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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 000-26521

5858 Horton St., Suite 350, Emeryville, CA 94608

(510) 985-7400

     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 o

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

      The number of shares outstanding of the registrant’s Common Stock as of November 5, 2004 was 58,253,731.

The Exhibit Index begins on page 54.

ASK JEEVES, INC.

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Cautionary Note regarding Forward-Looking Statements

      In addition to historical information, this Quarterly Report on Form 10-Q 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 in those statements. 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 difference might be significant and materially adverse to our stockholders. Many important factors that could cause such a difference are described in this Quarterly Report under the caption “Risk Factors” as well as in our most recent Annual Report on Form 10-K under the captions “Competition,” “Proprietary Rights” and “Risk Factors,” all of 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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PART I. FINANCIAL INFORMATION

Item 1.     Unaudited Condensed Consolidated Financial Statements

ASK JEEVES, INC.

See accompanying notes to condensed consolidated financial statements.

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ASK JEEVES, INC.

See accompanying notes to condensed consolidated financial statements.

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ASK JEEVES, INC.

See accompanying notes to condensed consolidated financial statements.

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ASK JEEVES, INC.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Ask Jeeves, Inc. (“Ask Jeeves” or the “Company”) provides computer users with information search and retrieval services, free of charge, across a diverse portfolio of Web sites and desktop applications. Ask Jeeves generates revenue primarily by displaying advertisements on its Web sites and by selling ads for display on third-party sites in the AJinteractive advertising network. Ask Jeeves seeks to attract Web traffic to its own sites by creating distinctive online experiences that users will find intuitive and satisfying. Ask Jeeves pursues this goal using a multi-brand strategy. Ask Jeeves’ brands include several Web sites dedicated to search (Ask.com, Ask.co.uk, Teoma.com, MySearch.com, MyWebSearch.com and AJKids.com) and three broader-purpose, content-rich “portal” Web sites (iWon.com, Excite.com and MyWay.com). The Company operates a Japanese language search site (Ask.jp), as a joint venture with Transcosmos Inc. and a co-branded portal (Dell.myway.com). Ask Jeeves also makes its search services accessible through several branded search toolbars that users can install in their Internet browsers. The toolbars can be downloaded from Ask Jeeves’ Web sites and are also distributed together with a number of downloadable applications, including Ask Jeeves’ Fun Web Products. Ask Jeeves’ proprietary technologies include its algorithmic search engine, Teoma, natural language processing software, and portal and ad-serving technologies. Through AJinteractive, the Company’s ad sales division, Ask Jeeves offers advertisers a mix of online marketing services, including targeted ad placements on its own sites and across a network of third-party sites.

      Until July 1, 2003, the Company operated through two divisions, Web Properties and Jeeves Solutions. On July 1, 2003, the Company sold certain assets used in the Jeeves Solutions business to Kanisa Inc. (“Kanisa”), at which time the Company ceased offering Jeeves Solutions software and services.

      On May 6, 2004, Ask Jeeves acquired Interactive Search Holdings, Inc. (“ISH”), which became a wholly-owned subsidiary of the Company. ISH operates several portals and search sites and develops and distributes desktop applications. See Note 3 (Acquisitions).

Basis of Presentation

      The accompanying condensed consolidated financial statements as of and for the nine month periods ended September 30, 2004 and 2003 are unaudited, but include all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position, operating results and cash flows as of the interim date and for the periods presented. Results for the three and nine months ended September 30, 2004 are not necessarily indicative of results for the entire fiscal year or future periods. The condensed consolidated balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

      The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The investment in the Ask Jeeves Japan joint venture in which the Company has significant influence but does not have a controlling voting interest or a majority interest in the assets, obligations or results of operations is accounted for under the equity method. Investments in which the Company does not have the ability to exert significant influence are accounted for at cost. All significant intercompany transactions and balances have been eliminated upon consolidation.

      Certain prior period balances have been reclassified to conform to the current year presentation. The reclassifications did not affect previously reported net income.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. For the Company, such estimates include revenue recognition, allowances for doubtful accounts, legal contingencies, accounting for income taxes and impairment of long-lived assets. Actual results could differ materially from those estimates.

Concentrations of Revenue

      During the three and nine months ended September 30, 2004, paid listing revenues from one provider accounted for 69% and 68% of revenues from continuing operations, respectively. During the three and nine months ended September 30, 2003, paid listing revenues from the same provider accounted for 61% and 52% of revenues from continuing operations, respectively. This provider accounted for 41% and 49% of gross accounts receivable as of September 30, 2004 and 2003, respectively. The Company’s paid listing agreements with this provider are scheduled to terminate December 31, 2007.

Net Income Per Share

      Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, warrants, and convertible subordinated notes.

Stock-based Compensation

      The Company accounts for employee stock options using the intrinsic value method and makes the required pro forma disclosures as if the fair value method had been used. Compensation expense based on the difference, if any, on the measurement date (generally the date of grant), between the estimated fair value of the Company’s stock and the exercise price of options to purchase that stock is amortized over the vesting period of the related option using the graded vesting method.

      Had compensation cost for the Company’s stock-based compensation plans been determined using the fair value at the grant dates for awards under those plans calculated using the Black Scholes valuation model the Company’s net income and basic and diluted net income per share would have been decreased to the pro forma amounts indicated below (in thousands, except per share amounts):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. COMMITMENTS AND CONTINGENCIES

      From time to time, the Company is 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 its 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 the Company and two of the Company’s 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 the Company’s initial public offering, or IPO. 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 the Company’s IPO. An amended complaint was filed on December 6, 2001, which includes the same allegations in connection with Ask Jeeves’ second public offering in March 2000. The complaints seek unspecified damages on behalf of a purported class of purchasers of common stock between June 30, 1999 and December 6, 2000. This case is similar to, and has been coordinated with, over three hundred other cases filed in the Southern District Court of New York concerning the IPO market of the late 1990’s. A coordinated settlement has been proposed and submitted to the court. On June 24, 2003, a special committee of the Company’s board of directors approved the Company’s participation in this settlement and on July 9, 2003, the Individual Defendants approved the settlement. The settlement has not yet been approved by the court and might be opposed by the underwriter defendants. If the settlement is approved by the court, the Company expects that the costs and expenses of the settlement will be paid by the Company’s insurers, who will be reimbursed by the Company up to the amount of the Company’s $1.0 million insurance retention. Accordingly, the Company has accrued that amount on its consolidated balance sheet. Any payments beyond that amount will be made by the Company’s insurance carriers up to the limits of the relevant policies. If the settlement does not occur, and the litigation against the Company continues, the Company believes it has meritorious defenses and intends to defend the case vigorously.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      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, and Google has agreed to indemnify the Company to the extent the claims relate to Google paid listings. Google filed a motion to dismiss the case on the grounds that the plaintiffs have failed to state a valid claim upon which relief could be granted, the plaintiffs filed an opposing brief and, on September 17, 2004, the court held a hearing on the motion, at which the judge took the parties’ arguments under submission. The judge has not yet ruled on Google’s motion to dismiss.

      The Company acquired full ownership of Focus Interactive, Inc., formerly known as The Excite Network, Inc., on May 6, 2004 upon its acquisition of ISH. On July 29, 2003, Focus Interactive filed a legal action against InfoSpace, Inc. in New York State court, Westchester County captioned Focus Interactive, Inc. v. InfoSpace, Inc., Index No. 03/11873 (Sup. Court Westchester County New York)(“NY Action”) seeking a declaration as to the respective rights and obligations of the parties under an Internet Services Agreement (“ISA”) between Focus Interactive and InfoSpace and seeking damages as a result of InfoSpace’s ISA-related demands. On September 22, 2003, InfoSpace filed a lawsuit against Focus Interactive in Washington State captioned InfoSpace Sales LLC v. Focus Interactive, Inc., Index No. 03-2-36 176-3SEA (Sup. Court Wash., King County)(“Washington Action”) asserting claims and seeking damages for (i) breach of contract (the ISA); (ii) breach of the duty of good faith and fair dealing in performing the ISA; (iii) unfair business practices under Washington Rev. Code § 19.86.020 that affect the public interest; (iv) misrepresentation and fraud in the inducement; and (v) a declaratory judgment seeking a declaration that Focus Interactive’s threatened actions would constitute breaches of Focus Interactive’s obligations to InfoSpace under the ISA, the covenant of good faith and fair dealing recognized by Washington law, and the Wash. Rev. Code § 19.86.020. Focus’ motion to dismiss the Washington Action was granted. InfoSpace filed an appeal in the Court of Appeals of the State of Washington. Briefing is not yet complete on this appeal in Washington.

      On September 29, 2003, InfoSpace moved to dismiss the New York Action on the grounds that a declaratory judgment was improper and on forum non conveniens grounds. Focus opposed the motion and on January 7, 2004, the New York Supreme Court denied InfoSpace’s motion to dismiss in its entirety. On February 11, 2004, InfoSpace filed a Notice of Appeal of the Supreme Court decision to the Appellate Division of the New York Supreme Court for the Second Judicial Department. No briefing has yet occurred on this New York appeal. On January 23, 2004, InfoSpace answered the Complaint in the NY Action and filed counterclaims similar to the claims asserted in the Washington Action. A trial date has been set in the NY Action. The parties have engaged in settlement negotiations, though the Company faces the risk that the settlement negotiations might not be successful.

      On August 3, 2004, a lawsuit was filed in the Superior Court of the State of California, County of San Francisco captioned Mario Cisneros et al. vs. Yahoo! Inc., et al., in which Ask Jeeves, Inc., Google, Inc., Yahoo! Inc., and several other Internet media companies are named as defendants. The complaint alleges that

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the defendants engaged in unfair business practices and aided, abetted and conspired with operators of illegal online gambling enterprises by selling and displaying ads for online gambling operations that allegedly violate California law. The complaint purports to be brought on behalf of the general public and a class of all California residents who incurred losses in the prior four years at any illegal Internet gambling site allegedly advertised on defendants’ Web pages. The complaint seeks declaratory and injunctive relief prohibiting Ask Jeeves and the other defendants from selling or displaying such ads. The complaint also seeks to hold Ask Jeeves and the other defendants liable for an unspecified amount of monetary restitution equal to (i) all of the revenue that defendants allegedly earned by displaying ads for illegal gambling operations; (ii) all of the gambling losses suffered by persons using computers in California to access the advertised sites; (iii) all other revenues received by the gambling site operators from such computer users; and (iv) certain State taxes and fees allegedly avoided by the gambling site operators. The complaint was filed against Internet media companies and does not specifically name the gambling site operators themselves as defendants.

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

Indemnifications

      While the Company has various guarantees included in contracts in the normal course of business, primarily in the form of indemnities, these guarantees do not represent significant commitments or contingent liabilities. Accordingly, the Company has not recorded a liability related to indemnification provisions.

Commitments

      The Company signed an eight-year lease for 55,803 rentable square feet in the 555 City Center building in downtown Oakland, California, which is effective beginning July 1, 2004. The future minimum lease payments are $11,550,000.

3. ACQUISITIONS

Interactive Search Holdings

      On May 6, 2004, the Company completed its acquisition of all of the outstanding capital stock of Interactive Search Holdings, Inc. (ISH), an online search and media company. The acquisition significantly increased the Company’s market share and provided additional channels of distribution for the Company’s search services. These factors contributed to a purchase price in excess of the fair value of ISH’s net tangible and intangible assets acquired, and as a result, the Company has recorded goodwill in connection with this transaction.

      The total purchase cost for ISH of approximately $395.1 million consists of the following (in thousands, except share data):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      The value of the common stock issued was determined based on the average market price of the Company’s common shares over the period including the two days before and after the terms of the acquisition were agreed to and announced. The fair value of the stock options was determined as of the same date using the Black-Scholes option valuation model using the following assumptions: risk-free interest rate of 3.7%, expected life of 4.3 years and a volatility factor of 1.1. No dividend was assumed.

      The total purchase cost of the acquisition of ISH has been allocated to assets and liabilities based on management’s preliminary estimate of their fair values. The excess of the purchase consideration over the fair value of the net assets acquired has been allocated to goodwill. During the third quarter of fiscal 2004, certain adjustments, corrections, and reclassifications to the allocation of the purchase cost of ISH were made. These items resulted in a decrease to goodwill of $9.8 million. None of these items affected the results of operations for the quarter ended September 30, 2004. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed and the estimated lives of the amortizable intangible assets (in thousands, except lives):

      Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired, and is not deductible for income tax purposes. Goodwill will not be amortized for financial reporting purposes and will be tested for impairment, at least annually. The preliminary purchase price allocation for ISH is subject to revision as more detailed analysis is completed and additional information on the fair value of assets and liabilities becomes available. Any change in the fair value allocated to the net assets of ISH will change the amount of the purchase price allocable to goodwill.

      In conjunction with the acquisition, the Company accrued $775,000 related to involuntary termination benefits. The amount includes severance, COBRA and outplacement services.

      Net deferred income tax assets related to the acquisition of Interactive Search Holdings had been fully offset by a valuation allowance and, accordingly, no such amounts are included in the accompanying condensed combined balance sheet.

      The results of ISH’s operations have been included in the Company’s consolidated financial statements since May 6, 2004, the date of the acquisition. The following unaudited pro forma financial information for Ask Jeeves, Inc., presented in the table below, represents the combined revenue, net income and net income

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

per share of the Company for the three and nine months ended September 30, 2004 and 2003 as if the acquisition of ISH had occurred on the first day of the periods presented, including the amortization of identified intangible assets (in thousands, except per share data).

4. CONVERTIBLE SUBORDINATED NOTES

      In June 2003, the Company 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 the net proceeds to the Company were $111.5 million, net of costs of issuance of $3.5 million, which have been recorded as other assets and are being amortized in the Consolidated Statements of Operations over the contractual term of the notes.

      The notes are convertible by the holders into shares of the Company’s common stock at any time at a 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, the Company has the right subject to certain conditions to deliver cash (or a combination of cash and shares) in lieu of shares of its 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 the Company to repurchase all or a portion of the notes, subject to specified exceptions, upon the occurrence of a change in control. The Company may pay the repurchase price in cash, shares of its common stock, shares of the surviving corporation or a combination thereof. The Company may not redeem the notes prior to the maturity date.

5. RESTRUCTURING AND FACILITY EXIT COSTS

      In December 2000, the Company’s Board of Directors approved a restructuring program aimed at streamlining the Company’s underlying cost structure to better position the Company for growth and improved operating results. During the three and nine months ended September 30, 2004, the Company

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

reported no additional restructuring charges. The following table sets forth the restructuring activity during the three and nine months ended September 30, 2004 and 2003, respectively (in thousands).

6. LINE OF CREDIT

      The Company has a revolving line of credit with a bank in the amount of $15.0 million. The line of credit expires on July 1, 2005. Borrowings under the line of credit bear fixed rate interest from the date of borrowing at LIBOR plus 0.4%. All borrowings and letters of credit under the credit facility are collateralized by an equal amount of the Company’s marketable securities. Borrowings under the line are subject to various covenants. As of September 30, 2004, no borrowings were outstanding under the line of credit. Standby letters of credit of approximately $61,000 which are being maintained as security for performance under various obligations, were issued and outstanding under the credit facility.

      Further, our wholly-owned subsidiary, ISH, has additional standby letters of credit totaling $580,000, which are being maintained as security for a capital lease and office space, respectively.

7. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

      The Company offers advanced Internet search technology to the public through advertiser-supported sites on the World Wide Web. The Company provides its search technologies and services internationally, both directly and through its joint venture. Attribution of revenues by geographic region is based on the country in

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

which the customer is domiciled. Geographic information on revenues from continuing operations is as follows (in thousands):

8. COMPREHENSIVE INCOME

      The components of comprehensive income are as follows (in thousands):

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      The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q. All statements in the following discussion that are not reports of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report’s introductory cautionary note.

BUSINESS OVERVIEW

      We provide computer users with information search and retrieval services, free of charge, across a diverse portfolio of branded Web sites and desktop applications. We generate revenue primarily by displaying advertisements on our Web sites and by selling ads for display on third-party sites in the AJinteractive advertising network. Our branded Web sites include seven sites dedicated to search and three broader-purpose, content-rich Web sites (known generally as portals). We seek to attract Web traffic to our branded sites by creating distinctive online experiences that users will find intuitive and satisfying. On our Ask Jeeves brand sites (Ask.com in the U.S.; Ask.co.uk in the U.K. and Ask.jp, our Ask Jeeves Japan joint venture) users submit search queries and our proprietary algorithmic search engine, Teoma, delivers a results list of Web pages likely to contain relevant and authoritative answers. Our Smart Search function improves the online experience by delivering the information the user is seeking right on the results page, in response to popular query topics. Our advertising products include keyword-targeted ads, which are popular among advertisers because they appear on search results pages in response to related words in the user’s query. Our proprietary technologies include Teoma, natural language processing software, portal technology and ad-serving processes.

      Our main goal is to increase our Web traffic by attracting more users to our sites and portals and getting them to use our search services more frequently. We are pursuing this goal using a multi-brand strategy and by making our search services accessible in several different ways.

      We have corporate headquarters in Emeryville, 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 has headquarters in Tokyo, Japan.

Recent Events

      Notable events since the filing of our last quarterly report include the following:

	•	Launch of MyJeeves Personal Search — On September 21, 2004, we launched a feature called MyJeeves, which allows users to collect, organize, search and share their own “personal Web.” Users collect pages by clicking a button located 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 is searchable within MyJeeves (separately from our overall Web index), allowing each user to create his or her own personal Web index. A user’s notes about a page become searchable metadata for that page, improving the relevance of MyJeeves search results, which can be especially important as an individual’s volume of saved information grows. Registration, while not required for use of MyJeeves, provides additional advantages. Registered users can access MyJeeves from any Internet-enabled computer and receive additional storage for their personal Web documents. These users also benefit from increased privacy via password protection. In addition, MyJeeves automatically saves each search query registered users execute (an option that can be toggled on or off). Registration requires only a password and an active email address. MyJeeves is a free service that is integrated into the Ask.com search experience. In connection with the launch of MyJeeves, we redesigned our illustrated butler character.
	•	New and Improved Local Search Results — During the third quarter we launched several local search features on Ask.com. Through an arrangement with Citysearch, we now offer searchable access to Citysearch’s local business data. Through an arrangement with Telcontar, we now present maps and

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		links to driving directions on our results pages (in response to appropriate queries) and we have integrated map and driving links with the Citysearch content. And through an arrangement with Topix.net, we now offer local news search in the News channel of Ask.com. These new product features complement our other existing local search features such as Weather, People Search, Movies, Local Time and more.
	•	Launch of Teoma 3.0 Search Algorithm — During the third quarter we introduced a major upgrade to our proprietary Teoma search technology, improving the freshness of our search results, expanding the scope of our Web index and supporting Asian-language expansion opportunities. In terms of freshness, Teoma 3.0 supports daily crawls of popular, news and other frequently-updated sites, improving our ability to return recent news and information to our users. It also features a redesigned architecture that we expect will facilitate freshness enhancements in the months ahead. In terms of scope, the Teoma index has now surpassed 2 billion English-only Web documents, and is expected to exceed 2.5 billion by year’s end (in each case measured after the removal of index spam, duplicates and pornographic results). Finally, Teoma 3.0 supports double-byte Asian languages, enabling the recent beta launch of Ask Jeeves Japan’s search site.
	•	Launch of Ask Jeeves Japan’s Search Site — On August 24, 2004, we announced the launch of a beta version of Ask.jp, a new Japanese-language Web search site. The site was developed by Ask Jeeves Japan Co., Ltd, which is a joint venture between Ask Jeeves, Inc. and Japan-based Transcosmos Inc. The site’s design is based on Ask.com and utilizes Teoma search technology, creating the first non-English based Teoma index and joining Yahoo! and Google as the only providers of Japanese-language algorithmic Web search. The Japanese-only index currently contains over 150 million Web pages. New pages, features and improvements will be regularly added leading up to the site’s fully-functional launch, scheduled for the first quarter of 2005.
	•	AJinteractive — Late in the third quarter, we formally combined the ad sales forces of Ask Jeeves, The Excite Network and MaxOnline into a single advertising division we call AJinteractive. This division sells ads on all of our Web sites, as well as across the third-party sites in the MaxOnline network.

Search

      We offer several different branded search alternatives. We believe that different people prefer to search for information in different ways. By offering a variety of search alternatives, we hope to deliver a search experience to each computer user that he or she will find intuitive and satisfying. In this way, we seek to attract and retain users.

      Most of our search alternatives deliver a results Web page that includes advertiser-sponsored links. These textual advertising links, which we call paid listings, appear on the results page in response to keywords in the user’s query. Advertisers select the keywords that will produce their paid listings. Some of our paid listings are sold to advertisers by our direct sales force while others are supplied to us by our paid listing providers, primarily Google, Inc. Some of our results pages also display keyword-targeted graphic ads, which we call Branded Response. Keyword-targeted ads, such as paid listings and Branded Response, enable advertisers to deliver their message at the moment when viewers are most likely to be interested — when they are actively searching for information related to the advertiser’s product or service. Unlike traditional Web advertisements, which can be intrusive and annoying, keyword ads are often useful to the user, and thus can be more effective for advertisers. We identify keyword-targeted ads as “sponsored” content on our results page and display them separately from the algorithmic search results.

      The search alternatives we offer include search sites and search toolbars, among other methods of accessing our search services.

	•	Search Sites. Our “Ask Jeeves” brand search sites — Ask.com in the U.S., Ask.co.uk in the U.K. and Ask.jp in Japan — utilize our proprietary algorithmic search technology, Teoma, to generate the results list. Teoma’s approach to ranking search results is different from that of other search engines. In the

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		Teoma results list, a site is ranked 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 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 sites. Our natural language processing technology enables Teoma to accept and process queries written in natural language, as well as keyword searches. Many of our Teoma results links are presented with a small “binoculars” logo. Using this tool, users can view a pop-up preview of the underlying site to judge its usefulness, without ever leaving our results page. 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 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 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, wedding registries, and more. 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. Ask.jp is operated by a joint venture between Ask Jeeves and Transcosmos Inc. Our other branded search sites include Teoma.com, AJKids.com, MySearch.com and MyWebSearch.com. In addition, our search revenue includes revenue arising from search results page advertising on our portals iWon.com and MyWay.com (which encompasses all of MyWay’s revenues because MyWay does not accept other forms of advertising).
	•	Search Toolbars. We offer several branded search toolbars, which users can download and install in their Web browsers. 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 (other than AJKids.com). Our most popular search toolbars are MySearch and MyWebSearch. These toolbars (like MySearch.com and MyWebSearch.com) 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. Users can download these toolbars for free from our Web sites. In addition, we have distribution arrangements in place with third-party application providers, such as Weatherbug, to bundle our search toolbars with their downloadable applications. In those cases, we and our distribution partners typically share the revenues generated by the bundled toolbar. We also distribute our toolbars as part of our Fun Web Products downloadable application, discussed below.
	•	Other Methods of Accessing our Search Services. We enter into agreements with third-party Web site publishers allowing them to add one of our search boxes to their Web sites. When a search is entered into one of those boxes, we control the results page that is displayed, complete with algorithmic results and keyword-targeted ads. We share the resulting ad revenues with the third-party site (as well as with the paid listing provider).

      We display a variety of advertisements on our search results pages. In addition to displaying ads that are sold by our direct sales force, we also display paid listings that are sold by third-parties and supplied to us under contract. Google Inc. is our primary third-party paid listing supplier. Google enters into contracts with hundreds of thousands of advertisers, who bid to have their paid listings appear on search results pages in response to designated keywords. We display paid listings from Google on almost all of the results pages we control and we syndicate them to some of the third-party sites in our syndication network (discussed below). Paid listings are clearly labeled as “sponsored” content on our results pages and are displayed separately from the algorithmic Web results. (On all “Ask Jeeves” brand results pages, the algorithmic Web results are

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Desktop Applications

      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. We make this application available free of charge from several sites (including FunWebProducts.com) and benefit from users’ subsequent use of the search toolbar. Our Fun Web Products include Smiley Central (www.smileycentral.com), Cursor Mania (www.cursormania.com), Popular Screensavers (www.popularscreensavers.com), Pop Swatter (www.popswatter.com), History Swatter (www.historyswatter.com) and three email personalization applications (www.mymailstationery.com, www.mymailsignature.com and www.mymailstamp.com).

Media and Syndication

      Our media and syndication revenues arise primarily from our portals and our sales of online advertising services through AJinteractive.

Portals

      We operate several branded portal Web sites with search functionality. We generate revenue by displaying Web advertising on these sites. Our portals attract users by offering a mix of information and entertainment together with internet services such as email, portfolio tracking, games, message boards and chat. Our portal content includes news, weather, shopping comparisons, horoscopes and more. 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 portals and media properties include:

	•	iWon.com. iWon is a content-rich portal with a user loyalty program built around cash 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 and less frequent larger prizes.
	•	Excite.com. Excite 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, search, games, shopping and other 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.
	•	MyWay.com. The MyWay portal 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 (which are generally disliked by dial-up users because they load slowly). As a result, MyWay revenues arise from search results page advertising and are classified as search revenue. This site has been well received by users due its clean design and its personalization feature called My Page.
	•	Co-Branded Portal. We built and 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