Ask Jeeves, Inc.

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Ask Jeeves, Inc.

5858 Horton Street, Suite 350
Emeryville, California 94608
U.S.A.
Telephone: (510) 985-7400
Fax: (510) 985-7412
Web site: http://www.ask.com

Public Company
Incorporated: 1996
Employees: 306
Sales: $107.29 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: ASKJ
NAIC: 541990 All Other Professional, Scientific and Technical Services; 518111 Internet Service Providers; 541512 Computer Systems Design Services

Ask Jeeves, Inc. owns a number of information retrieval web properties, or search engines, that allow users to pose questions in plain language rather than by using keywords. The company's web properties include Ask.com, AJKids.com, Ask.co.uk, Excite.com, IWon.com, Maxonline.com, MySearch.com, MyWay.com, MyWebSearch.com, and Teoma.com. Ask Jeeves generates revenue by directing users to advertiser-supported web sites and by syndicating its search technology to third-party web sites.

Origins

Ask Jeeves was incorporated in June 1996, nearly a year before the company established itself as a pioneer on the Internet. Its founders, software developer David Warthen and venture capitalist Garrett Gruener, were intent on creating a product innovative in large part due to its simplicity of use. The pair began developing a new type of search engine, one that would respond to queries phrased in complete sentences rather than posed by keywords. In April 1997, Warthen and Gruener launched the first natural language search engine on their web site Ask.com, offering a service that the entrepreneurs hoped would attract users, which, in turn, would attract paying advertisers.

Ask Jeeves's novel and simple search engine proved popular shortly after its introduction. The company, like the operators of other search engines, wanted to create the most practical and relevant tool to help users navigate the Web. Search engines served as gateways to other sites offering information, products, and services—the conduit through which many Internet searchers passed to get where they wanted to go. By creating a popular destination that handled a high volume of traffic, Warthen and Gruener could command fees from the corporate web sites their search engine revealed to customers. Ask Jeeves, emerging as the first search engine capable of responding to natural language questions, found a receptive audience among Internet users, giving Warthen and Gruener the leverage to court advertising dollars. In October 1998, Ask Jeeves reached 300,000 searches per day, a figure that extended to one million by May 1999 and two million by October 1999. The company's cartoon mascot, a portly butler based on the English valet in P.G. Wodehouse novels, was a ubiquitous fixture on the Internet by the end of the 1990s.

Ask Jeeves took advantage of its recognition by completing an initial public offering (IPO) of stock, exposing the company to the public spotlight. The IPO, completed in July 1999, was a spectacular success, ranking at the time as the third most successful first day performance in business history. The company by this point was led by Robert W. Wrubel, who was appointed president in May 1998 and chief executive officer in November 1999. Wrubel, who held various executive positions at an educational software company, Knowledge Adventure, Inc., before joining Ask Jeeves, ushered the company through its public debut and presided over one of the greatest success stories of Internet-related business in the late 1990s. The company's stock value soared, rising as high as $190 per share in 1999, the same year Ask Jeeves launched its first national advertising campaign. The campaign, intended to create a national brand, was farreaching, exemplifying "the excesses of the dot-com era," as Forbes noted in its February 3, 2003 issue. The company's branding campaign included sticking Ask Jeeves logos on apples and bananas. It entailed sending a troupe of individuals dressed as butlers to business districts, where resemblances of the company's icon were seen at popular lunch locations.

The heady mood pervading Ask Jeeves headquarters during the late 1990s was typified in areas other than the company's wide-ranging advertising campaign. The company leased expansive new office space, adding tens of thousands of square feet to its existing property holdings. Ask Jeeves also expanded internationally, launching Ask Jeeves UK as a joint venture with two British media companies in December 1999. The company completed several acquisitions as well, purchasing Net Effect Systems, Inc. in November 1999. Net Effect provided live help service to corporate web sites, enabling companies to communicate with their customers with real-time text messaging. In February 2000, Ask Jeeves acquired Direct Hit Technologies, Inc., a company whose technology aggregated and organized online content.

Collapse Beginning in 1999

As Ask Jeeves expanded and its natural language online services grew increasingly popular, the company's revenues increased exponentially. Ask Jeeves generated $23,000 in sales in 1997, $800,000 in 1998, $22 million in 1999, and $58 million in 2000. Profits, however, failed to materialize amid the energetic revenue growth. The company sustained annual net losses that reached $675 million by 2001. Perhaps more disheartening to Wrubel and his executive team, investors were losing faith in the company, causing Ask Jeeves's stock value to plummet severely. From a high of $190 per share in 1999, the company's stock began spiraling downward, falling to just $.86 per share by 2002. The company was in trouble, but before its share price reached its nadir, sweeping changes were made to arrest its spectacular fall. Ask Jeeves's efforts to effect a turnaround began in earnest in December 2000, an occasion marked by the arrival of a new chief executive officer.

A. George "Skip" Battle, an Ask Jeeves board member since 1998, was named chief executive officer at a critical juncture in the company's development. "The product offering wasn't developed very well," he explained in a February 3, 2003 interview with Forbes, commenting on his impression of Ask Jeeves when he took the helm. "We were very badly organized," he added. In the years before his appointment as chief executive officer, Battle was in semi-retirement, having left Anderson Consulting in 1995 after working for the company for 27 years. He faced a considerable challenge at Ask Jeeves, charged with reviving what had once been one of the great success stories of the late 1990s. When Battle arrived, the company began streamlining its operations in an effort to increase revenues, reduce costs, and realign the company for a more stable future. Battle replaced most of the company's senior management and reduced the company's payroll by over 50 percent in a three-year period following his arrival. Perhaps the most important accomplishment of Battle's tenure occurred in September 2001, when the company addressed the technological flaws in its search engine.

During the early years of the new decade, the novelty of a natural language search engine had faded. Ask Jeeves had pioneered the concept, but by the time the company's stock value began to shrink, it was joined by a number of competitors with natural language search engines, most notably Google Inc. Of critical importance to a search engine's popularity was its effectiveness, its ability to produce relevant results to the query posed by the user. The technology employed at the company's web sites, which included Ask.com, Ajkids.com, and DirectHit.com, produced results that were at times irrelevant, compounding the company's organizational problems and its over-zealous marketing efforts. Battle knew the company's technology needed to be revamped, and in September 2001 he attempted to correct the problem with an acquisition. Ask Jeeves purchased a Piscataway, New Jersey-based company named Teoma Technologies, Inc., an acquisition that was credited with injecting new life into Ask Jeeves.

Teoma possessed the search technology that helped Ask Jeeves launch a comeback. Teoma was a small company founded by nine professors from Rutgers University who focused on creating a mathematically based solution that could produce the most relevant search results. The technology they developed centered on a ranking system that listed web sites according to how many other pages linked to the same subject, a system that represented an improvement over Ask Jeeves's existing technology. At the time the acquisition was completed, Ask Jeeves ranked as the 17th most visited web property, receiving more than 14 million unique visitors a month. With the addition of Teoma's technology, which was integrated into Ask.com in December 2001, the company hoped to expand its reach on the Web.

Posting Its First Profit in 2002

Few other Internet-related companies who collapsed at the dawn of the 21st century were able to mount a comeback, but Ask Jeeves responded to failure with a demonstration of strength. With its operations realigned and with the incorporation of Teoma's search technology, the company gradually emerged as a profitable, growing enterprise. In 2001, as the company focused on staging a turnaround, its revenues dropped 45 percent, falling to $32 million. In 2002, buoyed by the integration of Teoma's technology and the addition of a sponsored links service with Google, the company's revenues swelled to $74 million. The increase in sales was encouraging, but the most impressive achievement of the year was the company's first profit. In the final fiscal quarter of 2002, Ask Jeeves posted $2 million in net income.

Company Perspectives:

Your search should be easy. That's why we created a search experience where the emphasis is on finding, not searching. Our technologies mean a more refined search so you'll get to the relevant results you need a whole lot quicker.

The first signs of a turnaround in 2002 were confirmed in 2003, as Ask Jeeves again stood as one of the most impressive performers on Wall Street. Internet marketing represented an estimated $3 billion business during the early years of the decade, and Ask Jeeves attracted the attention of investors who were intent on sharing in the riches. In 2003, the company was the 51st best-performing stock on NASDAQ, ranking ahead of 3,178 other companies traded on the exchange. The company's stock value rose from the depths of $.86 per share, increasing in value more than 500 percent during 2003. As Ask Jeeves recovered its balance and began to stride forward, Battle stepped aside as chief executive officer and accepted the post of chairman of the board. Steve Berkowitz, who joined Ask Jeeves in May 2001, was selected to take over day-to-day management, his challenge being to maintain the company's startling resurgence.

The beginning of Berkowitz's tenure was highlighted by an acquisition that rivaled the purchase of Teoma Technologies. By the spring of 2004, Ask Jeeves was ranked, according to Forrester Research, as the fastest growing search property on the Internet. The company, after recording $26 million in net income in 2003, had established its first genuinely stable business foundation and Berkowitz and Battle were committed to building on that base. In May 2004, after a 1,600 percent increase in the company's stock during the previous two years, the pair engineered a signal acquisition, one that promised to double the company's market share. The company was Interactive Search Holding, an Irvington, New York-based enterprise that owned a portfolio of web sites, including Iwon.com, MySearch.com, and Excite.com.

The acquisition of Interactive Search Holding provided a tremendous boost to Ask Jeeves's business, fueling confidence that it faced a promising future. The deal was valued at an estimated $343 million, bringing together two companies of roughly the same size. During the fourth quarter of 2003, Ask Jeeves performed 680 million searches, while Interactive Search Holding performed 700 million searches. Combined, the companies controlled 7 percent of the Internet search market, doubling Ask Jeeves's share of the market. As the company prepared for its future, it hoped to narrow the large lead its competitors held. The two largest companies, Google and Yahoo, controlled 35 percent and 27 percent of the Internet search market, respectively. Microsoft's MSN Network and Time Warner's America Online (AOL) followed, with Ask Jeeves occupying the fifth position.