Earlier this week, two of the Internet's largest operators made what seemed like unrelated announcements. Barry Diller's InterActiveCorp (NASDAQ:IACI) announced that it would be shelling out $1.85 billion for AskJeeves.com (NASDAQ:ASKJ), while Time Warner's (NYSE:TWX) AOL subsidiary announced that it was launching a travel comparison shopping site.
I think that InterActiveCorp is the one doing the right thing here. Buying a proven player in the massive Web arena isn't cheap, but it gives you an established user base. Just as importantly, it transforms a competitor into an ally. AOL, on the other hand, is starting from scratch. And because AOL is launching its new site on the crowded Internet -- instead of exclusively to its subscribers -- it will have to spend dearly to get the site noticed.
So what do these two deals have in common? Well, it all boils down to Google (NASDAQ:GOOG). In a few months, Google will be cutting a check to InterActiveCorp for its part of the Google AdWords that were featured on Ask.com, while Time Warner will be invoiced for bidding up related terms for ads on AdWords from Google for its Pinpoint Travel site. AOL is also likely to use the paid-search services of Yahoo! (NASDAQ:YHOO) and eventually Microsoft (NASDAQ:MSFT) to get noticed, but trust me -- a day will probably come when you see an AOL-sponsored travel ad on Ask.com and realize the irony of AOL the builder funneling money toward InterActiveCorp the acquirer.
Diller has assembled a huge portfolio of online properties over the years, including Expedia, Hotels.com, and Trip Advisor on the travel side. Most of the buys have come after the dot-com bubble, when the asking prices were sober. AOL, meanwhile, has an online relationship with Sabre's (NYSE:TSG) Travelocity and a minority stake in the company that is helping it launch its new travel venture.
Travel is big. I think it's cool that AOL is getting aggressive beyond its flagship service, given that its subscriber base peaked two years ago. But maybe next time it should consider buying the proven property. Because one way or another, you usually get what you pay for.
Some related stores:
- Jeeves did in fact retire a billionaire.
- AOL will hope its Pinpoint Travel venture takes flight.
- InterActiveCorp is in our Stock Madness 2005 tournament.
Longtime Fool contributor Rick Munarriz does not own shares in any of the companies mentioned in this story, though he has been a freelance contributor to InterActiveCorp's CitySearch.com site. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
