Why Ask Jeeves?

Face value

Mar 23rd 2005
From The Economist print edition

Barry Diller continues his search for the ultimate online experience

“IT'S A hell of a lot more fun and interesting than arguing over which actor should play what part in whatever movie,” says Barry Diller. “I did that for 20 years of my life.” Mr Diller, the Hollywood mogul turned internet pioneer, was explaining last year why the movie business now held less allure than buying yet another dotcom to add to his online conglomerate. This week he went shopping again and snapped up Ask Jeeves, a search website, in an all-shares deal worth $1.8 billion.

Mr Diller's InterActiveCorp (IAC) is a curious invention put together by an enigmatic man. Its future health may depend on how internet search evolves. Searching for information, products and prices through sites such as Google, Yahoo!, Microsoft's MSN and AOL is now one of the main uses of the internet, and the hottest area for online advertising, through the use of sponsored links. But Ask Jeeves trails in sixth place behind this bunch, with only a 1.8% market share, says Nielsen//NetRatings, a firm of analysts. And competition is increasing. Amazon too has developed a powerful new search facility, called A9.

But this business is relatively new and Mr Diller reckons there is still much to play for. After all, who would have forecast only a few years ago that Amazon would sell more consumer-electronic goods than books? Or that eBay's hottest online auction category would be used cars? Or that online search could be a hugely profitable business? (Not even Microsoft foresaw that, which is why it initially ignored the search business.)

IAC is only nine years old. Mr Diller became captivated by the internet only after a successful career at Paramount Pictures, ABC, Fox Broadcasting and, finally, USA Networks (whose TV, cable and other entertainment assets he sold to France's Vivendi Universal for more than $10 billion in 2001). In recent years he has mostly been shopping online. In 1999, Mr Diller tried to merge with Lycos—then a hot “portal” which many said would come to rule the internet. The deal was sunk by shareholders, although Mr Diller still wonders about what might have been. Perhaps Lycos might have been the “unifying force” that he hopes Ask Jeeves will now become for his various businesses.

Using IAC's various operations, a customer can get a date (or at least try, with match.com); book a flight (Expedia.com); find a hotel (hotels.com); make a restaurant reservation (Citysearch); take in a show (ticketmaster.com); buy a wedding ring (Home Shopping Network via TV or the internet); find a home (realestate.com) and a mortgage (lendingtree.com). So far, however, even Mr Diller cannot marry you online.

As a group, despite Mr Diller's past talk of huge cross-selling opportunities, these businesses have never entirely connected up. Certainly there are synergies, says Mr Diller, and in some areas these have been exploited—such as links between lendingtree.com and realestate.com. But the result has left IAC rather difficult to understand and—more annoyingly for Mr Diller—its shares valued less generously than those of more focused internet firms such as Google or Amazon.

So, Mr Diller is planning later this year to split up IAC. One part will be called Expedia, and will include all the travel-related businesses, and the other will continue to be called IAC and will be made up of the rest. In the fourth quarter to the end of December 2004, IAC's travel revenues grew by 11% to $496m, out of IAC's total revenue of $1.7 billion. Lumping all the businesses together was slowing IAC's growth, says Mr Diller. IAC was often perceived only as a travel company, because Expedia has become the world's leading online travel agent.

Like some investors, Mr Diller worries about “disintermediation”—the internet's ability to eliminate middle-men. The popularity of booking travel online has already driven many bricks-and-mortar travel agents out of business. Could search eventually do the same thing to online travel agents? Airlines, hotels and car rental firms increasingly want to drive bookings to their own websites, rather than rely on online agents to whom they must pay a commission. New search engines could give web surfers the ability to simply enter their travel itinerary and let the search engine get the best prices directly from suppliers.

Search and search again

That is one reason why Mr Diller has decided to bolt a search firm on to IAC. But is Ask Jeeves, which was founded in California in 1996, the right one? It has a long way to go to catch up with the likes of Yahoo! and Google. But people often use more than one website when searching—especially when looking for product and price information. So perhaps Mr Diller can persuade more surfers to try Ask Jeeves—which works slightly differently from its bigger rivals, seeking answers to questions written in ordinary language rather than as a series of keywords.

One way Mr Diller could try to boost the market share of Ask Jeeves is to feature its search box on his many websites. However, any hint that the results of a search on Ask Jeeves were being deliberately swung towards IAC websites could do serious damage; most users expect search engines to be impartial. As for advertising, Ask Jeeves gets most of its revenue from ads brokered for it by Google; will that relationship survive? The greatest opportunity may be to apply Ask Jeeves to the wealth of local information carried by Citysearch. Local search is one of the most dynamic areas in internet search and offers the potential for a vast local online-advertising market.

Mr Diller, who at 63 has been in business for a couple of decades longer than most other dotcom bosses, clearly has a challenge on his hands. But for the one mogul of old media who has consistently made the right bets on the internet—contrast IAC with Time Warner's disastrous merger with AOL—navigating the evolving e-commerce business remains far more captivating than anything Tinseltown now has to offer.

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