By buying Ask Jeeves for $1.85 billion, IAC/InterActiveCorp hopes to boost the search engines market share and create a powerful combination of search and structured content for verticals such as local search.
While the acquisition will create the potential for IAC to reach those goals, the companies also will face challenges in attempting to fit Ask Jeeves search and portal properties in with IACs consumer sites ranging from Citysearch and Ticketmaster to Match.com and Expedia, according to financial analysts and market researchers.
Earlier this week, IAC announced an agreement to buy Ask Jeeves Inc. in a stock deal. During a conference call with analysts, IAC CEO Barry Diller stressed the companys plan to boost Ask Jeeves market share against search heavyweights Google Inc., Yahoo Inc. and Microsoft Corp.s MSN division.
“On paper, it looks pretty powerful,” said Allen Weiner, a research director at Gartner Inc. “[Diller] gets himself a portal platform at a reasonable price. He adds to [Ask Jeeves] revenue instantly by giving it more traffic and adds to the power of his sites with the ability to manage his content.”
Diller declined to specify a market-share goal for Ask Jeeves but said the acquisition should immediately help drive more traffic to the search engine. IAC plans to promote an Ask Jeeves search box on its network of sites, which reach about 44 million unique users a month. Ask Jeeves by itself draws 42 million unique visitors a month.
“Were convinced that all this hyper growth [in search] is still at the beginning stage,” Diller said. “A group of four to five players are going to be able to thrive in this market. … Because of that, a player like Ask Jeeves has the greatest opportunity for growing share.”
Ask Jeeves, based in Oakland, Calif., is the fifth-largest Web search destination in the United States, falling behind Google, Yahoo, MSN and America Online Inc. Ask Jeeves accounted for about 5 percent of U.S. search submissions in January, according to comScore Networks Inc.
Unlike AOL, which uses Googles search results, Ask Jeeves competes using its own technology. It returns search results using the Teoma algorithmic engine it acquired in 2001.
On the bright side for IAC and Ask Jeeves, their networks of sites largely draw a different set of Internet users. When combined together, their sites reach about 71 million unduplicated visitors every month, comScore Networks reported.
“The combination creates intriguing growth opportunities, given that there is relatively little overlap between the IAC and Ask Jeeves audiences,” Dan Hess, senior vice president at comScore Networks, said in a statement.
But New York-based IAC must do more than simply draw more traffic to its various sites from the acquisition. Analysts noted that IAC could face problems as it tries to grow Ask Jeeves market share, given the intense competition among search players.
Mark Mahaney, a financial analyst at American Technology Research Inc., raised doubts about IACs ability to initially increase Ask Jeeves market share. He also was skeptical about IACs abilities to integrate Ask Jeeves with other IAC properties and find new ways to generate revenue.
“There may be revenue synergies—especially with [IAC] promoting the Ask Jeeves search box on every [IAC] site—but our view is that [IACs] record of generating revenue synergies has been limited to date,” Mahaney wrote in a research note. “Further, we note that to date, [IAC] has had difficulties in integrating its numerous acquisitions.”
To Weiner, the acquisition is a broader media play by IAC, letting it gain not only an entry into search but into Ask Jeeves portal-like holdings that pit it most directly against Yahoo and MSN.
Ask Jeeves last year doubled its search market share when it acquired Interactive Search Holdings Inc., which included such properties as the Excite and My Way portals.
“Everybody is going to be watching on execution here,” Weiner said. “Can Barry Diller be to Ask Jeeves what Terry Semel is to Yahoo? Maybe.”
Semel, the CEO of Yahoo, has been credited with helping to turn the company into a media business and reinvigorate its earnings since he joined it in 2001.
One specific target for Diller is local search. Ask Jeeves in the past year expanded its local options to compete with other top search engines. As part of the services, Ask Jeeves partnered with Citysearch.
Meanwhile, Citysearch also has been growing its local advertising program and local business content, which it has created over the past eight years, Diller said.
“Our goal is to make Ask Jeeves the search engine with best local search content and merchant information out there,” Diller said.
Local search is a growing market and an area where global search engines hope to grab a larger portion of advertising dollars from local businesses. The Kelsey Group predicts that the local-search market will grow to $3.4 billion in revenues by 2009.
“Weve seen IAC make big predictions in the past and fail to deliver,” Greg Sterling, program directory at The Kelsey Group, said in an e-mail interview. “I think the potential is there to make Jeeves a leader in local search, if the focus and the resources are put behind the effort.
“But local is as competitive as general Web search, if not more, and simply saying it will not necessarily make it so.”