• by Wendy Davis  @wendyndavis, March 22, 2005

In a deal that potentially intensifies an already heated competition among search engine companies, Barry Diller's IAC/InterActiveCorp. announced yesterday that it agreed to purchase search company Ask Jeeves for $1.85 billion in stock.

Ask Jeeves will join a roster of other businesses now under the IAC umbrella, including online travel agency Expedia, Web dating site Match.com, and retail channel Home Shopping Network.

The move--which could give Ask Jeeves the financial backing to compete with the largest search players--comes on the heels of MSN's official entry into search last month; MSN kicked off the launch with an extensive ad campaign designed to reach 90 percent of U.S. households 40 times in the next eight weeks. MSN last week announced that it was poised to start testing its own program for delivering sponsored search listings--which ultimately will compete with both Google and Yahoo!'s Overture, MSN's current paid listings provider.

Ask Jeeves is currently considered a second-tier search engine, behind market leaders Google, Yahoo! Search, MSN Search, and AOL Search, according to research firms Nielsen//NetRatings, comScore, and Hitwise. The companies give varying estimates of Ask Jeeves' market share, but all put it at less than 10 percent.

But IAC's reach--the company's sites drew 44 million unique visitors in January, according to comScore--potentially gives Ask Jeeves a big boost with consumers. IAC intends to add the Ask Jeeves search box to its vertical sites, such as its online dating site Match.com, retailer Home Shopping Network, and ticketer Ticketmaster, and might also set up a distribution deal with Expedia.

Those changes alone will increase Ask Jeeves' exposure, said Scott Garell, executive vice president-general manager of search properties at Ask Jeeves. "They can absolutely help us build our brand if they put our search box on sites," said Garell. "We definitely see a lot of synergies here."

Barry Diller, chairman and CEO of IAC, said in a written statement: "We believe that in the future [Ask Jeeves] has the potential to become one of the great brands on the Internet and beyond, and by beyond we mean in wireless, in the search for anything on any device."

Additionally, IAC has the deep pockets to fund advertising--such as the series of spots created by TBWA/Chiat/Day, San Francisco, that Ask Jeeves launched last month. "With their resources, we'll be able to invest in building our brand," said Garell. He declined to state whether the company planned additional campaigns.

Still, whether the added visibility will be enough to propel Ask Jeeves into the top tier of search players remains an open question. Conventional wisdom, said Jupiter Research analyst Gary Stein, is that the major companies are too popular with consumers for Ask Jeeves to make significant inroads.

But the field is evolving so rapidly that Ask Jeeves--which also owns Excite, iWon, and My Way--might yet emerge as a force to be reckoned with. "The search game has changed twice now in the space of five days," Stein said, referring to MSN's announcement that it was entering paid search. "We'll see what happens tomorrow."

Some industry observers say that consumers have little loyalty to particular search engines. comScore reports that 65 percent of users use at least two search engines per month.

Synergies With Verticals

IAC also can now make use of Ask Jeeves through ads on its search results pages. For example, as of Monday, when users went to AskJeeves.com and typed the term "online dating" into the search box, they were served an ad for Yahoo! personals at the top of the results page. But in the future, IAC might arrange for its online dating site, Match.com, to appear in that spot.

Garell declined to say whether such deals were in the works, other than to comment: "We're going to have to investigate the synergies over time."

In September, Ask Jeeves beefed up its site with new personalization capabilities that allow users to save their queries, and last month, the company announced the acquisition of blog search engine Bloglines.

For now, Ask Jeeves relies on Google for sponsored search results, but with IAC backing, might invest in own sponsored search engine. Google accounted for approximately 70 percent of Ask Jeeves' revenue last year.

Ask Jeeves also can use IAC funding to invest in new research and development--possibly creating new meta search sites, said Forrester Research analyst Charlene Li. She predicted that Ask Jeeves would "focus on developing areas of expertise in verticals."

Some observers also see Ask Jeeves as well-positioned to expand its local search offerings. Last year, Ask Jeeves made a deal with IAC's Citysearch.com, which involves returning Citysearch's local content and information to Ask Jeeves search results pages.

Analyst Chuck Richard, vice president at Outsell, said that IAC's purchase price for Ask Jeeves--seven times the revenue and 33 times the operating income--is in the same range on revenue multiple as the price Dow Jones paid for MarketWatch.

The acquisition is expected to close later this year.