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The Honolulu Advertiser

Posted on: Saturday, December 25, 2004

Ask Jeeves rises from the ashes of dot-com bust

By Chris Gaither
Los Angeles Times

OAKLAND, Calif. — When movers carried him into a downtown high-rise here this month, Jeeves finally settled into the home chosen for him four years ago, before his near-death experience.

The Internet crash derailed the moving plans laid for Ask Jeeves Inc., the search engine company named after the butler from P.G. Wodehouse's stories.

Management canceled the 10-year lease shortly before the company was scheduled to move in. The cardboard icons of Jeeves and the employees who survived the massive layoffs stayed put in nearby Emeryville. As the stock tumbled below $1, many waited for the end.

It never came. The feisty search provider has not only survived, it has carved out a profitable niche in the shadow of Internet giants.

Google Inc., Yahoo Inc. and Microsoft Corp. are duking it out for the loyalty of Web surfers. They're throwing around their considerable financial muscle to build the most inclusive and relevant search engine, because with Web searchers come advertising opportunities.

Together, the three power nearly 83 percent of all online searches, according to market researcher comScore qSearch.

At the same time, Ask Jeeves has quietly garnered a reputation among search-engine aficionados for introducing innovative new features before its larger rivals.

Like Apple Computer Inc., Ask Jeeves is more influential than its size would suggest, said Chris Sherman, associate editor of SearchEngineWatch, an online newsletter.

Introduced in 1997, Ask Jeeves attracted millions of Web searchers with its butler mascot and its promise to answer plain English questions typed into its search box.

But the technology behind the search engine wasn't very good. Even worse, the company couldn't figure out a way to turn a profit by answering questions.

Ask Jeeves' condition grew dire as rival Google rose to fame. After signing the 10-year, $80 million lease to move its rapidly expanding staff to Oakland, Ask Jeeves posted a loss of $189 million, laid off more than half its employees and paid $16 million to get out of the lease.

Ironically, Ask Jeeves was saved by the company it had considered its biggest threat: Google.

Google had started placing targeted ads next to its search engine's results. As the business expanded, Google began selling ads for other search sites as well.

In 2002, Google and Ask Jeeves inked a three-year deal to place $100 million worth of ads on Ask.com. The two former rivals shared the money advertisers paid whenever people clicked on those ads, known as sponsored links. The alliance has since been extended to 2007.

By last year, Ask Jeeves was offering much improved search results as a result of its $4 million acquisition of Teoma Technologies in 2001, analysts said.

With its momentum gaining in consumer Web search, Ask Jeeves last year sold its enterprise software division, which made tools to search corporate databases, to Kanisa Inc. for $4.25 million.

Ask Jeeves has built a track record of beating the bigger Web companies to market with several new search tools, such as Smart Results, which displays weather forecasts, movie times and other consumer information above the regular search results.

The moves have paid off. Ask Jeeves posted a profit last year of $24.8 million on sales of $107.3 million, rebounding from a loss of $10.9 million the previous year. Wall Street expects revenue and profit to more than double this year, with the company making $64.5 million on sales of $262 million, according to the consensus of analysts surveyed by earnings tracker IBES International.

The turnaround jump-started the company's stock, sending it soaring from a low of 82 cents in September 2001 to a peak of $44.66 in April. The stock has settled back in the second half of the year, closing Thursday at $25.85.

The aim for Ask Jeeves is to become the first stop for Web searches, not just a service to try if Google doesn't deliver the goods, said Chief Executive Steve Berkowitz.

It has a long way to go. Web surfers visited Ask Jeeves for 5.4 percent of Web searches in October, according to comScore. That compares with 34.8 percent for Google, 32 percent for Yahoo and 15.8 percent for Microsoft

"People are loyal to us," Berkowitz said. "They're just not loyal frequently enough."