IAC's Barry Diller Surrenders to Google, Ends Ask.com's Search Effort

Ask.com, the Internet search engine that media mogul Barry Diller acquired for $1.85 billion to compete with Google Inc., is cutting 130 engineering jobs and conceding much of its search business to competitors.

Ask.com, a unit of Diller’s IAC/InterActiveCorp, is dismissing engineers based in Edison, New Jersey, and in Hangzhou, China, and ceasing work on its algorithmic search technology, according to Ask.com President Doug Leeds.

The search unit will consolidate its engineering operations at its headquarters in Oakland, California, and focus its resources on developing its online question-and-answer service. Twenty of the engineers currently working in New Jersey will be asked to relocate to Oakland, the company said.

Leeds said that Google has become too powerful a competitor to justify Ask.com’s continued pursuit of those search users.

“It’s become this huge juggernaut of a company that we really thought we could compete against by innovating,” Leeds said in an interview. “We did a great job of holding our market share but it wasn’t enough to grow the way IAC had hoped we would grow when it bought us.”

Google, the number one search provider, controls 65 percent of all U.S. searches, according to Nielsen Co. Ask.com, ranked sixth among search providers, has less than 2 percent.

Diller’s Surrender

Ask.com says it will maintain the prominent search box on its site and deliver search results provided by one of its competitors. Leeds declined to specify which company, citing a confidentiality agreement. Ask.com already has a partnership with Google, which generates a portion of its search results as part of a wide-ranging agreement between IAC and Google. That agreement runs through 2012.

For Diller, the decision to pull out of direct competition with Google marks a surrender. Diller bought the search engine then known as Ask Jeeves in 2005, betting he could battle the likes of Google and Yahoo! Inc. Renamed Ask.com, the search engine struggled to increase its market share and in February IAC took a $991 million impairment charge for its search and media business, which includes Ask.com.

“We’ve realized in the last few years you can’t compete head on with Google,” Diller said in an e-mailed statement.

Yahoo has also ceded much of its search business to competitors, signing a 10-year agreement to use Microsoft Corp.’s Bing search technology on its Web properties.

Though its traditional search business hasn’t grown, IAC is increasing its “toolbar” business, which places various clickable tools on the browsers of Internet users, and enables IAC to collect a fee each time the toolbar is used.

Toolbar Growth

In the third quarter, IAC’s search revenue increased 20 percent over the previous year to $205.1 million, while operating income in the search business was up 43 percent to $28.9 million. The increase was a result of the growth in toolbars, according to Sandy Mehta, an analyst at Hong Kong- based Value Investment Principals Ltd.

“Gradually, Ask.com is sort of fading away,” Mehta said in an interview. The new focus on “Q&A is really not much different than Ask.com currently,” he said. “But the toolbar business is something that’s really growing.”

IAC does not break out revenue for Ask.com, and Leeds said he doesn’t expect the switch to Q&A to change current revenue forecasts.

The focus on answering questions is not a new approach. The original Ask Jeeves was a site where users could pose questions in natural language and receive relevant search results.

The new Ask.com Q&A platform also provides answers to questions asked using natural language. The answers are provided from links to relevant Web sites, and also from hand-crafted answers from members of an Ask.com community.

Ask will face competition from Silicon Valley startups such as Quora, Formspring and ChaCha. Facebook Inc. recently began its own Q&A feature, and earlier this year Google acquired Aardvark, a Q&A service.

IAC fell 37 cents to $28.30 at 4 p.m. New York time in Nasdaq Stock Market trading. It has gained 38 percent this year.

To contact the reporters on this story: Brad Stone in San Francisco at bstone12@bloomberg.net; Brett Pulley in New York at bpulley@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom or pelstrom@bloomberg.net.

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