Diller’s Search May Now Be Over

Media mogul Barry Diller finally got his wish Monday: an Internet portal to call his own.

His IAC/InterActiveCorp said it agreed to buy search engine Ask Jeeves Inc. in a move to create an Internet gateway that could compete with Yahoo Inc. and Microsoft Corp.’s MSN.com. At IAC’s current stock price the deal is worth $1.9 billion.

Diller has been looking to buy an Internet portal -- a site that provides a search engine along with other doorways to the Web -- at least since 1999, when his offer to buy Lycos Inc. for $21.5 billion fell apart.

Since then, Diller, known as the man who started America’s fourth TV network, has built a media empire that includes various Internet emporiums including dating site Match.com, Expedia.com, CitySearch, Hotels.com and Ticketmaster.

But it appears he still had in mind a portal that would tie all his holdings together. The all-stock deal for Oakland-based Ask Jeeves would put him in the search business, which has proved to be one of the most lucrative Internet sectors.

And it would give his disparate online businesses a home base.

“It was the missing piece for Diller,” said analyst Allen Weiner of Gartner Inc. “This is all about organization and synergy.”

In a conference call Monday, Diller said he envisioned a kind of “echo system” between Ask Jeeves and the other IAC sites.

“To start, IAC will promote the Ask search box and results on every IAC site,” Diller said. Conversely, the search results will “integrate offers from our leading transaction brands.”

Said Ask Jeeves Chief Executive Steve Berkowitz: “IAC will help us realize our full potential.”

Ask Jeeves, which allows users to search the Web by typing questions rather than keywords, attracts about 5% of searches, according to ComScore QSearch. Although that’s up from 2% a year ago, Ask Jeeves is far behind Internet search leader Google Inc., which gets about 35% of searches.

But analysts said Diller -- who was chief executive of Paramount Pictures for a decade and went on to oversee the creation of the Fox Network at News Corp. -- should never be underestimated.

“In three to five years, Ask Jeeves will be one of the companies competing for this space,” said stock analyst Scott Devitt of Legg Mason.

IAC will issue 1.267 shares for each share of Ask Jeeves, making the deal worth $27.40 a share at Monday’s IAC closing price. It’s a bargain for IAC, according to several analysts; the purchase price is “well below what we consider the company is worth,” Safa Rashtchy of Piper Jaffray & Co. said in a note to clients.

Investors agreed. Ask Jeeves’ stock Monday jumped $4.43, or 18%, to $28.67 on Nasdaq -- suggesting the market believes that Diller’s price will have to rise or that another bidder may emerge.

Rashtchy thought the chance of a competitive bid was low, especially from traditional media companies, “given the remarkable lack of foresight” they have shown in recognizing the potential of search marketing for cross promotion.

The deal must still be approved by IAC and Ask Jeeves shareholders.

IAC shares fell 66 cents Monday to $21.63, even though the company said it would over time buy back at least 60% of the shares it would issue in the deal.

Left unclear Monday was how the Ask Jeeves acquisition would fit with Diller’s plans to split IAC into two companies, one for his travel-oriented firms such as Expedia and the other for his more general holdings. IAC executives did not say which of the two would get Ask Jeeves, although analysts expected that it would go into the non-travel company.

Ask Jeeves started in 1997 as a search engine that used mostly plain language instead of the terms and symbols that were commonly used on search sites of the time.

Although eclipsed by Google and Yahoo, it retained a following.

“I like to compare it to Apple [Computer],” said Chris Sherman, an editor with online newsletter Search Engine Watch. “They may not have that big of a share, but it’s fanatically loyal.”

Analyst Weiner said an Ask Jeeves search could produce slick tie-ins to IAC products.

“If you typed in ‘Key West,’ ” Weiner said, “you’d maybe get an offer to buy travel tickets on Expedia, local information on CitySearch, tickets to an event there on Ticketmaster and a date on Match.com.”

But portals are no sure thing. Lycos faded into obscurity in the post-tech bubble economy and in 2004 was sold to Daum Communications Corp. of South Korea for about $95 million.

Last month, Daum said it had made a deal to use an established search engine on the site. Its choice: Ask Jeeves.

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Internet bet

Barry Diller’s IAC/InterActiveCorp announced Monday that it was buying Ask Jeeves, the latest in a string of Internet acquisitions:

1998: Purchases part of Ticketmaster. Ticketmaster Online merges with CitySearch.

1999: Acquires Match.com and part of Hotel Reservations Network, later renamed Hotels.com. Deal to buy Lycos falls apart.

2001: Acquires Evite, a party invitation website.

2002: Buys controlling interest in Expedia.com.

2003: Acquires Udate.com, Anyway.com, Hotwire, LendingTree, RealEstate.com, GetSmart and remaining interests in Hotels.com and Expedia.

2004: Acquires TripAdvisor, ServiceMagic, ZeroDegrees, Home Loan Center and interest in ELong, a Chinese online travel provider.

Monday: Announces deal to buy search engine Ask Jeeves.

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Search engine market share based on the number of searches in January:

Google sites 35.1% Yahoo sites 31.8% MSN-Microsoft sites 16.0% AOL and other Time Warner sites 9.6% Ask Jeeves 5.1% Other 2.4%

Sources: ComScore QSearch, IAC/InterActiveCorp, Times research

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