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	United States
	Securities and Exchange Commission
	Washington, D.C. 20549
	For Annual and Transition Reports Pursuant to
	Section 13 or 15(d) of the Securities Exchange Act of 1934
	(Mark One)
	xAnnual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended December 31, 2003
	oTransition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from                           to                           .
	Commission file number 000-26521
	Ask Jeeves, Inc.
	(Exact name of registrant as specified in its charter)
	Delaware
	(State or Other Jurisdiction of Incorporation)
	5858 Horton Street, Suite 350
	Emeryville, CA 94608
	(Address of principal executive offices) (Zip Code)
	94-3334199
	(I.R.S. Employer Identification Number)
	(510) 985-7400
	(Telephone number)
	Securities registered pursuant to Section 12(b) of the Act: None
	Securities registered pursuant to Section 12(g) of the Act:
	Common Stock, $0.001 par value
	Preferred Stock Purchase Rights
	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 x No o

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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No o

On February 25, 2004, Ask Jeeves had 47,026,621 shares of Common Stock outstanding and an approximate aggregate public market value of approximately $692,065,344 million (based on 33,958,064 shares of Common Stock held by non-affiliates and a closing price of $20.38 per share of Common Stock on the Nasdaq National Market). On June 30, 2003, which was the final business day of Ask Jeeves’ most recently completed second fiscal quarter, Ask Jeeves had 44,080,861 shares of Common Stock outstanding and its public market value was approximately $548,708,351 million (based on 40,198,414 shares of Common Stock then held by non-affiliates and a closing price that day of $13.65 per share of Common Stock on the Nasdaq National Market). These public market value calculations exclude shares held on the stated dates by Ask Jeeves’ officers, directors and 5% or greater stockholders. (Exclusion from these public market value calculations does not imply affiliate status for any other purpose.)

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PRELIMINARY NOTE REGARDING OUR TRADEMARKS

Our registered trademarks in the U.S. include Ask Jeeves®; the “Ask!” button design; Ask.com®; the “Jeeves” design (a stylized depiction of our butler logo); Teoma®; and 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). 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, and Spain. This annual report 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. All 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 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,” “Proprietary Rights” 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 Overview

We offer advanced Internet search technology to the public through advertiser-supported sites on the World Wide Web (which is known as the Web). We seek to attract Web traffic by creating a distinctive search experience that users will find more intuitive and satisfying than other search alternatives. On our flagship Web sites, Ask.com in the U.S. and Ask.co.uk in the U.K., users submit their search requests, and our proprietary algorithmic search technology, Teoma, delivers a results list of Web pages likely to contain relevant and authoritative answers. The results page also displays advertiser-sponsored links to related products and services known as paid listings.

We operate four proprietary Web sites dedicated to search: Ask.com, Ask.co.uk, Teoma.com and AJKids.com. We also deliver, or syndicate, our search technology and advertising products to approximately 41 third-party Web sites as of December 31, 2003, including portals, infomediaries, and content and destination Web sites. We provide search results and/or advertising for those Web sites to display in response to their users’ search queries. We refer to these third-party Web sites as our syndication network.

Our focus is on increasing our Web traffic (i.e., the number of search queries on our proprietary Web sites) by attracting more users and getting them to use our search services more frequently. We generate advertising revenue every time users click on the paid listings, or as a result of graphic advertising and other advertising products we deliver in response to their queries. In this way, we monetize a portion of our Web traffic. We also earn revenue by licensing our search technology to our Japanese joint venture and to some of the sites in our syndication network.

Recent Events

Increased Web Traffic and Monetization

In the fourth quarter of 2003, our proprietary sites attracted an audience of 29.9 million unique users, who queried approximately 7.5 million Web pages in the aggregate per day.

Traffic, as measured by queries on our proprietary sites, increased 38% in 2003 compared to 2002. Our increase in queries outpaced the search market as a whole, for which queries increased by 10% between the same periods, according to Forrester Research. We monetized 15% of queries on Ask.com in the fourth quarter of 2003, up from 13% in the fourth quarter of 2002. Our increase in queries was caused by increases in both unique users and user frequency, each of which increased by approximately 20% in 2003 compared to 2002. In the fourth quarter of 2003, user frequency on Ask.com averaged 3.2 visits per month. We attribute our market share gains to the improvements we made to our user experience, the improvements we made to our Teoma search technology, and to our marketing campaign. Our market shares according to research data from ComScore Networks, represented 3.1% (as of November 2003) of U.S. searches.

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Improvements to our User Experience and Teoma Search Technology

In 2003 we made a number of improvements to the search experience we deliver to users in an effort to enhance their satisfaction and thereby increase our traffic. These improvements include:

	•	Smart Search. Beginning in April of 2003 we began to introduce a set of intuitive search tools to the Ask.com results page known as Smart Search. These tools are designed to help users find their target information more efficiently and effectively. For particular types of queries such as stocks and weather the Smart Search tools provide the information the user seeks directly on the results page rather than providing links to sites that contain the information. For example, if a user enters “weather in New York, NY”, the top of the results page displays a box containing the current weather conditions in New York and links to sites with more detailed New York weather information. Similarly, a search for “stock quote of ASKJ” results in a reply containing share price information and a daily price chart. These “direct answers” are also available for flight delay forecasts, snow conditions at ski resorts, zip code lookup and weights and measures conversions. Some of these direct answers contain data provided by third parties (such as weather and stock information) while others are generated by our Knowledge Base database. In addition, Smart Search presents users with a list of “related search” suggestions. For example, a search for “Soprano” might bring up Smart Search community links for “Three Sopranos” (the operatic trio), “Marie-Adele McArther” (a renowned soprano) and “The Sopranos” (a popular television series). Finally, our Smart Search results page also includes a link to advanced search tools. These tools enable users to easily formulate more-precise queries using specific search parameters and logical connectors, such as exact phrase, page location, geographic region, domain, date posted, and other filters.
	•	Smart Product Search. In October of 2003 we added Smart Product SearchTM to Ask.com. This feature allows users to narrow their search results to include only products and services, and enables them to further refine their shopping queries based on where they are in their purchase decision. Similar to many of our other Smart Search features, Product Search delivers its results directly on the main results page, rather than requiring a user to click on a separate tab to get the information. Following our introduction of Smart Product Search, shopping related queries on Ask.com increased significantly compared to the year ago period. We currently receives the highest proportion of “shopping” category searches among the top five search engines and portals, according to a Fall 2003 report from @Plan.
	•	Improved Teoma Search Technology. Our proprietary Teoma search technology utilizes a different approach to ranking results from other search engines. We rank a site based on whether the other sites in the index linking to it are themselves respected within the pertinent subject-matter community on the Web. For example, we would rank a baseball site based on how many links it receives from other Web sites specifically geared toward baseball aficionados, placing less emphasis on links from general sports or portal Web sites. Teoma’s sophisticated approach tends to increase the authority of our search results, therefore it also increases the complexity of the indexing process and, as pages are added to our search index, the complexity increases exponentially. In 2003 we made improvements to our Teoma technology that enabled us to increase the scale of our search index by 500%, from 250 million to 1.5 billion Web pages, or URLs. A larger search index generally results in our being able to deliver more-relevant and authoritative results and thereby increases the likelihood that our users will find what they are searching for.
	•	Ask Jeeves Tool Bar. In December of 2003 we launched version 3.0 of the Ask Jeeves toolbar, which may be downloaded free of charge and appears as a useful toolbar in the user’s Internet

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		browser, allowing him or her to submit a query to Ask.com from anywhere on the Internet. The toolbar includes a pop-up blocker and incorporates some of our Smart Search functionality such as buttons for weather and stocks.
	•	Cleaner Site Experiences. In late 2002 we removed all banner ads from Ask.com and we extended that decision to Ask.co.uk in 2003, removing untargeted banner ads. We believe that these types of ads clutter the screen and that by removing most of them from our two most popular sites, we ultimately gain more from increased customer satisfaction with the sites (and thus increased traffic) than we lose in direct advertising revenue. Additionally, we improved the loading speed of our results for dial-up users in April 2003.

Marketing Campaign

During 2003, we marketed Ask.com to the consumer through a variety of print, radio, online and “out of home” advertising media in a few test markets. These marketing campaigns helped drive users to Ask.com. Based on these insights, we will increase our investment in marketing during 2004. Additionally, we marketed Ask.co.uk through television, print, radio and online to U.K. consumers.

Ask Jeeves selects Google as its U.K. paid placement provider

In July 2002, we entered into an agreement with Google, Inc. to participate in its sponsored links program in the U.S., and our participation began in September 2002. Under this agreement, Google sells paid placements to tens of thousands of advertisers and we display their paid placements on our U.S. Web properties. In the second quarter of 2003, our U.K. subsidiary entered into an agreement with a Google subsidiary to display Google’s paid placements on our U.K. Web site, replacing a previous paid placement provider. Like in the U.S. market, Google’s sponsored links on Ask.co.uk complement our own suite of advertising products. In exchange for making our Web traffic available to Google’s advertisers, we share in the revenue generated from those advertisers.

For the year ended December 31, 2003, our paid listings revenues from Google comprised 55% of our total revenues, and 65% of total revenues for the fourth quarter of 2003. Our U.S. agreement with Google expires in September 2005 (but allows for termination for convenience by either party during September or October of 2004) and our U.K. agreement with Google is scheduled to expire in May 2005.

Organizational Changes

The following significant changes have occurred to our management and corporate organization since January 1, 2003:

	•	Sale of our Jeeves Solutions division to Kanisa, Inc. In 2003 we decided to focus our efforts on growing our core Web search business (which we previously referred to as our Web Properties division) and to sell our Jeeves Solutions division, which licensed our search technology to corporate customers for use on their internet and intranet sites. On July 1, 2003, we completed the sale of certain assets used in our Jeeves Solutions division to Kanisa, Inc. pursuant to an Asset Purchase Agreement dated May 28, 2003, by and between us and Kanisa. The sold assets included, among other things, tangible personal property, intellectual property, and customer and other business contracts. In exchange, we received $3.4 million in cash at the closing and a promissory note for up to $750,000, which is payable one year from the date of closing. As of December 31, 2003, the amount payable under the note is expected to be $731,000, subject to certain upward or downward adjustments, but in no event shall the amount exceed $750,000. The proceeds, if any, from the promissory note will be recorded as additional gain on the

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		transaction upon receipt. In the third quarter of 2003, we recorded a gain of approximately $2.5 million, net of estimated income taxes of $109,000, representing the excess of the purchase consideration received at closing over the book value of the assets sold, as well as the remaining amount of deferred license fees applicable to Jeeves Solutions. We now maintain only one operating division and no longer report our results on a segmented basis. For the year ended December 31, 2003 (and comparable prior periods) we have reported our Jeeves Solutions results as discontinued operations.
	•	Management Succession. Effective January 1, 2004, the board promoted Steven Berkowitz to be our chief executive officer (CEO) and elected him to the seventh seat on our Board of Directors, which had been vacant since the April 25, 2003 resignation of Roger Strauch. Also on January 1, 2004, the Board promoted our prior CEO, A. George (Skip) Battle to be the executive chairman of our Board of Directors, replacing the founder of Ask Jeeves, Garrett Gruener, who had served as our chairman since 2000. Mr. Gruener will remain on our Board as a director.
	•	Foreign Operations. During 2003 we restructured several elements of our European operations. Notably, as part of this effort, we formed wholly owned subsidiaries in Ireland and the Netherlands. Ask Jeeves created these entities to position itself to take advantage of growth opportunities within the international marketplace.
	•	Sale of Convertible Subordinated Notes. In June 2003, we issued $115.0 million aggregate principal amount of zero coupon convertible subordinated notes, due June 1, 2008. The notes were sold at face value and our net proceeds were $111.7 million, net of costs of issuance of $3.3 million, which have been recorded as other assets and are being amortized to the Consolidated Statements of Operations over the contractual term of the note. The notes are convertible by the holders into shares of our common stock at any time at an initial conversion price of $16.90 per share subject to certain adjustments. This is equivalent to a conversion rate of approximately 59.1716 shares per $1,000 principal amount of notes. Upon conversion, we have the right subject to certain conditions to deliver cash (or a combination of cash and shares) in lieu of shares of our common stock. The notes are subordinated in right of payment to all existing and future senior indebtedness, as defined in the indenture. The holders of the notes may require us to repurchase all or a portion of the notes, subject to specified exceptions, upon the occurrence of a change in control. We may choose to pay the repurchase price in cash, shares of our common stock, shares of the surviving corporation or a combination thereof. We may not redeem the notes prior to the maturity date.

Industry Background

Search engine usage continues to be an essential online activity for the Web’s millions of users. Nearly 80% of Internet users navigate the Web via search engines, making search sites second only to email providers as the most popular category of Web site.

The Internet is expected to continue its growth in 2004, with the number of active Internet users in the U.S. projected to increase eight percent to 185 million users. Correspondingly, the U.S. online advertising industry is forecasted by Forrester to grow to $8.5 billion. By 2005, the U.S. online advertising is expected to become a $10.2 billion industry.

According to Forrester Research, of all digital advertising alternatives, search will see the largest growth in 2004. More than 60% of the companies Forrester surveyed said that their spending on paid listings, contextual search listings and site optimization will increase more than 60%.

The projections above are from studies conducted by market research firms not affiliated with our company and are forward-looking statements, as described in the introductory cautionary note.

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Our Proprietary Web Sites

We operate the following four proprietary Web sites, each of which is discussed below.

	•	Ask.com
	•	Ask.co.uk
	•	Teoma.com
	•	Ajkids.com

Ask.com

Ask.com provides an experience designed to enable users to search the Web intuitively and enjoyably. Users may submit their search requests as standard queries or as natural-language questions. Our technologies parse users’ questions for keywords to determine likely topics of interest. Using Teoma’s highly advanced, subject-specific popularity algorithm, we seek to analyze the relationships among Web sites devoted to precisely those topics to determine which are likely to be the most authoritative and relevant. Ask.com then presents the user with a new Web page, generally containing the following:

	•	Automatically generated hyperlinks to third-party Web sites, with the most relevant and authoritative Web sites listed first;
	•	Suggested queries on related topics and Smart Search answers if applicable (as described above under “Recent Events”); and
	•	Paid placement listings and other advertising from our advertisers.

Ask.co.uk

Like its U.S. counterpart, Ask.co.uk uses Teoma technology to deliver authoritative and relevant results in response to key word queries or natural language questions. Ask.co.uk provides users with the options of viewing a global results list or one limited to the United Kingdom. In response to searches on popular topics, Ask.co.uk also presents results using its knowledgebase technology.

Ask.co.uk currently has the second highest brand awareness of all Web sites in the United Kingdom, after AOL (according to RSL Capibus, June 2003). According to NOP World (Sept 2003), Ask.co.uk is used by one in four Web users in the U.K. and Ask Jeeves remains the seventh most popular digital brand in the U.K.

We launched Ask.co.uk in February 2000, as a joint venture with two British companies, and acquired full ownership of the venture in February 2002.

Teoma.com

Teoma.com provides users with three types of search results:

	•	“RESULTS.” The Results List includes links to topically relevant Web sites in response to a user’s query.
	•	“REFINE.” The Refine List organizes results into specific sub-topic categories or communities, so users can refine their search to find the results most closely related to their query. For example, a search on “video games” would present the user with a choice of folders containing results in the categories of “Video Games Reviews,” “Home PC Games,” “Classic Video Games”

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		and more. We believe no other technology can dynamically cluster search results into these topic-specific Web communities.
	•	“RESOURCES.” The Resources List includes Web sites created by individual enthusiasts or experts. These Web sites feature lists of other authoritative Web sites and links relating to the search topic. For example, an amateur golfer may have created a page devoted to his personal collection of favorite golfing Web sites. This Web site would appear under the heading “Resources” in response to a golf-related query.

AJkids.com

Modeled on Ask.com, AJKids.com is a child-friendly version of the Ask.com site that enables children and young adults to find answers to their questions while learning about the online world. Designed as a fun destination Web site that focuses on learning and “edutainment,” AJkids.com uses natural-language search technology, which allows children to ask questions like “Why is the sky blue?” or “What’s it like to live in outer space?” in a conversational manner. AJkids.com combines our knowledge base and our filtering technology, allowing us to provide relevant and content-appropriate answers to children.

Sources of Revenue

We generate revenue from advertising and licensing, each as described below. During the recently completed fourth quarter, 96% of our total revenue came from advertising (including paid placements, branded advertisements, and paid inclusion) while 4% came from licensing, as follows:

	•	Paid placement generated 76% of our fourth quarter revenues in 2003;
	•	Branded advertising generated 18% of our fourth quarter revenues in 2003;
	•	Paid inclusion generated 2% of our fourth quarter revenues in 2003; and
	•	Licensing generated 4% of our fourth quarter revenues in 2003.

Advertising

We make our Web sites available without charge to users and generate revenue primarily by displaying advertising. We display advertising on our proprietary sites and deliver advertisements to third-party Web sites in our syndication network. Some of these advertisements are sold by our direct sales force (“branded advertising”) while others are supplied to us by our paid listings provider, which currently is Google, Inc.

We believe the combination of our broad user base and our suite of keyword-targeted advertising products enables us to offer advertisers an effective means of targeting precise audiences, while at the same time supplying our users with advertising content they are likely to find useful. Most of our ads are displayed in response to key words in the user’s query. We (or our providers) sell keywords to advertisers, which means that we agree to display their ads every time users include any of those keywords in their queries. This technique allows an advertiser to deliver its message at the moment when our users are most likely to be interested in it—when they are searching for information related to the advertiser’s products or services. For example, a flower company can reach potential customers by paying us to display its message on the Ask.com results page in response to a query containing the keyword “Mother’s Day.” Unlike traditional Web advertisements, which users often find intrusive and annoying, keyword-targeted ads are often welcomed by the user, and thus are more effective for advertisers.

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We offer the following three categories of advertising opportunities:

	•	Paid Placement. We offer advertisers a variety of paid placement opportunities. Our proprietary paid listings consist of Premier ListingsTM in the U.S. and Answer LinkTM in the U.K. Premier ListingTM advertising displays text-based links to advertisers’ Web sites in a response to keywords used in the user’s query and appear as “featured sponsored results” on Ask.com. Answer LinkTM, which is only available on Ask.co.uk, allows sites that have been identified as having high-quality, in-depth content to pay for the opportunity to appear as an identified sponsored answer in response to a user’s query on Ask.co.uk’s reply page. These companies do not select keywords as relevance is achieved by operation of our editorially controlled knowledge base. Additional paid placements are sourced from our participation in Google, Inc.’s “sponsored links” program. Google sells paid placements to tens of thousands of advertisers and we display their paid placements on Ask.com and Ask.co.uk in response to keywords selected by the advertisers. The sponsored links supplied by Google appear under the heading “sponsored results” on Ask.com. We also syndicate both our proprietary paid listings and Google’s sponsored links, together with our search results, to third-party Web sites in our syndication network. In exchange for making this Web traffic available to Google’s advertisers, we share in the revenue generated from those advertisers. Generally, paid placements are priced on a cost per click (CPC) basis.
	•	Branded Advertisements. We offer advertisers branded advertising in a variety of formats both on our proprietary sites and on our syndication network. Branded ResponseTM, our flagship graphic advertising product is available primarily on our proprietary sites. Branded Response displays an advertisement at the moment users are most interested—when they are searching for information related to the advertised product or service. In response to pertinent keywords, we display the advertiser’s graphic, which can appear in question and answer format, as a helpful fact or hint, in paragraph format, or as an interactive tool offering real-time content. Our Branded Response product thus allows advertisers to occupy highly visible Web real estate in the middle of our Ask.com response page (as well as the pages of some of our syndication partners). Generally, branded advertisements are priced on a cost per thousand impression (CPM) basis.
	•	Paid Inclusion. We offer Web site designers the opportunity to ensure that their Web pages are included in our search index. We offer two paid inclusion programs: Site Submit for businesses with 1000 URLs or less and Index Express for large content and commerce providers that are interested in controlling how often their pages are updated in our index. Paid Inclusion is currently the only way to guarantee that a particular site will be included in our search index; it does not, however, guarantee placement on our results page.

We also license our technologies to third-parties in our syndication network for use on their own Web sites. During 2003, such licensees included Excite, HotBot and InfoSpace, among other Web publishers, portals and infomediaries. Syndication network licensees pay us a licensing fee or share advertising revenue from their search result pages with us. Our licensed technologies include:

	•	Teoma Search Technology. Teoma’s technology filters search results using our Subject-Specific Popularity approach described above.
	•	Ask Jeeves Popularity Technology. Our popularity technology aggregates and organizes online content by tracking the products, services and information people seek, the amount of time they spend at various Web sites, and how frequently they return. A search algorithm is then applied and results are ranked by relevance.

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Licensing

We earn license revenue from a technology license with our Japanese joint venture. The revenue is recognized ratably over the estimated service period applicable to this arrangement. The license revenue will terminate after the second quarter of 2004.

Sales and Marketing

In 2003, we focused on increasing our traffic by improving the search experience we deliver to users, and we will continue to do so in 2004. We believe that improving the relevance of our search results is one of the best, long-term methods of increasing user frequency and attracting new unique users, thereby increasing total user queries and thus revenues.

Sales

In 2003, we sold advertising on our Web properties through our internal advertising sales force, which targets the top 250-400 advertisers in the United States. Strategic relationships with our third-party paid placement provider Google, enabled us to cast a wider net and bring in smaller advertisers as well.

As of December 2003, our U.S. sales organization, which includes direct sales, consisted of 14 individuals with offices primarily in California and New York. As of December 2003, the Ask Jeeves U.K. sales organization, which includes client sales and agency sales, consisted of 10 people who were located in our U.K. office.

Marketing

We invested in our brand early in our company’s history and established a strong brand with a loyal user base. During 2003, we generated increased traffic to our Web sites by emphasizing our new and improved search experience, particularly the improved result rankings provided by our Teoma technology. We also actively positioned ourselves as a pure search engine operating squarely in the search engine market. We spread these messages through online, print, radio and outdoor advertising, targeted “guerilla marketing,” and strategic public relations. These tactics, combined with positive word of mouth, encouraged new users to try our Web sites, and we believe persuaded many prior users to try our Web sites again. Based on the strong growth in Web traffic we experienced concurrently with our new marketing campaigns in 2003, we plan to increase our marketing investment in 2004.

International Operations

Currently, our international operations include:

	•	Ask Jeeves U.K.;
	•	Ask Jeeves Europe; and
	•	Ask Jeeves Japan.

Ask Jeeves U.K.

Ask Jeeves U.K. was formed as a joint venture between our company and two British media companies, Carlton Communications and Granada Media Group. The venture marketed our search technologies and services within Great Britain and the Republic of Ireland. Prior to February 2002, when we acquired full ownership of Ask Jeeves U.K., Ask Jeeves owned a 50 percent interest in this joint venture. Ask Jeeves U.K. serves as the sales and marketing arm of Ask Jeeves Europe.

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Ask Jeeves Europe

Ask Jeeves Europe was established in Ireland during the third quarter of 2003 to host and operate our European Web site. In this capacity, Ask Jeeves Europe will provide Internet search services to our customers within the United Kingdom, Ireland and other member states of the European Community.

Ask Jeeves Japan

Ask Jeeves Japan, is a joint venture between us and Trans Cosmos Inc. USA a subsidiary of a Japanese customer service and information technology support provider. The joint venture was established in August 2000 to market a Japanese language version of our earlier search software product Answers, launch a Japanese language version of Ask.com and to create Japan-specific content for the Japanese Ask.com Web site.

As of December 31, 2003, we own approximately 47 percent of the voting securities of this joint venture. 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.

Additional Information

Additional information required by this item can be found in Note 15, “Business Segment and Geographic Information,” of the Notes to our Consolidated Financial Statements, in Item 8 of this Annual Report.

Technology and Operations

Our proprietary software technology includes the following:

	•	Teoma Search Technology. Utilizing an approach known as Subject-Specific Popularity, our Teoma search technology goes beyond traditional page ranking methods to estimate a Web site’s authority. Instead of simply ranking search results based upon the Web sites with the most links leading to them, Teoma analyzes the Web as it naturally occurs in its subject-specific communities to determine which Web sites are most relevant. First, Teoma categorizes the sites in its search index into naturally occurring communities, or groups of sites that are related to the query topic. Next, Teoma employs a technique we call Subject-Specific Popularity to determine which of those relevant pages is likely to be the most authoritative on a user’s query topic. Subject-Specific Popularity analyzes the relationships between sites within a community, ranking each site based on the number of same-subject pages that reference it, among hundreds of other criteria. 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. To our knowledge, Teoma is the only search technology that ranks a Web site based on the number of same-subject pages that reference it, not just general popularity, to determine the Web site’s level of authority. Teoma powers the search results on Ask.com, Ask.co.uk and Teoma.com. We also syndicate Teoma technology to our distribution partners.
	•	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, direct answers and related queries. Some applications of Natural Language Processing include related search terms and editorially selected answers on Ask.com.

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Scalability and Operations

Our Teoma search technology runs on arrays of Intel-based server systems running the Linux operating system. The hardware environment is very scalable and cost effective. It has been optimized to provide fast, real-time performance. The system is highly automated, secure and is replicated to ensure sufficient redundancy and failover capabilities.

The servers hosting our four proprietary Web sites are located at Metromedia Fiber Network in California and England, Worldcom in Massachusetts, Cable & Wireless Communications in England, and Esat Telecommunications Ltd., in Ireland. The hosting centers provide routing and communication lines with a variety of major Internet backbone providers, as well as continuous monitoring and communications support. They also provide their own power generators and multiple, redundant backup systems. We maintain significant server over-capacity at each location so that if one hosting facility fails, another can service all of our user traffic.

Our natural-language processing runs on arrays of Intel-based server systems running Microsoft Windows 2000 and Internet Information Server Software. The Question Processing Engine, or QPE, is written in the C++ computer language and is optimized to handle high traffic volumes. The Ask Jeeves knowledge bases are deployed on these servers as read-only, memory mapped files. 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 arrays of Intel-based server systems running the Linux operating system and Apache Web Server Software. The software is written as C++ FastCGI modules for highest scalability and real-time performance. To scale as user traffic or data sources increase, we install additional distribution and processing servers, as needed.

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.

In our efforts to attract search engine users, we compete against destinations and portals such as:

	•	Time Warner Inc.;
	•	Google, Inc.;
	•	The Microsoft Network (MSN);
	•	Yahoo! Inc; and
	•	Other smaller companies.

We also compete with search technology providers such as:

	•	Google, Inc.;
	•	Yahoo! Inc; and
	•	Looksmart.

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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 for Web traffic depends on:

	•	the relevance and authority of our search results;
	•	the ease of use of our Smart Search, the quality of our knowledge-base content, and other online features;
	•	the pace with which we introduce new search techniques (and the marketing skill with which we announce such innovations and persuade new and returning users to utilize them); and
	•	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 the “Risk Factors” discussion in Item 7 of this Annual Report for a further discussion of certain risks related to competition.

Proprietary 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 seven United States patents and have twelve 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 assure you that any patent application filed by us will result in a patent being issued, or that our patents, and any patents 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.

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We have been issued registered trademarks in the U.S. covering certain goods or services associated with:

	•	“Ask Jeeves”;
	•	the “Ask!” button design;
	•	“Ask.com”;
	•	the “Jeeves” design, a stylized depiction of our butler logo;
	•	“Teoma”;
	•	“Teoma” design; and
	•	“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, and Spain. We do not know whether we will be able to defend our proprietary rights since 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,” 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 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

There are still relatively few laws or regulations specifically addressed to the Internet. As a result, the manner in which existing laws and regulations should be applied to the Internet in general, and how they relate to Ask Jeeves’ business in particular, is unclear in many cases. Such uncertainty arises under existing laws regulating matters, including user privacy, defamation, pricing, advertising, taxation, gambling, sweepstakes, promotions, content regulation, quality of products and services, and intellectual property ownership and infringement.

To resolve some of the current legal uncertainty, we expect new laws and regulations to be adopted that will be directly applicable 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. Several new federal laws have already been adopted that could have an impact on our business. The CAN-SPAM Act of 2003 is intended to regulate spam and create criminal penalties for unmarked sexually-oriented material and emails containing fraudulent headers. 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. 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. The Children’s Online Protection Act, the Children’s Online Privacy Protection Act, and the Prosecutorial Remedies

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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 that we provide links to 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, 2003, we had 306 employees. No employees are represented under collective bargaining agreements. We consider our relations with our employees to be good.

See the “Risk Factors” discussion in Item 7 of this Annual Report for a further discussion of certain risks 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. 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

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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.

Incorporation History

We were incorporated in 1996 in California and reincorporated in Delaware in 1999.

ITEM 2. PROPERTIES

Our corporate headquarters are currently located in a leased facility in Emeryville, California. We also lease facilities for sales, research and development and other support functions in various locations in the United States. We have also operations in the London, England and Dublin, Ireland.

We believe that our remaining facilities will be adequate to meet our needs for the foreseeable future. See Note 6 of Notes to Consolidated Financial Statements for information regarding our lease obligations.

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.

On October 25, 2001, a putative class action lawsuit captioned Leonard Turroff, et al. vs Ask Jeeves, Inc., et al. was filed against us and two of our officers and directors (collectively the “Individual Defendants”) in the United States District Court for the Southern District of New York. Also named as defendants were Morgan Stanley & Co,, Inc., FleetBoston Robertson Stephens, Goldman Sachs & Co., U.S. Bancorp Piper Jaffray, and Dain Rauscher, Inc., the underwriters of our initial public offering. The complaint alleges violations of Section 11 of the Securities Act of 1933 against all defendants, and violations of Section 15 of the Securities Act against the Individual Defendants in connection with our initial public offering (“IPO”). An amended complaint was filed on December 6, 2001, which includes the same allegations in connection with our secondary offering in March 2000. The complaints seek unspecified damages on behalf of a purported class of purchasers of our common stock between June 30, 1999 and December 6, 2000. We believe the claims are without merit and intend to defend the actions vigorously. On June 24, 2003, a special committee of our board of directors approved the settlement of this action, subject to certain conditions including that a sufficient number of the defendants participate in the settlement, and on July 9, 2003, the Individual Defendants approved the settlement of this action. It is anticipated that the settlement will be submitted to the Court for approval in the near future.

In May 2, 2002, a stockholder derivative lawsuit was filed in the Superior Court of California, County of Alameda, titled Brenner v. Strauch et al. The lawsuit purported to be filed on behalf of our company, asserting claims against the officers and directors at the time of our IPO. Also named as

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On January 27, 2004, a lawsuit was filed in the United States District Court for the Southern District of New York captioned American Blind and Wallpaper, Inc. v. Google, Inc., et al., in which Ask Jeeves, Inc., America Online, Inc., Netscape Communications Corporation, Compuserve Interactive Services, Inc., and Earthlink, Inc. were also named as defendants. On February 27, 2004, the Company was served with an Amended Complaint in the matter. The Complaint alleges trademark infringement, false representation, and dilution under the Lanham, Act and other claims arising from defendants’ alleged unlawful use of plaintiff’s trademarks. Plaintiff’s claims are based on the allegations that defendants sell keywords identical to plaintiff’s marks to various third parties and by manipulating search results, consumers are unwittingly diverted to competitors’ products and services. The plaintiff seeks injunctive relief and an unspecified amount of damages. The Company has tendered this suit to Google for indemnification pursuant to the terms of the Advertising Services Agreement, dated July 17, 2002, between Ask Jeeves and Google.

In management’s opinion, resolution of these matters is not expected to have a material adverse impact on our results of operation, cash flows or financial position. However, depending on the amount and timing, an unfavorable resolution of these matters could materially and adversely affect our future results of operations, cash flows or financial position in a future period.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2003.

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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 sales prices for our common stock as reported by the Nasdaq National Market:

As of February 25, 2004, the number of holders of record of our common stock was 818. To date, we have not paid any dividends on our common stock and we do not currently intend to pay dividends in the foreseeable future.

In 2003, we did not sell any equity securities that were not registered under the Securities Act.

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The consolidated selected financial data set forth below presents the consolidated financial results of Ask Jeeves, Inc. and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our Consolidated Financial Statements and the related notes, included in this annual report. The consolidated operating information set forth below for the periods in the three years ended December 31, 2003 and the consolidated balance sheet data as of December 31, 2003 and 2002, are derived from and qualified by reference to our audited consolidated financial statements included in this annual report. The consolidated operating information set forth below for the years ended December 31, 2000 and 1999, and the consolidated balance sheet data as of December 31, 2001, 2000, and 1999 are derived from and qualified by reference to our audited consolidated financial statements that are not included in this annual report. Our historical results are not necessarily indicative of results for any future period.