Few entrepreneurs would think that taking on Google is the smartest way to make money. But US media mogul Barry Diller thought he could do it.
Back in 2005, Diller’s company IAC/InterActiveCorp shelled out $US1.85 billion (mostly in the form of its own stock) to buy search engine company Ask Jeeves, which has been one of the pioneers of the search engine market.
As many will remember, Ask Jeeves worked on the idea that you could ask a question in natural language and the search engine would answer it. It was a great theory, but the technology didn’t always support the idea, and IAC would eventually rename the search engine as Ask.
Diller’s plan, as Ask president Doug Leeds told Bloomberg, was that Ask “could compete against [Google] by innovating”.
But unfortunately, the giant of Google just couldn’t be slayed – or even tamed in any way, really.
Overnight, the company announced it would shut its search engine business to focus on its toolbar and question-and-answer search products.
Diller, who wrote down the value of his search division by $US991 million in February, has been forced to concede defeat.
“We’ve realised in the last few years you can’t compete head on with Google,” Diller told Bloomberg.
The news is hardly a surprise. With just 2% of the US search market, compared to Google’s share of 65%, the future wasn’t exactly bright for Ask.
But are there are a number of lessons we can extract from Diller’s billion-dollar surrender.
Firstly, there is a great lesson about business valuations – you need to be very carefully about paying really big premiums for a business unless it has a really strong point of difference, and a market position that is defensible.
Secondly, as many commentators have pointed out, it’s yet another sign Google’s power over online search shows no sign of waning. Bing is probably the best hope for eating into Google’s dominance, but in the US and Australia at least, its gains have been relatively small.
Now there’s a great question for Jeeves – will anyone ever be able to rise up and really compete with the might of Google?
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
