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3/21/2005
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IAC To Acquire Ask Jeeves For $1.85 Billion

Analysts say that IAC is going to need catch up to expansion efforts by rivals Microsoft's MSN, AOL, Google, and Yahoo.

IAC/InterActiveCorp, which operates a variety of online and offline businesses, including CitySearch, Expedia, and Ticketmaster, today said it will acquire Ask Jeeves Inc., for $1.85 billon.

Ask Jeeves is the fourth-largest Internet search engine and, by comScore Media Metrix's measure, the ninth-largest Web property.

In a statement, Barry Diller, chairman and CEO of IAC, said, "Ask Jeeves was founded almost 10 years ago based on the idea that simple text search results alone are not sufficient or satisfying--but, rather, that consumers want answers to questions--and questions posed in natural language and answered with spot-on accuracy were especially desired and appealing. Of the many search engines launched during that time, Ask was one of the very few that established itself and we believe that in the future it 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."

"It does look like there's going to be another major player in this market," says Marianne Wolk, an analyst for Susquehanna Financial Group. "However, we caution that IAC and Ask Jeeves are coming from behind. Ask Jeeves has invested significantly less in geographical expansion, technology expansion, and capital expenditures to reindex the Web, than [have] larger peers such as Google, Microsoft, and Yahoo. And there's going to have to be significant investment made by the combined company to catch up."

The other major search players aren't sitting still either. A Yahoo spokeswoman today confirmed that it plans to buy Ludicorp Research & Development Ltd., which owns Flickr, an online photo-sharing site favored by bloggers. Wolk predicts that America Online, Google, Microsoft, and Yahoo will continue to make significant investments and acquisitions in search-related areas, particularly blogging and social networking.

"This really just emphasizes my point that the major players are aggressively spending to expand overseas, and enter new markets such as blog search, content search, image search, desktop search, and video search," says Wolk. "And Ask Jeeves is way behind in most of those investment areas."

Ask Jeeves' purchase last month of Trustic Inc., the company that runs blog aggregator Bloglines, represents an effort to close that gap. But experts suggest the distance is considerable.

"If you look at the market share of the search portals--Google, Yahoo, MSN, and AOL--Jeeves really has a sliver in comparison to those others," says Kevin Lee, executive chairman of search-engine marketing firm Did-It.com. "Can Jeeves be resuscitated with enough cash and savvy marketing? Perhaps it can. Clearly, Diller and his team have some thoughts with respect to Jeeves that they believe they can add value to Jeeves' current situation and maybe bring Jeeves back."

Lee, like others in the search industry, shares Diller's view that "search for anything on any device" has potential going forward. But he's guarded in his assessment. "I think the whole convergence with wireless is going to continue to move slowly but surely," he says. "Device-agnostic search is going to be there in the future. I'm not sure that any one player has an advantage now given how early that game is. Any momentum any one player has can be eliminated with enough marketing dollars."

That may explain some of the acquisition dollars that have been dropped of late--the advantage obtained by purchasing innovative companies and their technology isn't as easily countered with a marketing blitz.

In a research note earlier this month, Susquehanna Financial Group cited four new social software offerings that might draw the interest of major search players. One of them was Flickr. The others were: Del.icio.us, a blog bookmarking service; Furl, a photo-organizing site owned by LookSmart (itself ripe for acquisition); and 43 Things, a goal-tracking service in which Amazon.com has already invested.

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