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Summary:

Lijit, a blog-search widget maker is planning to launch an advertising network that will show ads against the result of blog searches.

Lijit, a two-year-old startup based in Boulder, Colo., recently raised $7.1 million, bringing the total venture capital it has raised so far to a shade above $10 million.

Whatever way you look at it, that is a lot of money for a company that, on face value, is nothing but a widget that allows bloggers to offer search on their blogs and their profiles on other social media sites such as Flickr.

Curious as to how it plans to build a business to justify the money it raised from VCs such as Brad Feld’s Foundry Group and Boulder Ventures, I jumped at the chance when company CEO Todd Vernon emailed last week to let me know that he was in town. Why not — after all it would give me a chance to grill him in person. While our chat was short, it was quite revealing (including their growth metrics!) and left me a lot less skeptical of the 22-person startup.

Vernon, who in his past life started Raindance Communications, turned out to be an affable fellow who not only answered my questions but also did a good job of convincing me that Lijit’s not just a widget company and indeed has a viable business model. At first blush, Lijit doesn’t look like anything more than just a cute widget using the Google Custom Search Engine. But Vernon said that in addition to Google Custom Search, Lijit has its own search infrastructure (running on about 200 servers), mostly because it needs to customize search results for some of its larger publishing partners, something that isn’t quite possible with Google’s custom search offering.

“Our search implementation is based on a customized version of the Lucene open source platform,” he said. “To date we have spent a little under a $1M on crawling and indexing infrastructure but we expect another $1.5M with this new investment.”

In other words, the cute widget is hiding a monster called “a white-label search solution,” which takes the topicality of blogs, their intertwined relationships with other blogs and web content and build their own more focused index. In order to make money off its search service, Lijit is going to offer an ad network for publishers, including some bespoke versions for larger publishers in their network.

The company’s widget is used by more than 4,500 publishers, mostly blogs, with 60 new ones joining every day. So far, they are seeing about 330,000 searches a day, and the company plans to build an opt-in ad-network around these searches.

Vernon explained that since the company has more contextual information -– such as the topic of a blog and the very content being created by the blog writers — it can target advertising at a more granular level and, as a result, get better click-throughs.

He promised to give more details when the ad network, currently in alpha testing, launches in about a month. The ads will be showed against the results of searches, based on matching keywords. There are plans to allow publishers to sell their own keyword inventory in addition to giving them an option to use Lijit to back-fill the advertising spots. While this ad network seems like a good idea, Lijit has a long way to go before it can start making major bucks.

At 330,000 searches a day or 9.6 million searches a month, Lijit doesn’t have enough search volume (and thus resultant clicks) to have meaningful revenues. For now, finding hyper growth remains a challenge for the company. Good thing it has money in the bank (and hence time) to keep it going.

By Om Malik

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  1. It is interesting approach, How he is planing to grow and scale his solution.

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  2. Sidenote: Om, did Lijit give you that chart to embed in your post or did you whip it up? I’m looking for a quick tool to make graphs to bung into blog posts etc…

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  3. Om: Nice piece. And thank you for focusing on how a company has a real chance to build a business. I’m very worried about over invested Web 2.0 companies falling off a cliff.

    Aaron

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  4. Great article, Om. Also, was good to meet you again, if only in passing, at WordCamp speakers dinner. Always good to see you.

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  5. @ Qasim Virjee … plain old Excel /Microsoft Office on a Mac.

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  6. @Aaron Cohen I think this is what my focus is going to be going forward. Unless a company is forthcoming with some measure of metrics, I am not going to write about them. And frankly, if they keep imposing embargo crap – well end of story right there. Apart from that, I am reducing my time chasing news so expect more such pieces on companies that want to spend time with me and want to share as much information.

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  7. Good post, Om — and bravo for refusing to follow the news-driven, embargo-loving crowd.

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  8. Marshall Kirkpatrick Tuesday, August 19, 2008

    I like Lijit a bunch.

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  9. A portion of their model currently appears to be Google Adsense revenue.

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  10. @Dave Zatz,

    They are going to announce a new network which will be their model going forward. I think for now they have been busy trying to get traction.

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  11. “There are plans to allow publishers to sell their own keyword inventory” – That is what caught my eye the most. I have been using Lijit for some time and even use it to search my own blog and find out related posts.

    While I don’t plan to scale my personal blog, I see that as a great opportunity for professional blogs when it launches.

    Looking forward to it and keep up the great reporting Om.

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  12. Lijit seems like a really nice idea and I am happy for them! More companies transitioning from free service to revenue is definitely something Web 2.0 needs.

    But Om, are you sure they are running search on 200 servers? 300k searches per day should be handled by a few Lucene servers and a few for crawling and indexing (and these are upper estimates). That number looks really strange.

    Andraz Tori, Zemanta

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  13. Are google ads still viable business model?? Humm… Am I the only one who has never clicked on ads?

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  14. @Filipe

    I also never click on the ads but this is how Google makes the major part of their money (around 90% or even more) and you know how wealthy this company is.

    Contextual advertisement like Adsense is one of the most effective way of targeting your audience. When you watch television, most of the time the advertisement is so out of context. Life insurance commercials for people over 65 on the cartoon network late at night like I’ve seen recently could not be more targeted to the wrong people.

    But as most people will recommend, it is better to rely on multiple kind of advertisement like privately sold banners or 124*124 blocks or letting an ad management company do all the work

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  15. Om,

    Please investigate further. There’s little to no chance they can successfully build a business that targets search queries without running up against the 800 pound patent troll (in this area) which is Yahoo. Since they bought Overture they have been on a quiet rampage against any company that comes even close to targeting search queries with ads. lijit will never make it. Sorry.

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  16. [...] Matt Craven Om Malik, over at Gigaom, interviewed Todd Vernon, CEO of Lijit, about their startup and their plans for monetization over [...]

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  17. [...] uses Google search but also has its own search infrastructure. Om Malik reports that there are plans to add an opt-in ad network to search results and  to allow publishers to [...]

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  18. [...] Oh yes, there is one example of how a 2year company so young trying to get the attention. Well have a good read at http://gigaom.com/2008/08/19/lijit-planning-an-ad-network/ [...]

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  19. [...] How Lijit Plans to Make Money [...]

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  20. This is the link Lijit is pushing as proof they are sharing revenue with Publishers. Has any publisher actually seen a check from Lijit?

    P.U.B. (Publishers Union of Bloggers) is working to separate the myth from the reality concerning Lijit and actual real monetary value for Publishers. To date, its zero.

    If you know more, fill us and every one else in!

    Thanks,

    Barney Moran,

    Founder, P.U.B.

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  21. [...] How Lijit Plans to Make Money [...]

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  22. [...] ads against their search results using Lijit ad-serving technology. Todd Vernon, CEO of the company had talked about this new network last month when he stopped by at our offices. The launch of the network comes at an awkward time [...]

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