Diller's firm buys Ask Jeeves for US$1.85 billion

Ask Jeeves hopes to have the financial firepower to take on its internet search engine rivals Google, Yahoo and MSN after signing an agreement to sell itself to Barry Diller's IAC/InterActiveCorp.

The US$1.85 ($NZ2.54) billion all-shares purchase of Ask Jeeves, which claims to have 7 per cent of the global market for internet searches, is the latest in a string of acquisitions for Mr Diller, the American media mogul.

Mr Diller's empire, InterActiveCorp (IAC), has been built up in the past decade to include the television channel Home Shopping Network, the online dating service Match.com and the leading travel site Expedia.

But in December he missed out on buying the UK's Ebookers, which instead went to the travel giant Cendant.

Ask Jeeves, based in California and founded in 1996 by Garrett Gruener and David Warthen, differentiates itself from competitor search engines by allowing customers to type in a question in "natural language", which it will then answer.

Since 2000, users have also been able to perform searches in a similar way to other engines using key words.

Mr Diller, the chairman and chief executive of IAC, said: "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."

Adrian Cox, the chief executive of Ask Jeeves' UK operations, said the group had lacked the financial muscle "to grow as quickly as we would have liked". Expansion has been constrained by a lack of resources, compared with competitors, for tailored websites for particular countries, research and development expenses, and marketing of the brand.

Ask Jeeves first made a full-year profit in 2003 and for last year it reported revenues of US$261.3m, up 144 per cent, with profits of US$71.1m. It makes about 70 per cent of its revenues from "sponsored links" that accompany web search results.

Google, the most direct comparable company, dominates the market, carrying out more than 60 per cent of searches performed globally. The other two big players, Yahoo and MSN, have broader offerings that make them "portals" rather than simply search engines.

IAC will now employ its brand management expertise on Ask Jeeves and invest in distribution, R&D and international growth. The search engine will be incorporated into IAC's other websites, bringing the 44 million unique users per month that IAC's web brands have to Ask Jeeves.

Ask Jeeves, which launched in the UK in 2000, slashed 25 per cent of its workforce after the dot.com bubble burst in 2000. Mr Gruener, who stepped down as chairman of the company in 2003, ran against Arnold Schwarzenegger for California's governorship.

Ask Jeeves has now expanded its technology to be a more well-rounded search engine. Last month it bought Bloglines, one of the most popular online tools for subscribing to and reading blogs on the web.

The deal with IAC comes at a time when competition is heating up between America's main search engines Google, Yahoo and Microsoft. The three have been aggressively adding new features to try to outpace each other.

Yahoo and Microsoft each released new search technology last year, and Microsoft outlined an automated system last week for selling search-related ads. Time Warner's America Online is also rolling out new search features using Google software.

AOL was also on IAC's wish list, but it is thought IAC did not pursue a deal because of the high price Time Warner demanded.

- Independent