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Form
10-K
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United States |
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Securities and Exchange
Commission |
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Washington, D.C. 20549 |
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Form 10-K for Annual and
Transition Reports Pursuant to |
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Section 13 or 15(d) of the
Securities Exchange Act of 1934 |
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(Mark One) |
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þAnnual
report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 |
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For the fiscal year ended December 31, 2004 |
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oTransition
report pursuant to section 13 or 15(d) of the |
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Securities Exchange Act of
1934 |
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For the transition period
from to . |
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Commission file number
000-26521 |
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Exact name of registrant as specified in its
charter: Ask Jeeves,
Inc. |
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State or Other Jurisdiction of
Incorporation: Delaware |
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Address of principal executive offices: |
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555 12th Street, Suite 500 |
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Oakland, CA 94607 |
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I.R.S. Employer Identification
Number: 94-3334199 |
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Telephone number: (510) 985-7400 |
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Securities registered pursuant to Section 12(b) of the Act:
None |
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Securities registered pursuant to Section 12(g) of the Act: |
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Common Stock, $0.001 par value |
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Preferred Stock Purchase Rights |
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes
þ No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes
þ No
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On March 14, 2005, Ask Jeeves had 58,970,449 shares of
Common Stock outstanding (excluding treasury shares) and the
aggregate market value of its stock held by non-affiliates was
approximately $1.0 billion (based on 43,198,522 shares
of Common Stock held by non-affiliates and a closing price of
$23.93 per share of Common Stock on the Nasdaq National
Market). On June 30, 2004, which was the final business day
of Ask Jeeves’ most recently completed second fiscal
quarter, Ask Jeeves had 57,475,881 shares of Common Stock
outstanding and the market value of its stock held by
non-affiliates was approximately $1.8 billion (based on
45,787,721 shares of Common Stock then held by
non-affiliates and a closing price that day of $39.03 per
share of Common Stock on the Nasdaq National Market). These
market value calculations exclude shares held on the stated
dates by Ask Jeeves’ officers, directors and known 5% or
greater stockholders based on Schedule 13G filing data.
(Exclusion from these market value calculations does not imply
affiliate status for any other purpose.) |
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DOCUMENTS INCORPORATED BY
REFERENCE |
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Portions of Ask Jeeves’ definitive Proxy Statement to be
filed with the Securities and Exchange Commission (the
“Commission”) pursuant to Regulation 14A in
connection with the 2005 Annual Meeting of Stockholders are
incorporated by reference into Part III of this report.
Certain exhibits previously filed by Ask Jeeves with the
Commission are incorporated by reference into Part IV of
this report, as listed in the Exhibit Index. |
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The Exhibit Index begins on page 103 of this Annual
Report. |
3
Ask Jeeves, Inc.
PRELIMINARY NOTE REGARDING
OUR TRADEMARKS
Our registered trademarks in the U.S. include Ask
Jeeves®; the “Ask!” button design;
Ask.com®; Excite; the “Excite” design;
iWon; the “iWon” design; the “Jeeves” design
(a stylized depiction of our butler logo); Teoma®; the
“Teoma” design (a stylized depiction of the Teoma word
trademark) and “Search with Authority” (a phrase we
use on the Teoma.com Web site). The trademarks “Ask
Jeeves” and the “Jeeves” design are registered in
Australia, Canada, China, the European Community, France,
Germany, Japan, Korea, Mexico, Norway, Spain, and the United
Kingdom. The trademarks Excite and the “Excite” design
are registered in Argentina, Chile, Mexico and Venezuela. In
addition, the trademark iWon is registered in the European
Community and the “iWon” design is registered in
Canada, Hong Kong, Japan, Mexico and Singapore. This proxy
statement also contains trademarks and trade names of third
parties.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on
Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. Forward-looking statements
are those that predict or describe future events or trends and
that do not relate solely to historical matters. You can
generally identify forward-looking statements as statements
containing the words “believe,” “expect,”
“will,” “anticipate,” “intend,”
“estimate,” “project,” “assume” or
other similar expressions, although not all forward-looking
statements contain these identifying words. Our forward-looking
statements in this report include those relating to our expected
establishment of a Spanish search site and other European sites;
our planned investments in marketing and in developing new
features for our search sites, portals and Fun Web Products; our
planned research and development expenditures to improve our
Teoma algorithm and computer infrastructure; and our planned
expansion of AJinteractive’s delivery, billing and tracking
systems. All other statements in this report regarding our
future strategy, future operations, projected financial
position, estimated future revenues, projected costs, future
prospects, and results that might be obtained by pursuing
management’s current plans and objectives are also forward
looking statements. You should not place undue reliance on our
forward-looking statements because the matters they describe are
subject to known and unknown risks, uncertainties and other
unpredictable factors, many of which are beyond our control. Our
forward-looking statements are based on the information
currently available to us and speak only as of the date on which
this report was filed with the SEC. We expressly disclaim any
obligation to issue any updates or revisions to our
forward-looking statements, even if subsequent events cause our
expectations to change regarding the matters discussed. Over
time, our actual results, performance or achievements will
likely differ from the anticipated results, performance or
achievements that are expressed or implied by our
forward-looking statements, and such differences might be
significant and materially adverse to our stockholders. Many
important factors that could cause such a difference are
described in this Annual Report under the captions
“Competition,” “Intellectual Property
Rights,” “Regulation of the Internet” and
“Risk Factors,” which you should review carefully.
Please consider our forward-looking statements in light of those
risks as you read this report.
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Ask Jeeves, Inc.
Part I
ITEM 1. BUSINESS
Overview
We provide information search and retrieval services to computer
users through a diverse portfolio of Web sites, downloadable
applications and distribution networks. On our Ask Jeeves brand
sites—Ask.com in the U.S., Ask.co.uk in the
U.K. and Ask.jp (a joint venture) in Japan—users
submit queries and our algorithmic search engine, Teoma,
responds by generating a list of Web sites likely to offer the
most authoritative content. Our proprietary Web brands also
include three content-rich portals (Excite.com, iWon.com
and MyWay.com) and several other search sites. We
earn revenue primarily by displaying paid listings and other
advertisements on our proprietary sites. We also generate
advertising revenue by distributing ads and search services
across two networks of third-party Web sites: the MaxOnline
advertising network and the Ask Jeeves syndication network. We
pay fees to these networked sites in order to reach their users
with our ads and services. Our proprietary technologies include
Teoma, natural language processing software, portal technology
and ad-serving processes.
Our strategic goal is to become a leading provider of
differentiated search solutions to users, advertisers,
publishers and partners. We are pursuing this goal using a
multiple brand strategy.
We are based in Oakland, California, with offices in several
cities throughout the United States, as well as in London,
England and Dublin, Ireland. Our Ask Jeeves Japan joint venture
is headquartered in Tokyo, Japan.
Our Business
We earn revenue primarily as users click on advertisements we
display as they navigate the Internet. We refer to users’
Internet activity as Web “traffic” and, in general,
the more Web traffic we can attract, the more advertising
revenue we will generate. As detailed on the following pages, we
attract Web traffic in two main ways:
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Proprietary Traffic. First and foremost, we attract Web
traffic to our own sites. We refer to users’ activity on
our sites as “proprietary” Web traffic and the revenue
it generates as “proprietary” revenue. From an
operational perspective, we “control” our proprietary
traffic because we control some of the key variables (such as
content, services and promotion) that, in the aggregate,
determine the rate at which new users will try our sites and the
frequency with which they will return. |
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Network Traffic. Second, we pay to reach Web traffic that
third parties have attracted to their own sites and services.
For example, we have contracts in place with several website
publishers giving us the right to deliver graphic advertisements
for display on their sites to their users. After the ad is
displayed, we collect a fee from the advertiser and remit a
portion of it to the website publisher, as a traffic acquisition
cost. We have similar arrangements in place for delivery of
search results and other items. Our “network” consists
of all of the third-party websites (and other publishers) to
whom we pay traffic acquisition fees. Our gross margins from
monetizing network traffic tend to be lower than from
proprietary traffic as a result of the traffic acquisition fees
we pay to the network publishers. |
Each of these sources of revenue is discussed in greater detail,
below.
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Ask Jeeves, Inc.
Proprietary Traffic
We seek to attract Web traffic by satisfying users’ demand
for Internet search services. Recognizing that different people
prefer to search for information in different ways, we make our
search services available from a variety of access points and
through multiple brands. Each brand delivers a differentiated
user experience in the hope that each user will judge one of our
brands to be the most intuitive and satisfying way to find
information online. We believe that the ways in which people
search, and thus the alternatives we offer, can be divided into
two main categories as follows:
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Destination Search. Destination searches occur when an
Internet user navigates to a search site, such as
Ask.com, in order to submit his or her query on that
particular site. To attract destination searchers to our branded
sites we employ advertising campaigns and seek to improve the
user experience, among other strategies. |
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Convenience Search. Convenience searches, by contrast,
occur when queries are submitted using any search box that
happens to be easily available to the user. For example, when a
search topic occurs to a user who previously downloaded our
Smiley Central application (which comes with its own toolbar),
he or she might take advantage of the search box conveniently
located in that toolbar, rather than taking the time to click
over to a destination search site. Convenience searchers might
not know or care which search engine brand they are utilizing;
their choice of search provider is often determined by search
box proximity. We attract convenience searches through the
search boxes displayed on our portals, toolbars and other
downloadable applications. |
We attempt to monetize search queries by delivering a results
Web page that includes keyword-targeted advertisements (in
addition to the search engine results and other elements).
Keyword ads appear on the results page in response to certain
words in the user’s query. Advertisers select the keywords
that will cause their ads to be displayed. Most keyword ads take
the form of short textual units that include a link to the
advertiser’s Web site; we generically refer to these text
ads as “paid listings.” We sometimes also display
graphic keyword ads (which we call “Branded Response”).
Keyword ads are a popular choice among Internet advertisers, in
part because they enable advertisers to deliver their messages
at the moment viewers are most likely to be interested—when
users are actively searching for information related to the
advertiser’s product or service. Unlike traditional
non-targeted Web advertisements, which can be intrusive or
annoying, keyword ads are often useful to the user and thus can
be more effective for advertisers. Another reason that keyword
ads appeal to advertisers is that, typically, advertisers are
not charged for keyword ads unless they get results. That is,
most keyword ads are sold on a price-per-click, or PPC, basis
(also known as cost-per-click, or CPC, pricing); as a result,
the advertiser does not pay unless the ad successfully attracts
a user’s click. (Occasionally keyword ads are sold on a
cost-per-action, or CPA, basis, where the advertiser does not
pay unless the user clicks on the ad and takes a designated
action on the advertiser’s site.) Many advertisers see
pay-for-performance advertising online as a significant step
forward, compared to traditional media where advertisers are
charged regardless of an ad’s performance (and often cannot
accurately judge the ad’s effectiveness).
We identify keyword-targeted ads as “sponsored”
content on all of our results pages and display them separately
from the algorithmic search results. Although a few types of
keyword ads are sold to advertisers by our direct sales force,
we obtain almost all of our paid listings from third-party
providers. Several paid listing providers are available in the
market, including Google Inc., Yahoo! Search Marketing Solutions
(formerly known as Overture Services, Inc.) and FindWhat.
Currently, Google Inc. is our primary supplier of paid listings.
Google administers contracts with hundreds of thousands of
advertisers, who bid to have their paid listings appear on
participating search result pages
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in response to keywords they select. We transmit each query to
Google (or another paid listing provider), which immediately
transmits paid listings back to us for display. This ad-serving
process occurs independently of, but concurrently with, the
search engine process that will generate Web results for the
same query. When we deliver a user’s click on a paid
listing supplied by Google, Google bills the advertiser and
shares a portion of that revenue with us. Our paid listing
supply agreement with Google is scheduled to expire on
December 31, 2007, unless renewed by mutual agreement.
Our proprietary revenues arise from the following brands, each
of which is discussed in more detail, below:
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Ask Jeeves brand search sites; |
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other destination search sites (Teoma.com, Bloglines.com,
AJKids.com); |
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search toolbars (MyWebSearch and MySearch); |
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desktop applications (our Fun Web Products); and |
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our portals (iWon.com, Excite.com and MyWay.com). |
Ask Jeeves Brand Sites
Our “Ask Jeeves” brand search sites—Ask.com
in the U.S., Ask.co.uk in the U.K. and Ask.jp
(a joint venture) in Japan—utilize our proprietary
algorithmic search technology, Teoma, to generate the
Web-results list. These sites differ from other search engines
in a number of ways:
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Advanced Results Ranking. All major search engines rank a
relevant page based on how many other sites link to it. Our
Teoma technology goes one step further. In the Teoma results
list, a site’s rank is based on whether other sites linking
to it are themselves respected within the pertinent
subject-matter community on the Web. For example, Teoma would
rank a baseball site higher if it receives links from other Web
sites specifically geared toward baseball fans, placing less
emphasis on links from general sports or portal sites.
Teoma’s approach is analogous to seeking the best answer by
asking experts within a specific subject community about which
site they believe is the best resource for that subject. In this
way, Teoma seeks to rank the most authoritative pages first.
(See “—Technology,” below, for a more detailed
explanation of our search algorithm.) |
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Related Topics. Teoma’s ability to perceive clusters
of related sites on the Web also enables it to present users
with a list of Related Topic suggestions. For example, if a user
searches on “Soprano,” Teoma presents Related Topic
links for “Soprano Singers” and “Soprano’s
TV Show.” Clicking any Related Topic link narrows the
results list to sites on that topic. |
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Natural Language Processing. Our natural language
processing technology enables Teoma to accept and process
queries written in natural language, as well as keyword searches. |
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Binoculars. Many of our Teoma results links are presented
with a small “binoculars” logo. Using this patent
pending site-preview tool, users can view a pop-up preview of
the underlying site to judge its usefulness, without ever
leaving our results page. (Binoculars are not available for
previewing paid listings.) |
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Smart Answers. In addition to the Teoma results,
Ask.com and Ask.co.uk also display Smart Search
results in response to many popular query topics. Our Smart
Search function delivers the information the user is seeking
right on the results page. For example, if a user enters
“Italian restaurants in Brooklyn, NY,” our Smart
Search function will display names, addresses and |
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telephone numbers of local Brooklyn Italian restaurants,
together with links to a street map showing each
restaurant’s location. We believe these direct answers help
people find information faster and thereby improve their search
experience. Smart Search content is currently available for
several query types, including local business listings and
reviews, stock quotes, famous people, pictures, movies, weather,
maps and driving directions, white pages listings, ZIP codes,
local times, flight delays, snow conditions at ski resorts,
definitions and wedding registries. |
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Smart Product Search. We also offer “Smart Product
Search,” which enables users to easily compare product
prices across multiple Web merchants. We generally license our
Smart Search and Smart Product Search content from third parties. |
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MyJeeves Personalization Tools. Both Ask.com and
Ask.co.uk offer a free personalization feature called
MyJeeves (or MyAskJeeves in the U.K.) which allows users to
collect, organize, search and share their own “personal
Web.” Users collect pages by clicking a button next to each
search result. Once results are saved, MyJeeves enables users to
organize them into folders, print them, share them via email,
and add notes to them. The resulting set of Web pages and notes
is searchable within MyJeeves (separately from our overall Web
index), allowing each user to create his or her own personal Web
index. Registered users can access MyJeeves from any
Internet-enabled computer and receive additional storage for
their personal Web documents. |
Other Destination Search Sites
Our other branded search sites include Teoma.com,
Bloglines.com, AJKids.com and MyWebSearch.com.
Search Toolbars
We offer several branded search toolbars, which users can
download and install in their Web browsers free of charge. These
toolbars enable users to run a search using our services from
anywhere on the Web without first clicking over to one of our
Web sites. Several of our toolbars offer additional benefits
such as pop-up blocking and quick access to personalized portal
content. Branded toolbars are available from most of our branded
sites.
Our most popular toolbars are MyWebSearch and MySearch. These
toolbars allow users to run their search using one of several
popular search algorithms—currently Ask Jeeves (Teoma),
Google or Yahoo!—or using Looksmart’s Web directory.
In each case, we control the results page and, thus, even if a
competitor’s technology is selected to provide the
algorithmic Web results, we generate revenue from the paid
listings and other advertising displays on the results page.
We recently launched a beta version of our Ask Jeeves Desktop
Search Bar, which enables users to search for emails and other
files on their own computers, as well as searching the Web.
Users can download these toolbars for free from our Web sites.
We also distribute a toolbar as part of our Fun Web Products
downloadable application, discussed below.
Desktop Applications (our Fun Web Products)
We promote our MyWebSearch toolbar by distributing it as part of
a free downloadable application that adds several
features—our Fun Web Products—to users’
computers. These features are designed to make online activities
more personal, interesting and fun for users. For example, the
features include Smiley Central (which allows users to add
humorous emoticons to emails and instant messages), Popular
Screensavers (which provides a library of rotating images and
allows users to display their own images or videos as
screensavers) and History Swatter (which allows users to easily
delete their Web
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Ask Jeeves, Inc.
browsing histories). We make this
application available free of charge from several sites
(including FunWebProducts.com) and under several names
(including Smiley Central, Popular Screensavers and History
Swatter). We benefit from users’ subsequent use of the
search toolbar.
Portals
We operate several branded portal Web sites with search
functionality. Our portals attract users by offering a mix of
information and entertainment together with internet services
such as email, portfolio tracking, games and message boards.
Examples of our portal content include news, weather, shopping
comparisons and horoscopes. We generally license these content
feeds from third-party providers. Users of each portal can
register to receive personalized features, which tend to
increase user satisfaction and thereby increase usage of the
sites. Our proprietary portals include:
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iWon. iWon.com is an entertainment portal with a
user loyalty program built around cash and other sweepstakes
prizes. The more times that registered users search through the
iWon search box (or utilize other features of the site) the more
chances they have to win the daily $10,000 prize, an annual
$1.0 million prize and less frequent larger prizes. |
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MyWay. MyWay.com is a portal that appeals to users
wanting fast and clean content delivery. It offers users a mix
of content modules and free email accounts, all built around a
prominent search box. MyWay is free from banner ads, pop-up ads,
and rich-media ads. |
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Excite. Excite.com is a content-rich portal that
seeks to attract users by aggregating news, sports, weather and
entertainment content and providing e-mail, stock portfolio
tracking and other useful services. We own the U.S. rights
to The Excite Network’s portal assets; however, we do not
own the international rights and we do not control the Excite
search results page. |
We display both content-targeted and non-targeted ads, such as
banners, towers and pop-ups, on our Excite and iWon portals.
Content-targeted ads are similar to paid listings in that they
appear in response to the user’s current interests.
However, unlike paid listings, which are produced by keywords in
the user’s search query, content-targeted ads appear on a
Web page in response to the page’s other content. For
example, next to a news story about the Wimbledon Championships,
we might display an ad for tennis rackets. With this type of ad
product, advertisers bid on topics, rather than keywords. We
generally obtain content-targeted ads from a third-party
provider, namely Google Inc. Our content-targeted ad supply
agreement with Google is scheduled to expire on August 31,
2007, unless renewed by mutual agreement.
Network Revenues
In general, the more users to whom we deliver search results
(and ads and other revenue-generating services), the more
overall revenues we will generate. Recognizing this, we approach
third-party sites (and other third parties with loyal customer
bases) offering to pay them a fee for the right to deliver our
services to their users. We sometimes refer to those third
parties as our network “partners.” The fees we pay to
our network partners are often calculated as a portion of the
revenue we earn by delivering services to their users, according
to contractual revenue-sharing formulas. We record these fees as
traffic acquisition costs (within cost of revenues). As a result
of these revenue-sharing obligations, we generally earn lower
gross margins on network revenues than on proprietary revenues.
Our network revenues arise from the following main categories:
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Search Box Placement Agreements. We enter into
agreements with third-party Web site publishers and programmers
allowing or requiring them to add one of our search boxes to
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Web sites or applications. These
boxes make a site more attractive to users, generate some
revenue for the site’s publisher and are relatively simple
for the third-party site to implement, because a user who enters
a query is taken to a results page that we serve and control.
The results page includes algorithmic results and
keyword-targeted paid listings. We generally share our resulting
ad revenue (net of amounts retained by our paid listing
provider) with the third-party site, but occasionally we pay a
flat fee to the third party.
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Ask Jeeves Syndication Network. Some portals, meta-search
providers and other third-party sites seek to incorporate our
search results into other content on their sites. We enter into
syndication agreements with these third-party Web site
publishers to deliver, or “syndicate,” Teoma’s
algorithmic search results (along with keyword-targeted paid
listings and, in some cases, Branded Response ads) to results
pages they control. We generally share our resulting ad revenue
(net of amounts retained by our paid listing provider) with the
third-party site. Depending upon the terms of the arrangement,
we may also charge the publisher a fee for the algorithmic
results. Members of the Ask Jeeves Syndication Network currently
include Lycos, InfoSpace, BellSouth, Mamma.com and CNET
Networks, among dozens of other sites. |
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Toolbar Distribution Arrangements. We have distribution
arrangements in place with several third-party application
providers, such as Weatherbug, to bundle our MySearch toolbar
with their popular downloadable applications. Users seeking to
download the application receive our toolbar as well. We
generally share the search revenue generated by toolbar usage
(net of amounts retained by our paid listing provider) with the
third-party application provider. |
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Co-Branded Portals. We operate a customized portal for
Dell, Inc. at Dell.MyWay.com using the content modules
and technology we developed for our own sites. We share the ad
revenues generated by the portal with Dell, including results
page ad revenues generated by searches originating from the
co-branded portal. |
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MaxOnline Advertising Network and AJinteractive Services.
Our Internet advertising division, AJinteractive, offers
advertisers the ability to run their ads across the third-party
Web sites in our MaxOnline advertising network, among other
services. This advertising inventory is primarily graphical,
including banners, towers, rich media, pop-ups, pop-unders and
other formats. The sites in MaxOnline’s network are
classified into 10 subject-groupings, called
“channels”—such as automotive, business and
lifestyle—and advertisers select one or more channels on
which to run their ads (or they may designate specific networked
sites on which their ads will appear). We bill the advertisers,
take the collection risk, and pay a traffic acquisition fee to
the third-party sites. AJinteractive also offers lead generation
services, email promotions and other specialized services, all
of which we classify as network activity (except when provided
through our proprietary sites). |
Sales and Marketing
We actively market our key brands and services to users,
advertisers and potential partners, as follows:
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Ask Jeeves Brand Search Sites. During 2004, we marketed
our flagship sites in the U.S. and the U.K. by emphasizing
users’ ability to search with keywords or questions and by
promoting Ask Jeeves as a good choice for everyday search engine
needs. We spread these messages through online, print,
out-of-home and television campaigns (with television limited to
the U.K. in 2004) as well as through targeted marketing such as
a Macy’s Thanksgiving Day Parade balloon and strategic
public relations. These tactics, combined with positive word of
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try our Ask Jeeves search sites. We plan to increase our
marketing investment in 2005, including limited
U.S. television campaigns starting in the first quarter. |
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iWon Portal and Fun Web Products. We promote our iWon
entertainment portal and our Fun Web Products through
more-or-less continuous online and email marketing campaigns
through various media outlets. Interested users click on the ads
and arrive at a registration page, in the case of iWon, or a
download page, in the case of our Fun Web Products. |
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Online Advertising Opportunities—AJinteractive. Our
Internet advertising division, AJinteractive, offers a mix of
online advertising products and related services to advertisers
through our direct sales force. For example, AJinteractive is
the exclusive provider of two types of keyword-targeted ads on
our search results pages—graphic units called Branded
Response and text units called Premier Listings. These ads
generally appear above the paid listings sourced from our
third-party providers. Similarly, AJinteractive’s sales
force markets advertising opportunities on our portals and
across the MaxOnline network. They also offer lead generation
services, sweepstakes, email list management and other
specialized promotions and services. |
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Syndicated Search and Co-Branding Opportunities. Our
business development staff markets our specialized syndication
services and portal co-branding opportunities directly to
potential network partners. |
International
Operations
Currently, we conduct international operations in Europe and
Asia.
Europe
We have been operating a search site, Ask.co.uk, in the
United Kingdom for five years, initially through The Ask Jeeves
U.K. Partnership, which was a joint venture. We acquired full
ownership of the venture in February 2002.
In 2003, we established Ask Jeeves Europe, Ltd., with offices in
Dublin, Ireland to host and operate Ask.co.uk. As
operator of the site, Ask Jeeves Europe currently provides
Internet search services to our users within the United Kingdom
and Ireland. Another U.K. subsidiary with offices in London, Ask
Jeeves Internet, Ltd., serves as the sales and marketing arm of
Ask Jeeves Europe.
In the first half of 2005 we plan to launch an Ask Jeeves brand
search site in Spain through a newly created Spanish subsidiary,
with additional European sites to follow later in the year.
Asia
Ask Jeeves Japan is a joint venture between us and Trans Cosmos
Inc. USA, which is a subsidiary of a Japanese customer service
and information technology support provider. The joint venture
was established in August 2000 to market our products and
services in Japan and launched Ask.jp, a Japanese
language search engine utilizing our Teoma search technology, in
late 2004. As of December 31, 2004, we own approximately
47 percent of the voting securities of this joint venture.
Accordingly, we do not include the results of Ask Jeeves Japan
in our consolidated financial statements but instead record our
interest therein on our balance sheet as an equity investment
and on our statement of operations as income (loss) from joint
ventures. We have granted to the joint venture an exclusive
license to our current and future products and services in Japan
and for the Japanese-speaking market. Under this grant, we
received a non-recurring license payment in the third quarter of
2000.
11
Ask Jeeves, Inc.
Technology
Use of Algorithmic Search Engines
Algorithmic Internet search engines are sophisticated software
programs that enable computer users to locate information on the
Internet quickly and easily. In very general terms, they utilize
a two-step process. First, the search engine (or a related
program called a “spider”) crawls across the Web,
methodically following every link and indexing the content of
every page. When a user submits a search query, the engine looks
up the query topic in its index and returns a list of relevant
Web pages to the user. We believe that over the past few years
an increasing number of Internet users have adopted algorithmic
search engines as a primary method of navigating the Web.
Typically, each commercial search engine maintains a
publicly-accessible home page on the Web. Users navigate to that
page and submit a query by typing it into a data-entry field, or
“search box.” The query is received through the
Internet and processed by the search engine’s servers.
Within seconds a results page is displayed on the user’s
Web browser with convenient hypertext links to relevant sites.
Typically, each link is accompanied by a snippet of text from
the indexed site and the user selects the most appealing link by
clicking on it.
Importantly, each search engine ranks the results according to
its own criteria, attempting to list the most relevant sites
first. We believe that one important determinant of users’
overall satisfaction with a search engine is whether or not it
consistently returns the most relevant link among the top Web
results.
Although ranking methods differ greatly between search engines,
in one procedural respect they are very similar: they determine
a site’s rank, in large part, by analyzing the links it
receives from other sites in the index (they implicitly assume
that a site will be relevant to the user if other sites are
linking to it). Some of our competitors conclude that the more
links a site receives, the higher it should rank, which is in
essence a popularity test. In contrast, as described below, our
Teoma algorithm places more emphasis on where those links come
from and less emphasis on the overall number of incoming links.
Our Teoma Search Technology
Our Teoma algorithm is designed to return search results with
the most authoritative sites listed first. By contrast, as
mentioned above, many other Internet search algorithms present
the most popular sites first, based on how many links they
receive from other sites, without investigating the source of
those links. Teoma’s approach—known as Expert Rank/
Subject Specific Popularity—evaluates a site’s
relevance based on how many links it receives from other sites
on the same topic. For example, in response to a search
for “Brad Pitt,” Teoma would rank the relevant sites
in its index based on how many links they receive from other Web
sites specifically featuring the actor, placing less emphasis on
links from general film sites and Web directories.
In order to calculate a site’s Expert Rank, Teoma first
categorizes the Web into naturally occurring
“communities,” or groups of sites that relate to the
same topic. Every site in a community may be relevant to the
query topic, but only some are authoritative. Next, Teoma
determines which of those relevant pages are likely to be the
most authoritative on the user’s search topic by analyzing
the relationships between sites within the community. Teoma
ranks each site according to the number of same-community pages
that reference it, among hundreds of other criteria. Finally,
Teoma returns a results list with the most authoritative sites
ranked first. Teoma’s Expert Rank approach is analogous to
asking experts on a certain topic about which site they believe
is the best resource for that topic. To
12
Ask Jeeves, Inc.
our knowledge, Teoma is the only search technology that seeks to
estimate a Web site’s level of authority, rather than its
popularity, when ranking search results.
Teoma’s ability to perceive clusters of related sites on
the Web also enables it to present users with a list of
“Related Topic” suggestions (which appear to the right
of the results list on Ask.com). For example, if a user
searches on “Disney,” Teoma presents Related Topic
links for “Disney Cartoons” (classic animated images)
as well as “Disney Channel” (a cable TV offering) and
“Disney World” (a theme park), among other topics.
Clicking any Related Topic link narrows the results list to
sites on that topic.
Teoma powers the search results on Ask.com, Ask.co.uk, Ask.jp
and Teoma.com. We also syndicate Teoma results (and
Related Topics) to sites in our syndication network.
Other Proprietary Technologies
Our other proprietary technologies include:
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Natural Language Processing. Using Natural Language
Processing, we are able to better understand the context of what
our users are asking and return more relevant search results,
smart answers and related topic suggestions. |
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Ad Serving Technology. Our AdVision ad server is designed
to serve static and rich-media advertising across our
proprietary and network Web sites. A custom templating system
allows for integration with the various publishing and
advertising technologies in use by our network partners and
customers. We expect this flexibility will enable us to provide
quick turnaround and efficient campaign fulfillment even as the
internet advertising marketplace continues to evolve. |
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Portal Technology. Our portal technologies deliver
dynamic (changing from time to time), personalized content to a
broad user audience. The technologies are designed to offer
users a rich content set in numerous categories including:
weather forecasts, television listings, movie show times,
financial information, news from various providers and
interactive games. A proprietary personalization server stores
user settings to provide a custom experience throughout the
portals. Our portals support both registered and unregistered
users. The technology also supports communication tools like
email, calendar and notepad. Our iWon.com portal is also
designed to record usage points, where each click rewards the
user with a configurable amount of entries into a
daily/weekly/monthly/annual sweepstakes. Our Excite.com
server architecture supports personalized home pages and
offers users a robust email platform including premium services
for the upgraded larger web storage. Myway.com is built
on a customizable platform that will support additional
co-branded portals with the same look and feel, as well as
expected amounts of customization to fit the needs of individual
co-branding partners. |
We obtain new technologies through both acquisitions and
internal development. In our recent acquisition of Trustic
(Bloglines), for example, we obtained software for searching,
organizing and displaying content received through the
increasingly popular RSS (really simple syndication) protocol.
Similarly, in our 2004 acquisition of Tukaroo we obtained
software for searching emails and desktop files. We developed
the MyJeeves personalization platform in house. We also utilize
internally developed systems for tracking Website usage and
search engine performance, for accepting, routing and billing
online advertising, and for several administrative functions.
13
Ask Jeeves, Inc.
Scalability and
Operations
Our Teoma search technology runs on large clusters of
Intel-based server systems running the Linux operating system.
The hardware environment is scalable and, in our view, cost
effective. It has been optimized to provide fast, real-time
performance. The system is highly automated, secure and
replicated to provide redundancy and failover capabilities at
what we believe is a sufficient level.
Our natural-language processing engine runs on clusters of
Intel-based server systems running Microsoft Windows 2003. The
Ask Jeeves knowledge bases are deployed on these servers as
read-only, memory mapped files. The Question Processing Engine,
or QPE, is written in the C++ computer language and is optimized
to handle high traffic volumes. To scale our service as traffic
increases, we install our QPE and knowledge base on additional
servers.
Our Popularity technology distribution and processing servers
are clusters of Intel-based server systems running the Linux
operating system and Apache Web Server Software. The software is
written as C++ FastCGI modules for scalability and real-time
performance. To scale as user traffic or data sources increase,
we install additional distribution and processing servers, as
needed.
Our Portal technology runs on clusters of Intel-based server
systems running the Linux operating system using Apache Web
Server Software and Java. The sites have been set up such that
each portal feature has its own independent cluster, which makes
each group both scalable and more manageable. The backend
database applications for content, user registration and
personalization run on SPARC server systems using the Solaris
operating system. These environments are made up of Oracle, BDE,
and MySql databases. All servers are built with a failover
contingency at the operating system and application level to
allow for uninterrupted user experience in the event of many
types of environmental or application issues.
Our Ad-Serving technology runs on clusters of Intel-based server
systems running the Linux operating system using Apache Web
Server software. The software is built on C and C++ modules that
we expect will provide optimal performance, scalability and
customization as well as PERL scripts for the user interface and
cluster management. The backend databases run on SPARC server
systems on the Solaris operating system. All database servers
are clustered, so that in the event that the primary server
fails, all data can be switched over to the backup server to
maintain high availability.
The data centers hosting our proprietary Web sites are located
at MCI in Massachusetts and New Jersey, MFN/ AboveNet in
California and England, Qwest in New Jersey, Esat
Telecommunications in Ireland and Equinox in Japan. The data
centers provide distinct networks across many major Internet
backbone providers, as well as continuous monitoring and
security. They also provide continuous N+1 power generation, UPS
and HVAC. We maintain server over-capacity at each location such
that if one hosting facility fails, another can service our user
traffic.
Competition
Our ability to compete depends on numerous factors, many of
which are outside our control. Some of our existing competitors,
as well as potential new competitors, have longer operating
histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater
resources to the development and promotion of their services
than we can to ours. Our competitors may develop products and
services that are equal or superior to ours or that achieve
greater market acceptance. Many of our competitors offer a wider
range of services than we do, which could attract our customers
to competitive search sites, and consequently, result in less
traffic to our Web sites and fewer monetized queries.
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Ask Jeeves, Inc.
In our efforts to attract search engine users, to syndicate
search technologies, and to attract network partners and
advertisers we compete against operators of destination search
sites and search-centric portals, search technology providers
and online advertising networks such as:
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Google Inc.; |
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Microsoft Corp. (operator of The Microsoft Network
(MSN) portal and provider of MSN Search); |
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Time Warner Inc. (operator of the America Online
(AOL) portal and parent company of Advertising.com); |
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Yahoo! Inc. (operator of the Yahoo! portal and parent company of
Yahoo! Search Marketing Solutions (formerly known as Overture
Services, Inc.)); and |
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other smaller companies. |
Our financial success depends upon our ability to attract Web
traffic to our Web properties and to monetize that traffic. We
believe that our ability to compete effectively with other
search engines and portals for Web traffic depends on:
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the relevance and authority of our search results; |
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the ease of use of our search services, the quality of our
content, and the utility of our other online features; |
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the utility of new features we introduce on our sites, such as
Smart Answers, Binoculars and MyJeeves (and the frequency with
which users utilize them); and |
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the speed with which we match others’ innovations. |
We believe our proprietary Web sites compete favorably with
respect to each of these factors. However, our competitors may
engage in more extensive research and development efforts, adopt
more aggressive pricing policies and make more attractive offers
to existing and potential employees, advertisers and electronic
commerce partners. In addition, current and potential
competitors have established or may establish cooperative
relationships among themselves or with third parties to better
address the needs of advertisers and businesses engaged in
electronic commerce. As a result, it is possible that new
competitors may emerge and rapidly acquire significant market
share.
See “Risk Factors” for further discussion of some of
the risks we face related to competition.
Intellectual Property
Rights
We seek to protect our intellectual property rights, but we face
the risk that our actions might be inadequate to protect our
patents, copyrights, trademarks or other proprietary rights. We
rely upon trademark, patent and copyright law, trade secret
protection and confidentiality or license agreements with our
employees, customers, partners and others to help protect our
proprietary rights.
We have been granted nine United States patents and have
twenty-two patent applications pending with the United States
Patent and Trademark Office for various aspects of our
natural-language search, database search and Web-wide search
technologies, which power our proprietary Web sites. We
generally seek to apply for patents or for other appropriate
statutory protection when we develop valuable new or improved
technology. The status of any patent involves complex legal and
factual questions, and the breadth of claims allowed is
uncertain. Accordingly, we cannot be certain that any patent
application filed by us will result in a patent being issued, or
that our patents, and any patents
15
Ask Jeeves, Inc.
that may be issued in the future, will afford adequate
protection against competitors with similar technology. We
similarly face the risk that any patents issued to us might be
infringed or designed around by others.
We have entered into an agreement with The Wodehouse No. 3
Trust concerning our use of the Jeeves name and butler logo. The
Wodehouse No. 3 Trust is successor in interest to the late
author, P.G. Wodehouse, who published a number of works
that included a butler character named “Jeeves.” Under
the agreement we make quarterly payments to The Wodehouse
No. 3 Trust. By its terms, the agreement is perpetual
unless terminated by us on 30 days notice. Upon any
termination we would retain only such rights to use the Jeeves
name as are provided by applicable trademark and unfair
competition law, which may be limited. Our right to continue to
use the butler logo would not be restricted by any termination.
We have been issued registered trademarks in the
U.S. covering certain goods or services associated with:
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“Ask Jeeves”; |
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the “Ask!” button design; |
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“Ask.com”; |
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“Excite”; |
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the “Excite” design; |
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iWon; |
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the iWon design; |
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the “Jeeves” design, a stylized depiction of our
butler logo; |
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“Maxonline” |
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“MySearch” |
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“Teoma”; |
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“Teoma” design; and |
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“Search with Authority,” a phrase we use on the
Teoma.com Web site. |
In addition, the trademarks “Ask Jeeves” and the
“Jeeves” design are registered in Australia, Canada,
China, the European Community, France, Germany, Japan, Korea,
Mexico, Norway, Spain and the United Kingdom. The trademarks
Excite and the “Excite” design are registered in
Argentina, Chile, Mexico and Venezuela. In addition, the
trademark iWon is registered in the European Community and the
“iWon” design is registered in Canada, Hong Kong,
Japan, Mexico and Singapore. We do not know whether we will be
able to defend our proprietary rights because the validity,
enforceability and scope of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.
Because we are devoting significant resources to building our
brands, primarily “Ask Jeeves,” “Ask.com,”
“Excite,” “iWon” and “Teoma,” if
we are unable to register the trade and service marks for which
we have applied, or if we are unable to defend our intellectual
property rights, our business may be seriously harmed.
From time to time in the ordinary course of business we have
been, and we expect to continue to be, subject to claims of
alleged infringement of the trademarks and other intellectual
property rights of
16
Ask Jeeves, Inc.
third parties. These claims and any resultant litigation, should
it occur, could subject us to significant liability for damages.
In addition, even if we prevail, litigation could be
time-consuming and expensive to defend, and could result in the
diversion of our time and attention. Any claims from third
parties may also result in limitations on our ability to use the
intellectual property subject to these claims unless we are able
to enter into agreements with the third parties making these
claims.
Regulation of the
Internet
The legal environment of the Internet is evolving rapidly in the
United States and elsewhere. The manner in which existing laws
and regulations will be applied to the Internet in general, and
how they will relate to Ask Jeeves’ business in particular,
is unclear in many cases. For example, we often cannot be
certain how existing laws on the following topics will apply in
the online context: privacy, defamation, pricing, advertising,
taxation, gambling, sweepstakes, promotions, content regulation,
quality of products and services, and intellectual property
ownership and infringement.
Several laws have already been adopted at the national level in
the U.S. and the U.K. and by U.S. states in which we
operate that could have an impact on our business. These laws
include the following:
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The CAN-SPAM Act of 2003 and similar laws adopted by a number of
states are intended to regulate unsolicited commercial
electronic mail, create criminal penalties for unmarked
sexually-oriented material and emails containing fraudulent
headers, and control other abusive online marketing practices. |
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The USA Patriot Act is intended to give the government greater
ability to conduct surveillance on the Internet by allowing it
to intercept communications regarding terrorism and computer
fraud and abuse. |
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The Digital Millennium Copyright Act is intended to reduce the
liability of online service providers for listing or linking to
third-party Web sites that include materials that infringe
copyrights or other rights of others. |
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The Children’s Online Privacy Protection Act and the
Prosecutorial Remedies and Other Tools to End Exploitation of
Children Today Act of 2003 are intended to restrict the
distribution of certain materials deemed harmful to children and
impose additional restrictions on the ability of online services
to collect user information from minors. In addition, the
Protection of Children From Sexual Predators Act of 1998
requires online service providers to report evidence of
violations of federal child pornography laws under certain
circumstances. |
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Under the U.K. Data Protection Act and the implementation
legislation of the European Union Data Protection Directive in
other jurisdictions, a failure to ensure that all processing of
personal information is justified and accurate or a transfer of
personal information to a country without adequate privacy
protections could result in criminal or civil penalties. Such
legislation may impose significant additional costs on our
business or subject us to additional liabilities. |
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The European Union Directive on privacy and electronic
communications of 2002 bans all electronic messages for direct
marketing without prior opt-in consent from the addressee, and
opt-out consent suffices only where certain exceptions are met.
Failure to comply may result in substantial liability. |
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The State of California has adopted statutes that require online
services to report certain breaches of the security of personal
data, and to report to California consumers when their personal
data might be disclosed to direct marketers. |
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Ask Jeeves, Inc.
To resolve some of the remaining legal uncertainty, we expect
new laws and regulations to be adopted over time that will that
will be directly applicable to the Internet and to our
activities. Any existing or new legislation applicable to Ask
Jeeves could expose us to substantial liability, including
significant expenses necessary to comply with such laws and
regulations, and could dampen the growth in use of the Internet
in general.
On our Web sites, we post our privacy policies and practices
concerning the use and disclosure of user data. Any failure by
us to comply with our posted privacy policies, Federal Trade
Commission requirements or other domestic or international
privacy-related laws and regulations could result in proceedings
by governmental or regulatory bodies that could potentially harm
our business, results of operations and financial condition. In
this regard, there are a large number of legislative proposals
before the European Union, as well as before the United States
Congress and various state legislative bodies regarding privacy
issues related to our business. It is not possible to predict
whether or when such legislation may be adopted, and certain
proposals, if adopted, could harm our business through a
decrease in user registrations and revenues. These decreases
could be caused by, among other possible provisions, the
required use of disclaimers or other requirements before users
can utilize our services.
Due to the global nature of the Web, it is possible that the
governments of other states and foreign countries might attempt
to regulate its transmissions or prosecute us for violations of
their laws. We might unintentionally violate such laws, such
laws may be modified and new laws may be enacted in the future.
Any such developments could harm our business, operating results
and financial condition. We may be subject to legal liability
for our online services. We direct users to a wide variety of
services that enable individuals to exchange information,
generate content, conduct business and engage in various online
activities on an international basis, including public message
posting, sweepstakes and services relating to online auctions
and homesteading. The law relating to the liability of providers
of these online services for activities of their users is
currently unsettled both within the United States and abroad.
Claims may be threatened against us for aiding and abetting,
defamation, negligence, copyright or trademark infringement, or
other theories based on the nature and content of information to
which we provide links or that may be posted online.
Employees
Our future success is substantially dependent on the performance
of our senior management and key technical personnel, and our
continuing ability to attract and retain highly qualified
technical and managerial personnel. As of December 31,
2004, we had 505 employees. No employees are represented under
collective bargaining agreements. We consider our relations with
our employees to be good.
See “Risk Factors” for a further discussion of some of
the risks we face related to our employees.
Web Site Access to Our Periodic
SEC Reports
Our primary Internet address is www.ask.com. Corporate
information can be located by clicking on the “about”
link in the lower left-hand corner. None of the information on
any of our Web sites is part of this report. We make our
periodic SEC Reports (Forms 10-Q and Forms 10-K) and
current reports (Form 8-K) available free of charge through
our Web site as soon as reasonably practicable after they are
filed electronically with the SEC. We may from time to time
provide important disclosures to investors by posting them in
the investor relations section of our Web site, as allowed by
SEC rules. These disclosures may include amendments to and
waivers of our Code of Ethics, which appears as an exhibit to
this Annual Report.
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Ask Jeeves, Inc.
Materials we file with the SEC may be read and copied at the
SEC’s Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet Web site at
www.sec.gov that contains reports, proxy and information
statements, and other information regarding our company that we
file electronically with the SEC.
Corporate Information
We were incorporated in 1996 in California and reincorporated in
Delaware in 1999. Our principal executive offices are located at
555 12th Street, Suite 500, Oakland, California 94607 and
our telephone number at that address is (510) 985-7400. We
have other offices in several U.S. cities, as well as in
London, England and Dublin, Ireland. Our Ask Jeeves Japan joint
venture has offices in Tokyo, Japan. Our corporate Web site is
located at http://www.Ask.com. None of the information on
any of our Web sites is part of this report.
We created AJinteractive in the third quarter of 2004 by
combining the sales forces and ad products of Ask Jeeves, The
Excite Network and MaxOnline. MaxOnline LLC was formed when L90,
Inc. (a public company) merged with DoubleClick Media, Inc. (a
subsidiary of DoubleClick) in 2002 to form MaxWorldwide (a
public company). In mid-2003, the assets of MaxWorldwide’s
Internet marketing division were contributed to a newly-formed
entity, MaxOnline LLC, which was acquired by Focus Interactive,
Inc. (a private company also known as The Excite Network, Inc.).
Focus Interactive had purchased domestic rights to certain
Excite assets from the Excite@Home bankruptcy estate. MaxOnline
and The Excite Network became wholly-owned, indirect
subsidiaries of Ask Jeeves when we acquired Focus
Interactive’s parent company, Interactive Search Holdings,
Inc. in mid-2004.
ITEM 2. PROPERTIES
Our corporate headquarters are located in downtown Oakland,
California, where we have an eight-year lease for
55,803 rentable square feet on two floors near the City
Center complex at 555 Twelfth Street.
We also lease facilities for sales, research and development and
other support functions in offices in several cities throughout
the United States, as well as in London, England and Dublin,
Ireland. See Note 6 of the notes to our consolidated
financial statements for information regarding our lease
obligations.
We believe that our facilities will be adequate to meet our
needs for at least the next 12 months.
ITEM 3. LEGAL
PROCEEDINGS
From time to time, we are subject to legal proceedings and
claims in the ordinary course of business, including claims of
alleged infringement of patents, trademarks, copyrights and
other intellectual property rights, and a variety of claims
arising in connection with our services, such as claims alleging
defamation or invasion of privacy.
For a description of our material legal proceedings, please
refer to Note 14 (Commitments and Contingencies) and
Note 19 (Subsequent Events) of our Consolidated Financial
Statements, included elsewhere in this annual report.
ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITYHOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 2004.
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Ask Jeeves, Inc.
Part II
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| ITEM 5. |
MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES |
Price Range of Common
Stock
Our common stock has been quoted on the Nasdaq National Market
under the symbol “ASKJ” since our initial public
offering in July 1999. The following table sets forth, for the
periods indicated, the high and low intra-day sale prices for
our common stock as reported on the Nasdaq National Market:
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2003
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First Quarter
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$ |
7.48 |
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$ |
2.42 |
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Second Quarter
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14.80 |
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6.83 |
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Third Quarter
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22.75 |
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12.81 |
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Fourth Quarter
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22.18 |
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15.91 |
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