ride.

Should we let people buy government land at low prices, check for oil or gold and get a refund if they don’t find any? How about buy unused spectrum at low prices, if they can’t find a valuable application for it – return it to the government? Perhaps the government should sell bonds and if interest rates go up allow people to get their money back?

I think domainers have legitimate businesses, but the loophole regarding refunds does not make sense to me. ICANN could just change the rules to not allow refunds. But maybe a better way would be to charge a small fee to return a domain? Or perhaps a lower price for a shorter window – $1 to register for 30 days.  The wackiest idea might be to auction off expired domains and use the money to fund  advanced ICANN projects.

I think the bigger problem with domainers may be that in the drive for growth they sometimes engage in sketchy behavior to drive traffic – search engine manipulation for pages that only have ads or irrelevant traffic arbitrage. You can see examples of how Marchex has been using Google and their partners to drive traffic to Yahoo ads.

Written by Kevin Berk

December 5, 2005 at 10:44 PM

J2 Global – Long term potential, short term concerns

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Since my initial JCOM analysis, the stock has performed quite well – up over 30%. People are asking me if they should sell their shares. Since my last post, I have purchased and sold calls as well as sold about 10% of my holdings. I sold mainly to diversify. JCOM is still my largest holding (over 30% of my portfolio!) and I still believe their business and stock have a ton of potential, but I do have some short term concerns. I will start with my concerns and then move to long term potential.

Short Term Concerns:

Revenue growth is slowing – that is well known. It is hard to keep 50%+ revenue growth up (unless you are Google). What would be a true concern if growth stops (or god forbid declines) in the US market – this could indicate market saturation or a slowdown driven by a housing market downturn. Overall, I expect that any slowdown could be addressed with product and marketing shifts (different product tiers to convert more free subs, more aggressively licensing and partnerships). However, a slow growth quarter could severely hurt the stock in the near term.

Q3’s performance was within guidance. JCOM hit the top end of their guidance range (48-49 cents), but did not exceed it as it usually does. For many high-growth companies, this is fine, but JCOM has historically given conservative guidance.  For JCOM to only "hit" the top end of the range, it may indicate that growth was not as robust as they had hoped. To be fair, JCOM was coming off of strong growth in Q2. Nonetheless, it is worth watching earnings growth rates.

Q4’s guidance is wide and the low end implies low growth. Q3’s earnings (excluding a one time gain) was $0.49 and guidance for Q4 is $0.50 to $0.54. I could say, “Hey, $0.54 would be great!” But… the contrarian in me says: “Why the wide range? They generally are able to predict their quarters pretty accurately.” and “ Only $0.50? That’s only one penny more than Q3.” Part of their explanation was potential licensing deals. More likely is that acquisitions are beginning to play a bigger role in top and bottom line growth.

Long term potential:

Patent Licensing. Over the years I’ve wondered how efax has kept competition at bay. Clearly efax is a good brand and that helps, but I’ve come to the conclusion that the larger players that would like to add the faxing functionality have decided it is not worth the litigation risk to launch the product without licensing JCOM’s patents. From last quarter’s call it sounds like JCOM is starting to hold more active discussions on this front. If done right, patent licensing could become JCOM’s biggest profit center as telecom, cable and internet firms battle it out for customer ownership. JCOM’s features could provide a differentiator to attract and retain bundled customers.

Buyout Candidate? If JCOM’s patents hold up and they can convince anyone to license them, they may be an excellent candidate for a telco or web titan with global ambitions.  Online access to unified messaging is clearly part of our telecom future and many of JCOM’s features could immediately plug directly into Skype (owned by Ebay), Google Talk, Yahoo Messenger, or MSN Messenger. Alternatively, a telco or cable company looking to improve their position in their country, gain leverage over competitors and get some international exposure may pick them up. Likeliest candidates in my mind are the more innovative large firms – AT&T, Verizon, BT or Comcast.

Written by Kevin Berk

December 5, 2005 at 1:41 PM

Posted in Picks and Pans

More Marchex Arbitraging

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I sent my traffic arbitrage post to folks at Yahoo and Google. It looks like the two examples I blogged about were removed from Google – I wonder if they found others.

After my blog post about Marchex’s arbitraging, additional examples were sent to me by another investor. Some of the ads were relevant to the queries below are relevant, others not. One example for “cups online” that takes the user to lensoutlet domain:

Cups_online_search_1

Additional examples:

“Endoscopic” has an ad for siliconeimplant.com

“Job Information” has an ad for informationjobs.com

“Flight attendant” has an ad for bigemployment.com

“Atlanta jobs”, “Boston jobs”, “New York Jobs” has ads for bigemployment.com, sometimes
informationjobs.com (ad on the “more sponsored results” pages)

“Practice GED” has an ad for GED.com

“High School” has an ad for GED.com (ad on the “more sponsored results” pages)

“Plastic surgery” has an ad for siliconeimplant.com

In addition here is a trick to find more examples on Google partners:

1) Search for one of their domains with the following
format on Google:
+”www.breastenlargementcreams.com” +ads +by
+google +search
2) Click on a cache link next to a result
3) Find the highlight text on the page with the URL
4) Notice the query that caused the ad to be served – many times it is not relevant

Other examples you can use in the same format

“www.siliconeimplant.com”
“www.job-sites.com”
“www.bigemployment.com”
“www.informationJobs.com”
“www.JobOnline.com”
“www.ged.com”
“www.merchantproviders.com”

You will notice that while some of the queries that spawned these ads were somewhat relevant, many are not.

Should Google or Yahoo care about this recycled traffic? After all, YHOO, GOOG, MCHX all win in these situations because they all get paid. Users of Google search and Google’s partner sites lose because they are inconvenienced if they are taken to a place that doesn’t make sense to them – another page of paid links. The real loser may be Yahoo’s advertisers. If the traffic is not relevant, then their high priced ads won’t convert to customers.

I don’t know what Yahoo and Google plan to do, but if I were responsible for it, I would probably be doing a lot of investigating.

From Google’s perspective, I would: 

  • Take down the ads as I find them
  • Investigate the other ads in same account to see if they are “real” sites and not paid link pages
  • Search through all the accounts to find other Marchex domains to see if they have multiple accounts arbitraging at once

From Yahoo’s perspective, I would:

  • Investigate the sources of traffic that Marchex provides via web logs, query logs, etc.
  • Evaluate conversion tracking trends for Marchex’s pages over time as well as versus other more organic traffic on Yahoo.com for the same keywords
  • Check Marchex’s contract and the Yahoo terms of service to see if this is prohibited
  • Convene the Marchex account team to determine how to deal with it
  • Ask Marchex to outline how widespread this is and to send over their traffic logs that might help fill in the gaps – who knows they might undercover other sketchy traffic sources

Back to the numbers. Who knows how much MCHX has spent arbitraging, but it is clear they are spending more on sales and marketing. Sales and marketing expenses have were $1.32 mil in Q1, $1.54 mil in Q2, and $2.76 mil in Q3. That’s a 79% increase. I wonder where that money is going.

I own puts on MCHX shares at various prices.

Written by Kevin Berk

December 2, 2005 at 12:33 AM

Posted in Picks and Pans

INSP, MIVA, LOOK, INCX withered – whither Marchex?

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Why has Marchex’s stock price not withered like the rest of the tier two search stocks?  This graph shows MCHX, INSP, MIVA, LOOK, and INCX over the past twelve months:

Mchx_insp_miva_look_incx

Marchex has increased dramatically while the other players have withered.  Two likely reasons:

1) Smart domain acquisitions have masked deterioration in the rest of their businesses

2) Quarterly acquisitions make it confusing to analyze the stock

The other search players have seen their stocks swoon when the market realizes that they are shrinking, not growing.  If investors get a clearer picture of Marchex’s pro forma revenue numbers, MCHX’s stock price may wither like the rest of the tier two search players.

MCHX Value on a Comparables Basis

Let’s assume that MCHX has not overpaid for acquisitions that the domains and other acquisitions are worth what they paid for them (just this year!) – $164.4 mil for name development, $20.5 mil for Pike Street, $30.6 mil for Industry Brains and $12 mil for new domains for a total of $227.5 million.

Since I see no difference between the rest of MCHX (Enhance / GoClick / TrafficLeader) and the other tier two players, I will use revenue comps (since only INSP is making money).

Comp_valuations

Applying the aggregate revenue multiple of these comparable tier two players (1.24X) to the TTM revenue of for Enhance/GoClick/TrafficLeader ($62 million) one would arrive at an implied valuation of $76.6 mil for this part of the business.  Add that to $227.5 mil from acquisitions and $5 mil in net cash to get $309 mil valuation.  Divide that by 38.3 mil shares outstanding to get a value of $8.07 per share.

For giggles, if you use INSP as a comp against all of MCHX (the closest full company comparable since INSP owns traffic too), you get a value of $4.35 per share.

Amazingly, Marchex’s enterprise value of $890 mil (using the 10/30/05 close of $23.4), makes MCHX more valuable than INSP, LOOK, MIVA and INCX combined!  Maybe MCHX will go shopping or file a secondary!

I own puts on MCHX shares at various prices.

Written by Kevin Berk

December 1, 2005 at 7:34 AM

Posted in Picks and Pans

Irrelevant Traffic Arbitrage

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Marchex bulls would lead you to believe that traffic to their domains is organic and relevant.  I am sure some of it is.

However, it appears that Marchex (or an affiliate) is abusing Google AdWords and exploiting Yahoo by arbitraging traffic.  There are ads on relatively inexpensive words on Google and that direct clickthroughs to unrelated highly monetized Marchex domains. For example, if you do a search for “Arabic” and “measurement” on Google, you will find ads linking to breastenlargementcreams and siliconimplants domains – both owned by Marchex.  Given that almost all the links on these pages are paid with high CPCs –random clickthroughs presumably pump up revenue.

In the screenshots below taken on 11/29/05, see the 4th paid listing on right for “Arabic” and the 2nd and 6th listings for the keyword “measurement”.  Those link to the two Marchex domains with highly monetized Yahoo! keywords.

Arabic_search

Measurement_search

Breast_implant

Breast_enlargement

Hmmm…

I suspect Google would not be pleased with how irrelevant these results are for those terms.  Even more so, I would guess Yahoo! wouldn’t be happy to be sending low quality, irrelevant clicks to their high paying advertisers.  I plan to email some folks at both companies to get their thoughts.

As a Google user and especially as a Yahoo advertiser, I find this very disturbing.  Who knows how much revenue is being generated by these tactics… but it is clearly not sustainable.  It is not organic revenue.  It is likely not even allowed in Google and Yahoo! advertiser and publisher terms of use.

Why would the gem of Marchex’s business need to rely on such sketchy and desperate behavior?  Potential questions:

1. Is the domains business hard to grow? Is this a way to boost revenue on the sly?

2. Is the domains business as profitable as bulls say? How much are they spending on traffic acquisition?

I own puts on MCHX at various prices.

Written by Kevin Berk

November 30, 2005 at 11:35 AM

Posted in Picks and Pans

Tier Two Paid Search Syndication – bad traffic, worse businesses

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Enhance / GoClick / TrafficLeader still comprise the majority of Marchex’s revenue.  Assuming that TrafficLeader is still a small business (if it is not, that means that Enhance and GoClick are shrinking), it means that Marchex’s biggest business is paid search syndication.  In my first post, I said “Enhance and GoClick (search syndication) are deteriorating low-margin businesses riddled with traffic quality problems and a lack of scale”.

Paid search syndication is a tough business for the non-winners:

1) Network Scale drives Revenue Yield. Search syndication revenue yield is determined by CPCs, breadth of keywords, quality of advertisers and algorithm.  Advertisers are busy and they focus their money and energy on their biggest and best outlets.  A big syndication network leads to more advertisers which leads to 1) higher CPCs, 2) more keyword coverage, 3) more “budget depth” in each keyword covered, 4) better advertiser optimization of campaigns.  Google has over 200,000 advertisers and Yahoo has over 100,000.  Enhance and GoClick do not have scale and consequently do not have high CPCs, broad keyword coverage, budget depth, or frequent advertiser optimization. 

2) Revenue Yield drives Network Scale. In a virtuous cycle, as yields grow higher, the leading search advertising network can attract more scale via new distribution partners. In search syndication, scale drives advantage. Google has decimated the competition in this area.  Yahoo is a decent number two and way ahead of the second tier. Both Google and Yahoo have scale with their own sites and can therefore outbid the second tier for new distribution (MIVA, LOOKD, MCHX, INCX).

3) Traffic sources go with Google (or maybe Yahoo!) – Case in point is Marchex’s direct navigation businesses – Yahoo! provides the paid listings to these sites.   The yield using Google or Yahoo!’s ad network is higher for Marchex even though revenue is split with the network.  Since Enhance and GoClick don’t have the yield of Yahoo!, Marchex’s revenue and profit from these properties would plummet if they made Enhance or GoClick the primary source of paid listings on direct navigation.  Another quick example:  LookSmart.com uses Google paid listings instead of LookListings. 

4) The Golden Traffic Rule – he who has the traffic gets the gold.  Traffic owners get the vast majority of revenue – Google gives out north of 75% of their revenue to their partners.  Yahoo has a hard time signing new quality distribution partners against Google as Google’s yield advantage has grown.  Similarly the only high-profile distribution deals that the second tier have retained or won in the past few years have been low-margin technology platform licensing deals (e.g. MIVA for Lycos, LookSmart for AskJeeves, or Marchex for Yellow page companies) or meta-search deals where more providers improves the value proposition to consumers. Therefore, even if Marchex could compete with Google, Yahoo, etc. to sign up quality distribution partners for Enhance / GoClick – they would end up paying most of the money to partners (plus 3% to Yahoo! for the patent settlement!).

Where is Enhance / GoClick’s traffic coming from?

Some clearly comes from Yahoo!  Marchex’s 10Q’s listed Yahoo! as it largest distribution partner (13% of revenue in Q1, 10% in Q3).  MSN and AskJeeves are also announced partners. What is unknown is how much of the revenue from these partners is related to TrafficLeader customers and how Marchex books revenue for that business line.  Other revenue likely comes from recycled traffic – what I call the rats and mice of the search business – the distribution partners Google and Yahoo didn’t want or rejected.  These distribution partners often include players that utilize pop-unders, pop-ups, adware, spyware, browser-hijacking, gambling-related traffic, international traffic, or just plain fake clicks.  I’ve seen instances where distribution partners have their own distribution partners that have their own distribution partners – creating a kind of traffic laundering that obscures the original source of the click.  Advertisers only want quality traffic – you will notice that all the larger search syndication players talk about traffic quality as an overarching issue.  Now clearly, I don’t know where MCHX’s traffic comes from or how high quality it is, but Overture, Miva and LookSmart all took a hit to revenue and profitability at some point in the name of “cleaning up their traffic”- I suspect MCHX will be no different.

As a starting point, I would encourage all of Enhance and GoClick’s advertisers to use Google’s conversion tracking feature to track the performance of their clicks from Marchex’s distribution providers.  If you have an issue, call Marchex’s customer service line.  If you are thinking about using GoClick or Enhance, you can read what other customers had to say:  Enhance Interactive customer reviews and GoClick customer reviews.

Where about advertisers?

A quick review of some competitive queries suggests Enhance and GoClick do not attract enough advertisers to form a competitive market.  Since Google’s algorithm is more flexible (and therefore higher yielding), we will use Yahoo’s data as a lower-bound proxy:

Yhoo_mchx_comparison_2

                                  

Oftentimes, second tier search providers will redistribute each other’s listings on their networks. The interesting thing about the rest of the tier two is that they have suffered revenue declines – it will be interesting to see if Marchex can escape the same fate.

What about cross-pollination of advertisers between their products? 

Simply put, I doubt it.

1) Direct Navigation’s revenue share from Yahoo is far superior than MCHX’s yield – MCHX won’t be putting too many (if any) of Enhance or Goclick links on their direct navigation pages – it will hurt revenue and profits

2) TrafficLeader’s larger advertisers would likely bolt if their account rep sent them too much traffic from the lower quality Enhance / GoClick networks.  I have seen local advertisers from their yellow page deals placed (often irrelevantly) within Enhance results from time to time, but on the whole TrafficLeader’s customers are likely sent mainly to the big quality networks. 

3) IndustryBrains has traction with advertisers precisely because they do not distribute beyond the specific sites you buy when you purchase through them.

I own MCHX puts at various prices.

Written by Kevin Berk

November 30, 2005 at 11:21 AM

Posted in Picks and Pans