InfoSpace reveals exposure to Adware (INSP 2Q05 conf call quotes)

InfoSpace (ticker: INSP) lowered guidance due to projected weakness in its two core businesses: search & directory services, and mobile data. Its comments about search were particularly important, perhaps with ramifications for the rest of the search sector. InfoSpace predicted that the number of searches it performs will decline due to a drop-off in traffic delivered via Adware. Google and Yahoo, it said, are tightening up their policies for providing pay-per-click ads to affiliates and partners. Of course InfoSpace itself did not admit that it was at fault for enabling Adware peddlers to monetize their traffic. Comments, in the words of CEO Jim Voelker and CFO David Rostoth:

On the search side, Adware and Spyware have become an industry-wide issue. We've worked closely with our partners at Google and Yahoo to establish guidelines to eliminate surreptitious practices and will continue to enforce compliance with those guidelines in order to deliver quality traffic. This will affect revenues derived from certain distribution partners. These two factors have contributed to our more conservative outlook for Search & Directory for the remainder of the year.

We are also cautious about the near-term outlook for our search distribution business. We have been focused and will continue to focus on making sure that our partners meet the stringent industry standards related to Adware and Spyware. This is an industry-wide issue and it will have a near-term impact on our results.

…this is… ongoing… it's a process that includes what … criteria… both Google and Yahoo and soon to be MSN will require and it's also a process that really is shifting from the way people who provide Adware kinds of services go out and deliver traffic, so, you know, we feel like we've made a tremendous amount of progress on this but it is a bit of a moving target.

(Quotes are from the CCBN StreetEvents transcript.)

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