IAC/InterActive Plans to Buy Ask Jeeves

Ask Jeeves, the search engine ranked as the fifth most widely used by consumers, has agreed to be acquired by IAC/InterActive, the investment firm led by media mogul Barry Diller with a smorgasbord of online product and service sites.

Oakland, CA-based Ask Jeeves has the potential to become “one of the great brands on the Internet and beyond,” IAC CEO Diller told analysts on Monday morning. “And by beyond, we mean wireless, and the search for anything on any device. It is that belief, powered by IAC’s wealth of resources, that is the impetus for the transaction.”

Diller’s IAC operates a broad portfolio of consumer brand Web sites, from online travel agency Expedia and shopping site HSN.com, to Ticketmaster, LendingTree.com, and personals service Match.com. The company also owns CitySearch, a local search service that combines event and directory information for 138 U.S. cities with a pay-per-click ad model.

Diller pointed out that online ad spending is expected to grow twice as fast as total ad spending in the next five years, and that paid search both in the U.S. and abroad is slated to grow at 25% annually. “We’re convinced that all this hyper-growth is still at the very early stage and that ever more targeted direct selling will take ever larger slices out of the media pie,” he said. “And we believe Ask Jeeves, while the smallest of the significant players, represents a phenomenal opportunity to build value for this company.”

Under the terms announced Monday, IAC will offer $1.85 billion in IAC stock for Ask Jeeves, representing a premium of 18 times the company’s current earnings. IAC said it will buy back at least 60% of the new shares and perhaps all of them, because the company is undervalued. IAC sees potential to grow the Ask Jeeves brand organically, Diller said. Ask Jeeves is the third most recognized brand name and has about 42 million unique visitors per month. But the company has sustained several consecutive quarters of growth in terms of users — proprietary queries are up 20% from this time last year, Diller pointed out — and the company has received credit in a competitive search climate for both for its distinctive natural-query search platform and for interesting acquisitions, such as the recent purchase of Web-based blog aggregator Bloglines.

Ask Jeeves CEO Steve Berkowitz also said the IAC purchase should result in a new level of growth for his company. “IAC shares our view of search as a gateway that connects consumers to content, goods and services,” said Berkowitz, who will remain as head of Ask Jeeves under IAC’s ownership. “By bringing our world-class search asset into their business, IAC can better connect their large constellation of properties to share users and content. And our users will be able to search, find, and compelte a task online — all within the bounds of one company.”

IAC will start integrating the purchase by incorporating the Ask Jeeves search box into the home pages of all its properties, which Diller said are viewed by 44 million unique users per month. The company will also hook its local CitySearch content, and a reported 116,000 local merchant listings, into the Ask Jeeves index. The new search capability will let IAC integrate Ask Jeeves search result pages with its interactive commerce sites and offer relevant offers on those pages, Diller said, although he added the company will take care to preserve “the best consumer experience.”

“With this acquisition, IAC is creating a traffic ecosystem, sending traffic back and forth between Ask and IAC brands,” Diller said. He suggested that Ask Jeeves users will eventually be able to buy concert tickets, rent time-share vacation lodgings, and print special-offer coupons all within the search function.

The Ask Jeeves purchase should also help IAC launch new home-grown services of its own, such as Gifts.com, the personalized gift search service that the company announced today.

Frederick Marckini, founder and CEO of search engine marketing firm iProspect, said the IAC acquisition of Ask Jeeves makes good business sense because so many of IAC’s holdings already revolve around locating resources on the Web. “Each one of those properties is a search engine,” he said. “Match.com finds available singles in your area; CitySearch is a local search platform that could steal some thunder from Google and Yahoo. Expedia is search engine for travel destinations and pricing. Having an actual search engine gives IAC the ability to leverage all those other holdings. You could see Ask Jeeves become a serious player in local search because of all IAC’s various other assets.”

Marckini also points out that Ask Jeeves has a distinct advantage that should prove useful to IAC in terms of both its own Web sites and those of potential advertisers. Since Ask Jeeves can be queried in natural language — that is, users can phrase a query as a question — visitors often user more terms than they do to search other engines. Those longer queries are “phenomenally useful” to Web site owners, Marckini says, and much more helpful in pinpointing what users are really looking for in a search than one or two keywords.

The Ask Jeeves acquisition is subject to the approval of regulators and shareholders but should close in the second or third quarter of this year.