In February, Barry Diller spoke confidently when he said his Ask.com would soon renew its long-running ad pact with Google that expires at year's end.
The chief executive of IAC/InterActiveCorp (NASDAQ:IACI) (OTCBB:IACPP) IACI, which owns several Internet firms, called renewing the partnership "my senior priority" and expected it would take two months at most to cinch the deal.
Nine months later, and still no pact, Diller has been more quiet.
The Internet tycoon is quiet, say analysts, because it's Ask.com that has a lot more to lose than Google if no renewal gets done. Partnerships with companies like Ask.com mean a lot less to Google GOOG today than they did a few years ago because Google has only widened its lead in the search market, analysts say.
Google uses partners to place more of its ads into the market. While 58% of Google's revenue last quarter came from ads placed on its own Web sites, the rest came from partner sites.
A Drop In Google's Bucket
Google's ads are placed near search results, and advertisers pay per click. Google shares the ad revenue with partner sites that carry its ads on their Web sites. Since Ask.com itself is a search engine, its users call up many search results pages -- good places for Google's ad network to place relevant ads.
Yet Ask.com represents a drop in Google's revenue bucket, says Youssef Squali, an analyst at Jefferies (NYSE:JEF) & Co.
"It's not significant," he said. "If it's more than 1% (of Google's total ad revenue) I would be shocked."
In the second quarter, Google's own sites produced revenue of $1.43 billion, while partner sites generated $997 million. Diller said in February that Ask.com accounted for 10% of Google's partner site revenue.
"We bring a lot of traffic. We bring a lot of (search) queries," he said.
At a Goldman Sachs (NYSE:GS) conference last month, Diller did say that he had talked with Google, Yahoo (NASDAQ:YHOO) YHOO and Microsoft (NASDAQ:MSFT) MSFT about a partnership for Ask.com.
Ask.com is one of Google's largest ad-network partners. Others include Time Warner's (NYSE:TWX) TWX AOL AOL Web portal and News Corp.'s (NYSE:NWS) NWS My-Space.com social networking site.
While Google and its ad partners don't reveal the ad split, analysts say Google gives its largest partners as much as 80% to 85% of the revenue from ads posted and clicked for partners' sites. That's another reason it wouldn't hurt Google much to lose Ask.com as a partner, says Sandeep Aggarwal of Oppenheimer & Co.
"If they were to lose them it may make one quarter look weak, but I don't think it's very significant," said Aggarwal.
Google has been cashing in as more advertisers jump online. Google's search service has a big and widening lead over its rivals, and users attract advertisers.
In August, Google accounted for 64% of all searches in the U.S., up from 60% in August 2006, says Hitwise, a research firm. Yahoo ranked No. 2 with 22% of all searches in the last year. No. 3 Microsoft's share fell to 8% from 12%.
Ask.com is a distant No. 4. Its share of searches has remained flat at just over 3%, says Hitwise.
Google's rising popularity has reduced its reliance on partners, says Squali, the Jefferies analyst.
Not As Important Now
"Every single month in the last nine months they have been gaining market share," he said. "Three years ago when Google was going public, it paid to have AOL and Ask as distribution partners. I don't think they're as important anymore."
Ask.com, Microsoft and Yahoo have revamped their search services this year in a bid to gain users and advertisers. InterActiveCorp also has been installing Ask.com's search service on some of its other Internet properties to boost its traffic.
Landing Ask.com as a partner would be a boon to Microsoft, says Chris Winfield, president of 10e20, a search marketing firm that helps advertisers.
"Every customer that they can take away from Google is huge, because just like in any business, once you do that it just makes it easier to get the next one," Winfield said.
But because Microsoft and Yahoo have far less traffic than Google, Ask.com would need much better financial terms just to match the revenue it's getting from Google, says Oppenheimer's Aggarwal.
Squali, too, believes Ask.com has little bargaining room.
"Microsoft can write you a check for $25 million or whatever," he said. "The problem if you are Ask is that you have to wonder whether it makes sense to take the money now, and run the risk of getting your traffic monetized at a dramatically lower rate than what you would be getting with Google."
