Diller's Ask.com Stops Searching

Even larger-than-life media moguls can be cut down to size by Google (GOOG). Barry Diller, 68, has run Paramount Pictures and ABC Entertainment (DIS), built Fox Broadcasting (NWS) and the USA Network, and gamely battled fellow titans including John Malone and Sumner Redstone. Now he's waving the white flag of surrender in the direction of Mountain View, Calif.

As first reported by Bloomberg News on Nov. 9, Ask.com, the Internet search engine that Diller acquired for $1.85 billion, is cutting 130 engineering jobs in New Jersey and China and refashioning itself as a question-and-answer site. In effect it's conceding the search business to the competition. "We've realized in the last few years you can't compete head-on with Google," says Diller.

Diller's New York-based IAC (IACI)/InterActiveCorp controls multiple Web operations, including the Match.com dating site and the ServiceMagic home contracting business. In 2005 it added the search engine then known as Ask Jeeves to its portfolio. At the time, Ask Jeeves pitched itself as the place where regular people could pose questions in natural language and receive relevant search results. Diller renamed the site Ask.com in 2006 and pushed it to seek a stronger niche. Ask.com first tried to become a search engine focused on privacy by offering anonymous searches and then as a portal designed to appeal to women.

Diller found that it did not matter if he asked Jeeves, asked women, or just asked—nothing could stop the Google "juggernaut," as Ask.com President Doug Leeds puts it. Google is the No. 1 search provider in the U.S. and controls 65 percent of all searches, according to Nielsen. Ask.com ranked sixth and controlled less than 2 percent of the market. In an interview last June, Diller noted that "Google is getting to the point of absolute dictatorship." In February, IAC took a $991 million impairment charge for its search and media business, which includes Ask.com.

The site will still feature a prominent search box on its homepage, but the results will be delivered by one of its former competitors. Leeds declined to specify which company got the business, citing a confidentiality agreement. Despite the anti-Google rhetoric, IAC has had a partnership with the search giant since 2008. Under the arrangement, Ask.com used Google search results for some queries, and the two companies shared ad revenues. The deal runs through 2012. Yahoo! (YHOO), another beleaguered Internet giant, has also ceded its search business to competitors. In 2009 the Sunnyvale (Calif.) company signed a 10-year agreement to use Microsoft (MSFT) Bing search technology on its Web properties.

Diller isn't surrendering entirely. Ask.com will consolidate its engineering operations at headquarters in Oakland, Calif., and focus on developing its Q&A service. The feature aims to provide definitive answers to questions rather than a string of search results. Someone who types in the query like "What's the weather in Cleveland?" will receive a direct answer at the top of the page rather than having to click through to a weather-related site. Answers will be culled from relevant Web sites or, where appropriate, from hand-crafted responses by members of the Ask.com community.

Ask.com may be sidestepping Google, but it will face competition from Q&A-focused Silicon Valley startups such as Quora, Formspring, and ChaCha. Aardvark, a similar site, was bought by Google earlier this year. Facebook recently began its own Q&A feature as well.

Ask.com believes it has advantages over these other sites, in particular its large audience: The site still receives 90 million unique visitors a month, according to ComScore (SCOR). "People already know us for questions and answers," says Leeds, who says that 40 percent of the search queries on its page are already posted in the form of questions.

The new Ask.com will have to develop a community of well-informed contributors to answer questions posed by users. The site recently sent surveys to some of its members to assess their areas of expertise and interests. Ask.com will soon begin using Facebook and LinkedIn to supplement the data it already has. Leeds says Ask.com's engineers are working on ways to quickly match questions to the appropriate experts. The company hopes to make money in part by allowing advertisers to pay to answer certain questions.

Despite the turmoil at Ask.com, IAC's search division is still growing: Third-quarter revenues increased 20 percent from the previous year, to $205.1 million, and operating income rose 43 percent, to $28.9 million. The success is largely thanks to the division's toolbar business, says Sandy Mehta, an analyst at Hong Kong-based Value Investment Principals. Toolbars are add-ons to Web browsers, websites, and software products, and give users quick access to search functions (which will now be powered by Ask.com's unnamed partner). IAC provides few details on how it earns money through the toolbar, but Mehta says the business is "really growing....It's sort of a backdoor surge."

Mehta is not nearly so sanguine about the latest changes at Ask.com. "Q&A is really not much different than Ask.com currently," he says. "Gradually, Ask.com is sort of fading away."

The bottom line: IAC/InterActiveCorp is outsourcing its search technology and reorienting Ask.com as a Q&A site. Its toolbar business is still growing fast.

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