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THE DAY AHEAD: Ask Jeeves why you should buy its IPO

For the record Ask Jeeves is a cool site. Type in a question in plain English and get pointers to the answers on the Web. But investors should use the service to ask why they should invest in the Ask Jeeves IPO.

As a bunch of tech initial public offerings prepare for liftoff Thursday, Ask Jeeves is hoping it can slip one by you. And the fact Ask Jeeves was able to lift its price range to $12 to $13 from $9 to $11 and price at $14 just takes us back to the "good old days" when could do well with an IPO.

Ask Jeeves (Nasdaq: ASKJ) is questionable as a standalone business and way too green to go public. The company is offering 3 million shares with Morgan Stanley Dean Witter as the lead underwriter.

Ask Jeeves: Future Web star?

Like (Nasdaq: BOUT), formerly known as, Ask Jeeves is working to humanize the Web. Ask Jeeves offers its natural-language question answering services for consumers and companies. Bottom line: Ask Jeeves is yet another search engine. Ask Jeeves has a novel approach, but novelty acts normally don't translate into good businesses.

Ask Jeeves was launched in April 1997 and fielded about 3,000 questions a day that first month. Currently, Ask Jeeves fields about a million questions a day and has 1.9 million users. Those stats are impressive -- for a niche play.

Revenue for 1998 was $592,659 with a loss of $4.26 million. For the first quarter ending March 31, Ask Jeeves had revenue of $1.13 million and a loss of $4.86 million. Most of the company's 1998 sales came from advertising with licensing fees making up the remainder. Ask Jeeves will continue to lose money as it ramps up marketing.

The company is betting it can grow through its corporate question answering service, which was launched last December. Now the company has a consumer and corporate unit. Ask Jeeves also plans to bolster e-commerce sales, but it hasn't "generated any revenue through the facilitation of electronic commerce from inception through March 31."

Sounds like a plan -- an unproven one with lots of competition. "Our question answering services are novel and unproven," the company said in regulatory filings.

Unless Ask Jeeves can expand into the corporate market and come up with e-commerce revenue, the company doesn't have a lot going for it. Ask Jeeves may develop those revenue streams, but it's a little early to be asking the public for money.

So far, Ask Jeeves has signed up five corporate customers, but the service hasn't been implemented. "We cannot yet determine the effectiveness of our Corporate Question Answering Service compared to traditional methods of customer relationship management," the company said.

Here are a few other problems to consider:

  • Competition. The company cites At Home (Nasdaq: ATHM), Inktomi (Nasdaq: INKT), AltaVista Company and portals as competition on the consumer side. The corporate market won't be any kinder to Ask Jeeves.

    On the corporate side, Ask Jeeves competes with Inktomi, Verity (Nasdaq: VRTY) and a host of others who have more experience in the enterprise.

  • Traffic problems? "We have experienced lower traffic during the year-end holiday season and a slower rate of growth during the summer months," the company said. The summer traffic growth is nothing to worry about, but the holiday traffic could be a problem if Ask Jeeves wants to boost e-commerce sales.

  • Exploding customer syndrome. AltaVista and accounted for about 11 percent and 21 percent of sales, respectively, in the first quarter. AltaVista was acquired by CMGI so that deal may be in flux.

    Ask Jeeves may do well today -- stranger things have happened. In the end it may just be a takeover target. A few more quarters under Ask Jeeves' belt would have given a much better indicator of where this company is going. For now this offering is another case of the public playing venture capitalist.

    Odds and ends

    Biggest non-news event of the day -- the Securities and Exchange Commission's investigation of Microsoft Corp.'s (Nasdaq: MSFT) accounting practices. If Wall Street isn't sweating the antitrust suit, don't expect investors to panic now. Besides Microsoft said it was comfortable with estimates. Isn't it always?

    Commerce One (Nasdaq: CMRC) priced at $21, well above its price range, and will be the IPO star of the day. Look for the e-commerce software company to have an Ariba-like debut.