March 21, 2005 8:37 AM PST

InterActiveCorp buys Ask Jeeves for $1.85 billion

InterActiveCorp has agreed to a $1.85 billion buyout of Ask Jeeves, a search engine that has long been overshadowed by Google and Yahoo.

Barry Diller
CEO, InterActiveCorp

The Internet conglomerate, which is headed by media entrepreneur Barry Diller, said Monday it is hoping to move aggressively into the Web search market through the deal and pointed to growth in the online advertising market as another major incentive in making the acquisition.

Ask Jeeves differs from other search engines in that it responds to plain English questions such as "What is March Madness?" rather than simple keyword searches. That was one of the elements of the company that made it most appealing as an acquisition target, Diller said.

"We believe that in the future (Ask Jeeves) has the potential to become one of the great brands on the Internet and beyond," Diller said in a teleconference Monday morning. "And by 'beyond,' we mean in wireless (and) in the search for anything on any device."

The buyout comes during a period of intense activity across the search market, as the leading players have been aggressively expanding their efforts around emerging business models and trends in the sector, including local search, blogs and sponsored advertising. Blogs, which let people create their own Web pages on which to share information and opinions, have been an especially hot topic of late. Yahoo, for instance, recently made a beta launch of its Yahoo 360 blogging section.

On the advertising front, MSN is expected to debut a new technology intended to rival the successful AdWords program operated by Google. The new MSN AdCenter service, set to debut in Singapore and France in the coming months, is also likely to diminish Microsoft's dependence on Overture, a subsidiary of Yahoo, to help manage its advertising. Using sponsored advertising, search engines auction off popular search terms to the highest bidders, whose ads are then featured alongside search results produced for the terms or phrases.

And in another sign that companies outside the traditional search space are increasingly interested in joining the sector, The New York Times Co. recently agreed to acquire About.com, a searchlike provider of information, for $410 million.

Under the terms of Monday's deal, InterActiveCorp will issue 1.26 shares of its common stock for each share of Ask Jeeves common stock in a tax-free transaction valued at $1.85 billion, discounting any cash involved in the buyout. InterActiveCorp said that it intends to buy back at least 60 percent of the shares it plans to issue for acquisition through previously authorized share repurchase programs.

The Ask Jeeves buyout is the most significant move made by InterActiveCorp since the company announced in December that it would divide into two separate companies. At that time, the company split off its extensive online travel holdings, including reservation services Expedia.com, Hotels.com and Hotwire, into a separate venture that does business under the Expedia moniker.

The search company, known for the butler figure that serves as its emblem, will operate as an independent business unit with operations headquartered in Oakland, Calif., following completion of the acquisition. If the deal passes regulatory scrutiny and gains approval of Ask Jeeves' shareholders, InterActiveCorp said it expects to close the transaction late in the second quarter or early in the third quarter.

Steve Berkowitz will continue in his role as CEO of Ask Jeeves. He said that joining InterActiveCorp will give the company greater ability to compete against its larger rivals, which include Google, Microsoft's MSN and Yahoo.

"We are excited about the opportunity to serve as the connection between InterActiveCorp's constellation of leading online properties to share users and content," Berkowitz said. "Ask Jeeves will now be in an even stronger position to aggressively grow market share."

Among the initial plans for expanding Ask Jeeves detailed by InterActiveCorp were making investments in the site's online distribution and infrastructure, in addition to growing its presence in international markets. InterActiveCorp said it also hopes to develop local search capabilities for Ask Jeeves, mirroring similar strategies recently launched by Google and Yahoo, and to expand the search engine's online commerce operations.

Specifically, Diller said that InterActiveCorp will work to integrate all its travel and ticketing services with Ask Jeeves, and that all of the company's sites will soon feature a search function powered by its latest acquisition. The executive did not rule out the notion of creating a portal-type site to market all its products through one URL.

"We now have in one place all the pieces we need however (the market) develops," Diller said. "Throughout IAC, its sites and the technology that powers all of them, we have all the ingredients and resources to pull everything together if that's what the market demands."

Founded in 1996, Ask Jeeves said it processes about 42 million unique queries generated by American Web surfers each month.

At least one industry expert viewed the deal as a positive for both IAC and Ask Jeeves. Charlene Li, analyst with Forrester Research, said the acquisition gives Ask Jeeves deeper pockets, allowing it to compete more closely against its larger rivals. She said the deal also offers IAC a valuable asset for sharing information across its many holdings.

Li eschewed the idea that IAC will create a portal from its current holdings and instead recommended that the company would do better to create online services that draw from expertise and content available across its online network.

"What (IAC) has needed is better info sharing between its properties," Li said. "Once I log into Expedia, I'm not logged into eVite or CitySearch. A universal log-in across all these sites would allow them to offer more personalized searches, and influence the kind of searches that I do, which could be a good way of putting the properties to work together."

Li said that Google, Yahoo, MSN, and even America Online have such a large head start in the general Web search arena that it would be hard for Ask Jeeves to catch up. However, the analyst said that by focusing on personal search, the Ask Jeeves-IAC combination could make waves.

"If (IAC) can incorporate CitySearch with Ask Jeeves and put some good general search capability next to all the great editorials in CitySearch, you'd think that could really work," Li said. "That could help CitySearch and Ask Jeeves move beyond restaurant listings, or the other types of information you see today, into other personalized services. There's going to be a lot of opportunity in local search."

2 comments

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My tummy sense is tingling...
Ask Jeeves is not worth 2 billion. 60% of the stock will be repurchased in a previously authorized plan. Who owns what here and how are they getting paid? I see more big houses and Ferraris and private jets in a few peoples' futures - not much for anyone else.

Steve Hynes
Posted by shynes (15 comments )
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Inadequate Search Engine Tools, Wasted Money
It is still a tedious task to sift through the output of a search to find what is relevant. Cybersquatters, con artists, sleazy advertisers succeed in "stacking the link deck" to ensure that their sites bubble to the top of most searches. The pathetic state of this is illustrated by searching on "search engines" in Google. What shows up at the top of the list? A useless site called mamma.com. To top it off, none of the leading search engines, even in their "Advanced options" provide a way to do proximty (nearness) searches. You should be able to do a search like ("wireless and seattle" within 10 words of each other), but you can't. This is just lame, and shows how much money these companies have spent in every area EXCEPT their core search technology.

Keith
www.techcando.com
Posted by Stating (869 comments )
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