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Ask Jeeves sold; deal underscores interest in local, vertical search

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IAC/InterActiveCorp announced last week it has signed an agreement to acquire search engine Ask Jeeves in a stock deal valued at $1.85 billion. The purchase is expected to close in the second quarter.

Observers say the deal may signal another big step in the areas of local and vertical search. It may also eventually present a viable competitor to Google and Yahoo!

The money flowing into the search space presents huge opportunities. It is the fastest growth area of the Internet; revenue from search is projected to reach $4.1 billion in 2005, according to Piper Jaffray & Co.

Media mogul and IAC Chairman-CEO Barry Diller said IAC would apply its brand management and marketing expertise to the venture, for which he has great expectations and lofty goals. "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 wireless—in the search for anything on any device," Diller said in a statement.

Diller plans to integrate several IAC brands including Expedia, Hotels.com, Hotwire.com, Ticketmaster, CitySearch, Match.com and HSN—into Oakland, Calif.-based Ask Jeeves’ search properties. IAC owns 40 businesses and more than a dozen Web properties. Its diverse range of businesses includes e-commerce, local and media services and directories, telemarketing, financial services, real estate and travel.

"We see IAC’s acquisition of [Ask Jeeves] both as a strategic effort to enter another online sector in the search industry, one of the fastest growing areas of the Internet, as well as a step in the vertical integration of content and distribution," said Anthony Noto, managing director at Goldman Sachs in his deal notes on the proposed acquisition.

IAC’s planned acquisition of Ask Jeeves is also considered a catalyst for the local sector. "Local search has a new, viable integrated competitor, which is probably more positive than negative as it should help to drive the adoption of search by local merchants," Noto said. That in turn would drive more advertising dollars into local search.

"I think it gives [IAC] a more balanced portfolio, and they got a good company at a good price, said David Hallerman, senior analyst at eMarketer. "They’re recognizing the importance of search in years to come."

Peter Hershberg, managing partner at search engine marketer Reprise Media, likewise said the deal makes sense. Hershberg is very familiar with Ask Jeeves; he was its VP-strategic development from 1999 to 2002. Hershberg said Ask Jeeves has always pushed the envelope in terms of search engine innovation, but lacked the market share and deep pockets to needed to compete for market share with the three dominant engines, Google and Yahoo! and MSN. "Being part of a larger organization puts them on a more level playing field," he said.

Noto agreed. "[Ask Jeeves’] brand and technology will benefit from increased awareness on all of IAC’s properties (CitySearch, Ticketmaster, Match.com, etc.) as the search engine provider," he said. [Ask Jeeves] will also have greater financial resources to invest in the technology that is necessary to compete with other large, better capitalized competitors including Yahoo!, Google and MSN.

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