Commentary: Diller asks for search

by Charlene Li, Principal Analyst

The oft-maligned Ask Jeeves team ("Are they still around?" is what I often hear) should now be having the last laugh: InterActiveCorp is buying the search company for $1.85 billion.

First, congratulations to Ask Jeeves CEO Steve Berkowitz and his team. They have produced innovation after innovation, but because the company lacked the network and traffic, they usually got short shift. They have good personalized search, desktop search, their own algorithmic search engine, and of course, their recent purchase of Bloglines. Add in their ownership of properties like Excite, iWon and My Way, and they make a great acquisition target for InterActiveCorp.

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Here are a couple of ways InterActiveCorp can take advantage of the Ask Jeeves acquisition:

• Search drives much of the traffic for key InterActiveCorp properties like Expedia, CitySearch and Match.com. Having direct connections to a search engine, even a smaller one, will give those companies insights into how consumers use search and how to best exploit other search engines. It could give InterActiveCorp companies more of a leg up, especially in the area of organic search optimization.

• Distribution via RSS of e-commerce promotions. Think about it--all of InterActiveCorp's properties are highly dependent on return traffic, not just acquisitions via search. Bloglines represents an untapped opportunity for InterActiveCorp properties (and other marketers) to reach their customers through personalized feeds (for instance, I want all the upcoming concerts for the Indigo Girls in the Bay Area, and if they're in Boston during an upcoming business trip that I booked on Expedia, also let me know). And even more importantly, because the feeds are delivered online, they can develop rich profiles of those users and target ads, services and products to them (with strong regard to privacy, of course).

• Ask Jeeves already has a partnership with CitySearch for local search. Look for CitySearch to beef up its offerings with more Web-crawled information a la Google, supplementing its already deep entertainment listings.

Two big challenges for the combined companies:

• Gaining user loyalty. As I've written in the past, search loyalty is still up for grabs. Ask Jeeves has only a 3 percent market share (based on which search engine North American online consumers use most often to search the Internet). If any of the above strategies are going to succeed, InterActiveCorp will have to invest heavily to promote a repositioned Ask Jeeves strongly against formidable competition.

• Diversifying revenue beyond the current Google revenue sharing (which represents about 70 percent of total revenue for Ask Jeeves). InterActiveCorp has got to be watching MSN's new paid search product launch closely and thinking about whether to renew with Google when that contract is up for renewal in 2007--or to strike out on its own.

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