Tuesday, October 12, 1999
Ask Jeeves Lands the Deal of its Young Life
By S. P. Brown
Yesterday Software giant Microsoft (MSFT) and tiny question answering service Ask Jeeves (ASKJ) announced an eyebrow raising deal that proved particularly popular with ASKJ shareholders. The gist of the deal calls for MSFT to use ASKJ’s question-and-answer service for MSFT customers who have questions about their Windows 98 operating system. The ASKJ service allows MSFT’s customers to type questions at their keyboard using ordinary spoken English, rather than keywords or other conventions of most search-engine databases. News of the deal sent ASKJ stock soaring 17 points higher for the day.
The ASKJ and MSFT announcement comes on the heels of MSFT successfully completing its testing of ASKJ’s question-and-answer format. The new service will be initially limited by MSFT’s existing database of customer-support tips, and the fact that fixing problems in Windows often requires consumers to make intimidating modifications to program files. MSFT is currently ramping up the integration of ASKJ’s interface on its Personal Online Support page. MSFT commented that ASKJ’s service is particularly good at delivering a precise set of responses to consumer queries, often asking consumers clarifying questions to further narrow their searches. In addition, ASKJ’s software and staff extensively log and analyze consumer queries so that MSFT will receive detailed guidance about what information it should develop to help customers, as well as suggestions for improving its products. In the future, it’s expected that MSFT will use ASKJ’s services for a range of other products. For now, the current Windows 98 arrangement is expected to add $1 million a month to ASKJ’s revenues.
The news of yesterday’s deal with MSFT not only sent ASKJ’s shares soaring, but also drew attention to a small but growing slice of ASKJ’s revenue stream: its corporate question answering service, which in addition to being provided to MSFT, is also being provided in various forms to Dell Computer (DELL), Compaq (CPQ), Toshiba, and Micron Electronics (MUEI). Many analysts predict natural-language systems, such as ASKJ’s, will eventually become powerful enough to all but eliminate phone calls to live technicians. MSFT’s online-support services already serve 250,000 people a day, compared with about 20,000 phone calls. According to Geoffrey Bock, a senior consultant at Patricia Seybold Group, "Natural-language systems will change the underlying dynamics of customer support. ASKJ is an important first step."
All this new business, though, isn’t falling to the bottom line yet. Like most new dot.com companies, ASKJ isn’t making any money, and it’s not expected to over the near term. Nevertheless, the company’s revenues and user base are growing at a decent clip. For the six months ended 06/30/99, revenues totaled $3.8 million, up from only $50,000 for the same period in 1998. What’s more, the number of unique users has grown from 425,000 in September 1998 to more than 4 million in August 1999. Though making strides in the user area, ASKJ still has a ways to go to catch established search engines Yahoo! (YHOO), Lycos (LCOS), and Excite (ATHM). According to Media Metrix, YHOO has 23 million unique users, LCOS has 15 million, and Excite has 14.5 million.
And ASKJ may catch its larger search-engine brethren sooner than many ‘Net watchers would expect. In addition to the MSFT deal, ASKJ announced this week that it’s taking its natural language capabilities to retailers. ASKJ’s new Shopping Advisor service will prompt customers with questions to help them find a specific product. For instance, a customer looking for a camera would be asked questions such as whether it is for use in the day or night, for action or still shots, and so on until a camera meeting the criteria would be suggested. Additionally, the software can be set so the Jeeves character is animated and responds not just in text but with a voice. "The company envisions other marketing ploys, particularly targeted at children, such as a game show, trading cards and toys. "We want to make Jeeves a part of American culture," said Ted Briscoe, executive VP of Consumer Question Answering Service. "Our focus will be on making Jeeves a pop icon." To get things rolling, the company committed to a $20 million marketing campaign that will send its ads to TV, radio, newspapers, and of course, the Internet.
Despite ASKJ’s proprietary search-engine technology, the future for this little upstart is not without risk. Other directories and search sites have entered into the e-commerce business to differentiate their services from other comparable search engines. However, ASKJ may be more on target with its plans for corporate help desks, an area that is a natural for the company's question-and-answer technology and one that should continue to grow as companies look for ways to cut customer-support costs. What’s more, the fact that such well-known and respected companies like DELL, CPQ, and especially MSFT, are on board with ASKJ speaks volumes to the potential acceptance of the company's interface and should provide it with the support needed to collect additional customers. For those investors interested in a new Internet company with a new technology in the search engine market, ASKJ has a lot to offer. Just remember that by all conventional investment measures, ASKJ is still a highly speculative investment. “To Buy or Not to Buy ASKJ” is probably not a question you should ask the online search engine. So before you sit down at your computer and fire off a trade to your online broker, make sure that you’ve plowed through the requisite SEC filings and news reports carefully.