Diller clicks with Ask Jeeves

InterActive revs up search for engine

Barry Diller has found a guide into the booming online search business with mid-size player Ask Jeeves, which his Internet biz InterActive Corp. agreed to buy Monday for $1.85 billion in stock.

Mogul is eyeing the mega-success of Google, which is worth nearly $50 billion and made more than $3 billion in revenue last year, and hoping he can turn Ask Jeeves into a bigger search player. He’s also hoping to boost InterActive Corp.’s other online properties, including Citysearch, Ticketmaster, HSN, and travel sites Expedia and Hotels.com.

With Google booming, Microsoft and Yahoo investing heavily in the space, and InterActive Corp. buying its way in, analysts largely agree that the business of marketing via search engines, which was worth $3.4 billion in the U.S. last year, is about to get significantly more competitive.

“We’re convinced that all this hyper growth is still at the very beginning stage,” Diller said in an investor conference call. “Ever more targeted direct selling will take even bigger slices out of the media pie.”

Missed out

While it has held its own in terms of popularity, Jeeves has thus far has largely missed out on the business of paid search, relying on a deal where Google serves ads and the two split revenue. Their partnership expires in 2007, at which point many observers speculate Ask Jeeves will launch its own paid search business, provided InterActive Corp. has grown traffic sufficiently to justify the investment.

Ask Jeeves made a $52 million profit last year on $261 million in revenue.

With the integration of a major search engine, InterActive Corp. comes one step closer to building itself into a thriving online media network comparable to Yahoo, AOL, and Microsoft’s MSN. Like its competitor, InterActive Corp. will tie its search engine into its other properties, placing Ask Jeeves boxes on all its other Web sites and highlighting intra-company results in Ask Jeeves searches in hopes of keeping users within the IAC network for as long as possible.

Users searching for a particular musical artist, for instance, might find information on events with tickets available on Ticketmaster, venue information on Citysearch, and merchandise from HSN.

Going local

Diller said he hoped to differentiate Ask Jeeves from its competitors by focusing particularly on local searches. That could be a big boost to Citysearch, IAC’s network of city-specific sites that is poised to earn its first profit in the next month.

Move comes as InterActive is preparing to spin off Expedia, Hotels.com, and its other travel sites into a separate public company in order to maximize its shareholder value in that space.

The Ask Jeeves acquisition is expected to close by the end of the second quarter or beginning of the third and will be followed soon after by the travel unit spinoff.

InterActive stock closed down 3% at $21.63 Monday while Ask Jeeves shares were up 18% at $28.67.

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