The news dealt a vicious blow to the search company, who relied on Microsoft for more than 65 percent of its listings revenue and all of its licensing revenue in the second quarter ended 30 June. Investors dealt harshly with LookSmart following the news, sending its stock price slumping more than 60 percent on the Australian Stock Exchange and on the U.S-based Nasdaq overnight.
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 organises them into a search directory. Executives at the Redmond, Washington-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."
LookSmart's shares were today trading on the Australian Stock Exchange as low as 10.5 cents before stabilising at around 13 cents midday, nearly two-thirds lower than their July peak of 30 cents; the highest price they hade traded at since April 2002.
According to U.S. reports the company's stock fell US$1.74 during extended trading overnight after ending the day at US$3.02.
At midday today, over 100 million LookSmart securities had been traded since the company advised the market late Monday of Microsoft's decision to end its business relationship.
