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Friday, March 05, 2004

Rising Search Tide Lifting Several Boats

In the wake of its $343 million acquisition of Interactive Search Holdings, which includes Excite and iWon, Ask Jeeves' Steve Berkowitz astutely notes that although the company is "still a little fish in a big pond," it is after all "a big pond."

The value of this acquisition certainly bears that out. Even tiny fish like Mamma.com have polished themselves up and changed their ticker symbols to try to take advantage of the growth of search at this time. Part of what's creating higher valuations is sheer metrics (real revenues, real profits), but it's hard not to notice the inflated stock values of companies like Yahoo and Ask Jeeves, too. As the sector heats up, the paper of smaller players like Mamma.com inflates based mostly on speculators' hopes that they'll be acquired for the rather more liquid paper of a Yahoo or an Infospace.

It would be easy to scoff at the Jeeves acquisition as minor, but for the fact that it doubles its market share in a hot and growing market, seeming to guarantee continued profitability while allowing it to take the albeit belated step of eliminating paid inclusion for its Teoma/Ask.com search property.

This sort of stability, I believe, buys Jeeves the time and comfort needed to assess not just survival or divestiture of curiosities like Excite and iWon, but actual growth strategies for these properties. When the consortium that owned it decided to keep the Excite brand alive in the first place, they made some audacious-sounding and half-tongue-in-cheek claim that their ultimate goal was to restore the Excite brand to its "former glory."

That's actually not as crazy as it sounds.

Recent developments seem to have shown that the portal space still has legs -- that consumers are now searching out improved news search, email, social networking, and various other daily navigation and workflow functions that were being sought by early adopters back in 1999. Savvier users, meanwhile, would never be caught dead using the lowest-common-denominator offerings of MSN and AOL.

That essentially leaves but one major portal in operation: Yahoo. The dearth of portalness has been so unexpected and so incremental that we woke up one day and found Google tacitly admitting that it has grown and gravitated towards being a portal almost by default. If you're big and you're about navigation, and you have ambitious plans to grow with online consumers' needs to find things and interact with one another, it's portal city.

In our minds, Excite was for quite some time the potential Pepsi to Yahoo's Coke in the portal space. Although none of what they did had staying power mainly due to the clumsy way the @Home merger came off, and also due to outrageously wasteful acquisitions (Blue Mountain Arts greeting cards for $750+ million), Excite's features were never developed or promoted long enough to find a stable consumer base. But they did, at certain points, offer high-quality search, e-mail, and various other features like an Intranet-like function called Excite Communities that was better than comparable offerings from competitors. Plus, they built a strong brand that faced little marketplace resistance. With relative ease, Excite was able to gain a wide footprint in the UK by partnering with the government to offer email in schools.

It's easy to forget that in many ways, Excite was the real #2 portal. Insofar as a company like Ask Jeeves can stay independent long enough to allow the development of search tech like Teoma's and breathe life into alternative portal brands like iWon, MyWay, and Excite, I can only cheer them on. No doubt much of what's happening here is pragmatic positioning for more favorable terms in negotiations with potential partners and suitors like Google. But there may be more to this than meets the eye. If all goes well, consumers may soon enjoy a wider diversity of search and portal options. One can hope that a wider range of "cool functionality" will be made available to today's more sophisticated online user -- not for free, but at a reasonable fee or in the context of a sensible, nonintrusive, highly targeted ad model.

In a climate of growth, we can once again dream.

Posted by Andrew Goodman




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