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Technology > Tech Biz
The big question for Jeeves
The company's headiest days are behind it, but is it still a winner?
July 26, 2004: 1:58 PM EDT
By Eric Hellweg, CNN/Money contributing columnist

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BOSTON (CNN/Money) - Ten blue links. Kind of sounds like a band name, like that awful band Deep Blue Something from the mid-1990s. In fact, it's what Ask Jeeves is fighting against.

Ten blue links, as defined by the company, are what users typically see when they search for something on the major search sites. Ten blue links that show where the answer may lie.

Ever since it debuted, Ask Jeeves -- which reports its second-quarter earnings on Wednesday -- has fought against the tyranny of 10 blue links.

First it offered a natural-language search interface that allows users to ask the engine a question in actual, non-Boolean constructs.

More recently the company added intelligence that presents the answer on the search-results page itself, rather than simply providing links that may lead to the answer. Typing "How tall is the Empire State Building?" into the search field now returns a page that begins "The Empire State Building is 1,453 feet tall," then goes on to display sponsored, related, and general links.

"They're doing stuff now that Microsoft says they hope they can do in a couple years," says Nate Elliott, an analyst with Jupiter Research.

The company has been working on its anti-10-blue-links strategy for some time now. "Since the 2001 acquisition of the Teoma search engine, Ask Jeeves's strategy has been to build or acquire differentiated, next-generation, and best-in-class products or technologies," said Ask Jeeves CEO Steve Berkowitz in an earlier statement.

Nifty stuff indeed, but will it help the company differentiate itself in the ever-escalating battle of the search-engine stars? Thanks in large part to Jeeves's acquisition of Interactive Search Holdings in May, the company's unique-visitor traffic levels increased 150 percent from April to June, according to ComScore Media Metrix.

The properties were ranked 23rd overall in May and sixth in June.

Of course, Jeeves investors -- including the lucky ones who got in about two years ago, when the stock was trading around $1 -- now find that being a top Web search player means that when a bellwether such as Yahoo gets hammered because of an earnings report, Jeeves does too.

The company's stock has lost more than 10 percent of its value in the past week, coming on the heels of Yahoo's mixed quarter.

And the ever-looming threat of Microsoft's entry into the space means that Jeeves needs to get its house in order. Among the things the company should focus on: making sure its advertising formats are uniform across all its different properties.

"Jeeves needs to make all its new properties a single sellable package," Elliott says. "They need to make it easier for a marketer to buy across the properties."

As for this quarter, most of the analysts I spoke with for this article were optimistic on the company's prospects -- but perhaps not on the market's reaction. There's blood in the investing water these days for tech stocks, especially high-risk growth stocks such as Ask Jeeves, which trades at a trailing price/earnings ratio of 56.

"I'm comfortable with their growth and strategy -- they're growing pretty substantially," says Justin Cable, an analyst with B. Riley. "But their valuation is too high." Cable doesn't own Jeeves stock, and B. Riley has no banking business with the company.

One reason the company's valuation is so high is that it's been executing like a champ for some time now. It beat consensus earnings-per-share estimates by 5 cents last quarter and 3 cents the quarter before that. Jeeves has set itself up so that anything short of soundly beating estimates will likely cause the market to punish it further.

What am I looking for from Ask Jeeves? Continued execution, for one thing.

Ask Jeeves Incorporated
Shareholder Relations

I'd also like to hear something in the earnings call about expansion into Europe. The major search players already have beachheads there, and Jeeves has said in the past it wants to increase its presence in the United Kingdom, for example.

And although this probably won't be mentioned in the earnings call, continuing the company's efforts to simplify the ad formats used across its various properties will make it easier for advertisers to spend money with the firm -- and less likely that they'll move to Microsoft in the future.

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