Google swallows DoubleClick (and CRT food fight)

I don't like Monday's IT Blogwatch: in which Google buys the mighty Web advertiser DoubleClick. Not to mention an old tube monitor vs. a giant slingshot and the contents of a supermarket...

Juan Carlos Perez and Robert McMillan report:

Google Inc. has agreed to buy DoubleClick Inc. for $3.1 billion in cash, an acquisition that strengthens Google's status as an online advertising powerhouse. DoubleClick's network of advertisers and Web publishers, as well as its technology to serve ads and manage campaigns, is expected to boost Google's ad business, specifically for display and rich media advertising, which aren't Google's specialties.

Google generates most of its revenue from search engine, pay-per-click advertising, which are text ads that link to advertisers' Web sites. But it has lagged behind Yahoo Inc. and others in banner, graphical and video ads ... The fact that there is such an "obvious alignment" between Google and DoubleClick advertising partners was an impetus for the deal.


Recent rumors had Microsoft aiming to buy DoubleClick for about $2 billion, so the announcement signals that a bidding war had erupted with Google ... The deal is a clear loss for Microsoft; it stands to affect Yahoo as well, because with DoubleClick, Google gets a much-needed boost in display advertising ... The deal may make it harder for Microsoft's struggling online division to compete with Google. Despite heavy investments of money, resources and personnel to develop its own search engine and search ad network, ... Microsoft has failed to benefit as much as it should have from the surge in online ad spending of recent years.

Eric Bangeman adds:

The acquisition of the privately-held firm marks Google's biggest acquisition yet, eclipsing the $1.65 billion in stock the search and advertising giant paid for YouTube ... When word spread that the company was looking for a buyer, speculation about the identity of the bidders centered around Microsoft, as DoubleClick would give the Redmond, WA-based company some much-needed ammunition in its battle against Google for online advertising dominance. In fact, when it was also rumored that Google was in talks with DoubleClick, the common interpretation was that Google was merely driving the price up for Microsoft. So much for that theory.

Microsoft is now faced with the prospect of building its own service from scratch if it wants to get into the same markets as DoubleClick or acquiring a lesser-known (and less valuable) competitor.

Robert Scoble agrees:

Microsoft certainly has a “we can build that ourselves for less” kind of attitude in its halls that is still proving to be ineffective in the Web 2.0 space. The thing I see in common between YouTube and DoubleClick is that Google is buying a moat around its search engine advertising business.

Google doesn’t want there to be ANY reason you’ll think of going with another advertising company. They are spending billions to protect their core business: contextual advertising ... Microsoft’s leadership isn’t willing to pay big bucks for things that don’t have clear business value ... [and] has been quite consistent in turning down best-of-breed deals because they get too expensive. Google, on the other hand, is seeing value in these things in the future.

It makes for an interesting contrast, that’s for sure.

But Mary Jo isn't so sure:

But what if Microsoft bluffed? What if the Microsoft didn't really want DoubleClick and simply wanted to bid up the price that Google had to pay to make its latest acquisition? I know I might sound like a Microsoft apologist trying to explain the DoubleClick loss. But think this through:

If you look at Microsoft's spending patterns, as of late, the company is leaning more toward doing less-than-$1-billion-sized acquisitions. In the increasingly rare cases when Microsoft does shell out big bucks (like close to $800 million for TellMe), it's because it envisions the target as a technology acquisition, not an advertising/customer acquisition.

Steve Fox is worried:

I smell monopoly here, one that could be disastrous for many Web site publishers --and ultimately bad for Web consumers as well ... Google already knows a tremendous amount about the traffic it sends to individual Web sites -- where it comes from, what people are looking for, even some basic demographics. With DoubleClick in the fold, they will also know what ads are being served on any given page. That gives Google unprecedented insight into publishers' business.


Let's say you run a fashion site and charge $100 CPM, or cost per thousand, meaning an advertiser would pay you a hundred bucks for every thousand page impressions. Google/DoubleClick may not know your CPM (though they could take a good guess based upon your traffic). But they will know who they've sent your way and how many ads you've served. With a bit of calculation, they could easily offer a slightly better deal to a fashion advertiser, offering up $90 CPMs to anyone who types in "fashion," "couture" and "Prada."


I would not be surprised to see this one smacked down by antitrust law.

Mark Evans waxes dramatic:

The online advertising market as we know it is now an entirely different beast ... The biggest challenge facing GoogleClick is avoiding a conflict of interest ... DoubleClick does business with of the Web’s largest advertisers such as AOL, who will be watching closely to see if Google favours its own ad activities.

Shar van Boskirk explains why Google wants DoubleClick:

Its not about the technology. Google already had ad serving. This deal gives Google access to publishers outside of its current AdSense network and to behavioral data that will help them with ad targeting. Now Google can move offline ... With the online space locked up, Google can focus on maturing its current offline efforts and on defining its next moves into traditional channels ... this deal will push Google far enough ahead that Yahoo! and MSN will finally accept their second and third place positions and invest in retaining customers and providing value to existing advertisers.

Google will have to maintain consumer trust.  Indeed Google is after consumer data with this deal which means consumer privacy concerns ... Consumers are willing to share data with marketers or media sites as long as the benefit for doing so is clear and their data is not abused.  This will hold true with Google too as long as it continues to provide great service and not overstep its bounds with its customers.

The price is actually a reasonable one to shore up Google's leadership ... While 3.1 billion reeks of "bubble 2.0 ness," it actually feels like a worthy price for Google to pay to block MSN's bid and ensure it stands alone as the king in this space.

And Scott Karp expounds:

This is the main reason why Google acquired DoubleClick — relationships ... Google has realized that it cannot growth solely through the value proposition of hyper-efficiency, because most of the ad dollars are still controlled by companies focused on “branding,” which is far from hyper-efficient, to say the least ... brand advertisers will pay more not to be raked over the coals of hard ROI. And this isn’t necessarily a bad thing — while a lot advertising is probably still wasted, a media and marketing world driven entirely by Google’s hyper-efficiency would not necessarily be an attractive place.

Ultimately, Google knows that control advertising means controlling the fuzzy middle between branding and direct response ... Ads served by DoubleClick exist in the fuzzy middle, and those ads are still bought and sold more via connections between people than they are via connections between machines ... People aren’t nearly as efficient as machines, but that doesn’t mean they can’t be programmed to feed Google’s money making machine.

Jack Schofield is curious:

This is an all-cash deal. Sure, Google is rolling in billions and doesn't have to care about small change. However, deals like this are usually done for shares, and Google shares used to be extremely desirable. You can now assume that they are not.

Buffer overflow:

Around the Net Around Computerworld Previously in IT Blogwatch

And finally... Fun With A Giant Slingshot [hat tip: b3ta]

Richi Jennings is an independent technology and marketing consultant, specializing in email, blogging, Linux, and computer security. A 20 year, cross-functional IT veteran, he is also an analyst at Ferris Research. Contact Richi at Happy birthday, Mum.

Copyright © 2007 IDG Communications, Inc.

Shop Tech Products at Amazon