July 19, 2004

Ask Jeeves's decision to participate in Macy's Thanksgiving day parade underscores the new era at the company.

It has emerged from the brink of extinction during the dot-com downturn to become consistently profitable.

Unconstrained by financial worries, Ask Jeeves, based in Emeryville, has initiated its most aggressive phase yet. Over the past few months, the company has made two major acquisitions and introduced new features that signal its intent to grab a bigger piece of a search market pie.

"I know we can become an even stronger force in the marketplace," said Steve Berkowitz, the company's chief executive.

To succeed, Ask Jeeves must overcome the disadvantage of its diminutive size. Industry leaders Google, Yahoo and Microsoft's MSN are several times larger and have far deeper pockets.

Furthermore, Ask Jeeves must counter a reputation earned during its infancy of inferior search results. Although the company is receiving accolades from analysts for improving its search quality, the question remains whether the effort is enough to lure new users or prompt existing ones to visit more frequently.

The most notable event for Ask Jeeves recently was its $501 million acquisition of Interactive Search Holdings, a private Irvington, N.Y., company with several Web sites. They include IWon, a search portal that attracts users with millions of dollars in cash prizes; Excite, a traditional portal; and MyWay, a bare-bones search engine.

Berkowitz describes the acquisition, which was finalized in May, as part of a strategy to own multiple brands with distinct personalities. Users, he said, want to access information differently, not necessarily in a one-size- fits-all model like Google and Yahoo.

Bob Davis, a venture capitalist who is the former chief executive of Terra Lycos, owner of the Lycos Web portal, compared the plan to television companies owning several channels in an effort to appeal to different demographics.

"It makes a ton of sense," he said. An added benefit of the acquisition is the array of portal-like features that come with the new Web sites. E-mail, news feeds and personalization technology, such as the ability to change a Web page's color, were bells and whistles that Ask Jeeves previously lacked but give users a reason to stay longer and enter more search queries.

Most notably, the Interactive Search Holdings acquisition nearly doubled Ask Jeeves' search market share. Combined, the two properties controlled 6.1 percent of all U.S. searches in May, according to ComScore QSearch. Google dominated the industry with 36.8 percent of the market. Yahoo was second at 26. 6 percent, followed by Microsoft and its MSN portal at 14.5 percent.

Ask Jeeves, whose name is inspired by a butler in the books of English novelist P.G. Wodehouse, was founded in 1996 by David Warthen, the company's current chief technology officer, and Garrett Gruener, a venture capitalist. The Web site, which encouraged users to type in questions rather than simply entering keywords as was the norm, went live a year later.

In short order, Ask Jeeves was swept up in the dot-com frenzy. Big losses and a soaring stock were par for the course.

By the time the Internet bubble had popped, the Ask Jeeves butler was nearly in a coma. The company's shares ultimately fell below $1, a sign that many on Wall Street had given it up for dead.

Management embarked on a painful turnaround. They cut jobs, pinched pennies and invested in improving their search engine.

Today, Ask Jeeves is a stellar performer. Its shares finished trading Friday at $30.29, up by a factor of 40 from its low in 2001.

The turning point came when Ask Jeeves agreed to run sponsored advertising links, currently supplied by Google. Such marketing, now a standard in the search industry, became a big moneymaker.

"Jeeves is sitting in a position today that is so different from a year or two years ago, where we sat in some cases on a precipice," Berkowitz said. "We can still go up or down, but the difference between our up and down today is that we have a sustainable business model and that no matter what happens, we are going to be in business."

Berkowitz, a New York native, came to Ask Jeeves in 2001 as president before assuming the chief executive role last year. He was previously president of IDG Books, where he expanded the "Dummies" series of how-to books in addition to overseeing the acquisitions of Frommers Travel Guides, Cliff Notes and Betty Crocker Cookbooks.

In 2003, Ask Jeeves earned a profit of $24.8 million on $107.3 million in revenue. Helped by acquisitions, the company expects to post a profit of around $49.5 million on $255 million in revenue this year.

The growth spurt is allowing Ask Jeeves to relocate from its cramped headquarters to a downtown Oakland high-rise in December. Ask Jeeves had planned to move into the same building in 2001. But with the losses and layoffs, it changed course and was forced to pay $16 million to get out of the lease.

The quest to build a better search engine is three years in the making. The company abandoned its trademark reliance on human editors to compile lists of results, in favor of algorithmic search.

The foundation is the search technology Teoma. It ranks results based primarily on links from "respected members" of Web sites related to a particular subject rather than links from just any Web site.

On top of that, Ask Jeeves has added features to keep its engine competitive in terms of quality. Most revolve around the idea of getting users to the information they are seeking in fewer clicks.

Called SmartSearch, users can enter a keyword such as a celebrity's name and immediately get a small biography and photograph above the usual results. There are around 170 examples of SmartSearch in all, some of which were rolled out as recently as last month, including surf conditions, terror alert levels and movie titles.

Among the other new and distinctive features on Ask Jeeves are binoculars, which appear as small icons next to search results. Placing a cursor over the icons allows users to quickly preview many Web pages.

"Ask Jeeves has demonstrated that they have turned around their search," said Chris Sherman, editor of SearchDay, an online newsletter about the search industry, and president of a Web consulting firm in Boulder, Colo. "People are pleasantly surprised when they give them another try."

Still, Jim Lanzone, senior vice president of search properties for Ask Jeeves, recognizes that there is still more work to be done to change consumer perceptions.

"We're like a little kid on the playground who was skinny and could be pushed around," he said. "We're bulked up but haven't quite gotten the respect. "

Future product releases planned by Ask Jeeves include software that would allow users to search the Web and computer hard drive files simultaneously. The company signaled its interest in June when it bought Tukaroo, a San Jose firm that specializes in desktop searches.

The acquisition, made for an undisclosed amount, was Ask Jeeves' second this year. Microsoft and, reportedly, Google, are working on similar technologies.

Berkowitz's goal is for Ask Jeeves to eventually win a double-digit share of the search market. He doesn't see the job so much as stealing traffic from other search engines as persuading occasional users to visit more often.

"If I had to acquire new users, then it would definitely cost a lot of money," Berkowitz said. "But if I could get one more search from the people who use me, then I think our market share goes up 10 percent per month."

Sasa Zorovic, an analyst for Oppenheimer & Co., the investment bank, applauded Ask Jeeves' turnaround. And he expects rapid growth for the company in line with the rest of the search industry.

But Zorovic isn't optimistic about Ask Jeeves actually narrowing the gap with its rivals, at least without more acquisitions. Yahoo, Google and MSN are all investing heavily in Web site upgrades and showing no signs of giving up so easily, he said.

"They'll all be putting pressure on Jeeves," Zorovic said. He doesn't own any Ask Jeeves shares and his firm does not have a banking relationship with the company.

Ask Jeeves' advertising partnership with Google is another concern. The deal provides Ask Jeeves with about 65 percent of its revenue, according to Berkowitz.

Davis, the former Terra Lycos executive, called it risky to depend so much on one source of revenue. Google could eventually pull the plug, he said.

Berkowitz responded that creating a small advertising network like Google's wouldn't be wise, at least at the moment. There are already a few others, including FindWhat and Yahoo's Overture.

"Would I love to do it all myself? Absolutely," Berkowitz said. "Do I think it's the right thing for us to do? Absolutely not right now."

As for Sorensen, the artist responsible for drawing the Ask Jeeves butler, 2004 holds a lot of promise.

The butler balloon will float through midtown Manhattan on Thanksgiving Day. For the past couple of years, the butler -- who last participated in the parade in 2002 -- has kept a low profile because of a limited marketing budget and its association with the old Ask Jeeves.

Although no new advertising campaign has been planned, Sorensen is already thinking of redrawing the icon without the chubby cheeks to reflect what he calls the company's newly speedy searches.

Source: SF Gate

        

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