NEWS: Answers Corp Dependence on Google SEO

Recent Events In July 2007, a search engine algorithm adjustment by Google led to a drop in Google directed traffic to Answers.com. This adjustment reduced our overall traffic by approximately 28% based on the average traffic directed to Answers.com from Google for the week prior to the adjustment as compared to the week after. As a result, our revenue also declined proportionately. We have not been able to reverse the impact of this adjustment, and we do not anticipate that we will recover the lost traffic and revenue. In response to the Google algorithm adjustment, we reduced our headcount and related compensation costs, reducing our base payroll expenses by approximately 12%. As a result, we recorded a charge of approximately $250 thousand in the third quarter of 2007, related to this restructuring.

In September 2007, Yahoo! dropped our content from its search index, which reduced our Yahoo! directed traffic. This action was reversed within a week, and we have recovered all of our Yahoo! directed traffic.

Note 5 — Major Customers

During the nine months ended September 30, 2007, the vast majority of the Company’s advertising revenue was generated through the efforts of third party ad networks. Additionally, during the three months ended September 30, 2007, the Company earned approximately 67% and 8% of its total revenue through two of its third party ad networks, Google and Shopping.com, compared to 70% and 15%, respectively, of the total revenue during the third quarter of 2006. Of the total revenue during the nine months ended September 30, 2007, Google and Shopping.com accounted for approximately 65% and 9%, compared to 67% and 15% of our total revenue during the same period in 2006.

Traffic 

Our revenue is primarily driven by the traffic generated by our Web properties and our ability to effectively monetize that traffic. Our current sources of traffic include the following:

 

•       Search engines : Users submit queries and algorithm search engines respond by generating a list of Web pages that are likely to offer the most relevant content. When our pages rank high in the algorithmic systems of search engines, our results are more likely to be accessed by users. According to our internal estimates, for September 2007, this source of traffic represented approximately 60% of our traffic. 

•       Google’s definition link :  We have an informal, non-contractual relationship with Google under which Google links search results related to certain definitional queries to Answers.com.  According to our internal estimates, for September 2007, this source of traffic represented approximately 15% of our traffic. 

•       Direct users : Users visiting our Web properties directly.  According to our internal estimates, for September 2007, direct users represented approximately 25% of our traffic.

The following table sets forth our Answers.com average daily page views and RPM, since our launch of Answers.com:

 

		Average Daily Page Views		Ad Revenue  (Thousands)			RPM
Q-1 2005		1,010,000		$	107		$	1.17
Q-2 2005		2,000,000		$	357		$	1.96
Q-3 2005		1,990,000		$	500		$	2.73
Q-4 2005		2,370,000		$	807		$	3.71
Q-1 2006		2,920,000		$	1,090		$	4.15
Q-2 2006		3,030,000		$	1,457		$	5.29
Q-3 2006		3,400,000		$	1,810		$	5.79
Q-4 2006		4,340,000		$	2,400		$	6.02
Q-1 2007		5,470,000		$	2,768		$	5.62
Q-2 2007		4,890,000		$	2,551		$	5.73
Q-3 2007		3,730,000		$	1,861		$	5.41