Why Google bought DoubleClick

34 Comments

If there was any need for proof that Google considers advertising its core competency, then last few days provide ample testimony to that fact. The Mountain View, Calif.-based company has partnered with Clear Channel Communications to sell radio ads, a move that follows their decision to snap up DoubleClick for $3.1 billion which has been the big news of the weekend.

The DoubleClick acquisition showed that Google is willing to spend any amount of money to defend its advertising turf. The deal has also prompted AT&T, Yahoo and Microsoft to cry foul and whisper to media about an anti-trust investigation, a preposterous notion, considering that Microsoft had a chance to outbid Google.

To get a more realistic perspective on Google’s decision to buy DoubleClick, I reached out to Mark Kingdon, CEO of Organic, Inc., a leading online marketing firm that works closely with Fortune 1000 companies. Mark is an expert in Internet branding and online advertising. We met when I was reporting a story for Business 2.0, and since then I have come to rely on him as a barometer of sanity when it comes to online advertising. I did a short interview with him, to get his take on Google’s move to buy DoubleClick. Here are some excerpts.

Om: There are some who believe that this deal marks the return of the banner. What do you say to that?

Mark: Did it ever go away?

Om: Is this an attempt by Google to exert more control on the advertising market and at the same time keep competitors at bay?

Mark: DoubleClick is a very strong complement to Google’s dominant search offering. If Google develops an equally strong offering in video, gaming (AdScape), mobile and digital outdoor, they could offer advertisers a way of reaching consumers just about anywhere in the digital world.

Om: What is the real value of DoubleClick?

Mark: This was a strategic purchase. They locked out a competitor (Microsoft) and expanded their core business in a closely related area. It is Business 101. It’s about speed to competitive advantage. Google gets a leader in placing display advertising which brings along a very large advertiser base. Google has a big brain trust and will likely find new ways to aggregate, segment and optimize.

Om: If you look beyond today, how does this acqusition help Google? Does this buy them time, as the advertising industry tries and figure out its future models?

Mark: Advertisers buy what they know and they innovate on the edge so Google is expanding its relationships and market coverage. Everything that’s happening on the edge is having a gut-wrenching impact on the big middle. Think about YouTube and its impact on big media. Business models are slow to change when billions of dollars are at stake.

Om: Both Google and DoubleClick are moving ahead and setting up ad-exchanges. Are they a key component to this deal?

Mark: TBD. It sounds like an obvious direction for Google to take. Add in real- or near-real time optimization across different digital media and you have a mouth-watering concept. Everything from commodities to collectibles are sold on exchanges so why not ads? Here’s why: there is a big business built on the buying and selling of ad space. It comfortable, familiar and very profitable for the participants.

34 Comments

Hukiworld

Doubleclick is a big cookie tracker. Why in God’s name would ANY company even be associated with it? Now I know who to blame for my computer fucking up and getting popups and fake virus infected pages to try get me to buy crap I don’t need and off-setting my computer to the point I have to format it all again to get to run correctly again. Thanks Google.

sheila

Google now needs to buy zvue which is expanding their European market and making itself fertile ground for a takeover.

Holger Kamin, zanox

Everyone has been talking about the return of the banner, but the industry trend is actually heading in the opposite direction – away from display ads and towards cost per action because it’s by far the most efficient form of online marketing. And advertisers want efficiency and ROI! They need to be able to accurately measure whether they have hit their targets (revenue or new customers etc) or not – and they need to do it within a defined budget.

This deal does next to nothing to help Google with CPA – DoubleClick only has a small customer base and low market share in this area.

Cephalos

I thnik google is going overboard with this buy, not that Microsoft is a saint but its really not a good buy for google at this time( look at the stock market ). One thing is true in this forum and that is the fact that google is Inventing the future they dont care what they have to do they are just going to make the future happen. Since everybody else rather spend their money on Lambo’s and Ferrari’s(not that there is aything wrong with havin exotic toys, but you get the point) these guys are going to make The Matrix 1.0. and we have seen the preview with google-earth,etc etc…

Brian Laks

Now if Google could just get around to buying ebay and amazon, and partnering with wal-mart, they could skip all this mess with advertising for companies and just sell the products directly. Then, maybe with some help from private equity, they could buyout the US Department of Justice and their antitrust worries would be gone!

blammo

Bizdev, you are right about the remnant option. But Google currently offers this and has to compete with other ad networks. They could offer DFP for free if publishers accept Google ads to serve remnant. Problem is that most big publishers are very slow to do this as it degrades the value of their display units which publishers charge really high CPMs for. They will run Google units in non-premium inventory instead.

blammo

Doubleclick is an ad server. Why are people confusing what they do with “access to the online display ad market.” It doesn’t give them that. Ad agencies control online display advertising. Publishers use Doubleclick to serve ads on their site. Advertisers do use DFA (dart for advertisers) to track campaigns, but on the advertiser and publisher side, Doubleclick is just a tool, a piece of software. The acquisiton gives google some inroads, but people are really exaggerating Doubleclick’s significance.

Patrick Kitano

Google cleverly announced its new relationship with Clear Channel on Sunday after the Friday the 13th Double Click release. With Clear Channel, Google is proclaiming that indeed its “Advertising Operating System” is working, and it’s assuaging Wall Street – don’t fret at the high price of the acquisition. And yes, Google stock price rose today.

BizDev

One angle you all are missing is that Google sees this as an augmentation to its AdSense play. Bear with me just a second.

Think of all billions of impressions that are served by DoubleClick, and the hundreds of millions of impressions that are diverted to non-revenue bearing “house ads”. Google will offer the publisher the option of “back-filling” all unsold impression inventory with its AdSense ads – a win-win for both GOOG and the publisher. (This feature is one of the main draws of Google Ad Manager (GAM) product that the search giant had been beta-testing since fall last year.)

LuditeWatcher

“there is a big business built on the buying and selling of ad space. It comfortable, familiar and very profitable for the participants.”

Spoken like a true legacy advertising wonk

Jordan Mitchell

Banner advertising has never been extremely effective, either for advertisers or for publishers. The growth in display advertising over the last 5 years is nothing compared to search/contextual advertising.

So Google is not buying DoubleClick to get a piece of that business. They did so in order to:
— change their creative
— reach new publishers
— broaden their data stream

I expand on those reasons at my blog.

This all about profiling and monetizing those profiles with relevant advertising. They know much more about each one of us than you think. The next obvious step for Google was display advertising, and if they can build a long-tail of display advertisers like they did with keyword/text advertisers, while leveraging their profiling data and auction bidding system, they can make a ton more money for themselves and publishers.

Brian

Certainly ironic that ATT and M$FT cry antitrust, but Yahoo! is being lumped in unfairly. I have not seen one official comment from Yahoo! other than “no comment.”

Even the story you link to states “A Time Warner spokesman said that the company had not decided whether it would try to block the deal. A Yahoo spokeswoman declined to comment.”

Hack.

P. G.

Today in WSJ:


“Google’s purchase of DoubleClick combines the two largest providers of online advertising delivery and is going to reduce substantially the market competition on which Web sites rely on to provide advertising,” said Brad Smith, Microsoft’s general counsel. He said that, taken together, Google and DoubleClick would handle more than 80% of the advertisements served up to third-party Web sites when a user pulls up a page.


http://online.wsj.com/article/SB117667837084170630.html?mod=home_whats_news_us

Keith

It’s not as profitable for them YET, but at least DoubleClick’s biggest competitors aQuantive and ValueClick got a nice little bump in their stock prices this morning. Assuming Microsoft and Yahoo are still in the market, these two companies will be getting a lot of love.

ronald

My question to all who say that Microsoft forced Google to pay more for DoubleClick ?
What should Google have spend the money on otherwise?
It’s not like they are a technology company and require a lot of research for future products.
My guess is only iff we switch clients to more local context driven systems to take advantage of the multi core architecture of future cpus will Google get in trouble, i.e changing search by sharing context between client and server automatically. Microsoft as usual bounces from Tree to Tree without seeing the woods they are in, or the advantage they got.

Peter Brockmann

I see this deal as a positive for Google. It’s about access to market. Google dominates the small, local business markets while DoubleClick has the tier 1 advertisers. Bringing products to both segments creates value that didn’t exist before.

I scored this a B grade (http://www.brockmann.com/index.php?option=com_content&task=blogsection&id=11&Itemid=53) most because customers didn’t seem to mind to go here for display, and go there for search advertising. Timing could have been better for Google – like last year?

AT&T and Microsoft will get nowhere with the anti-trust regulators. They put more weight into the documents that Google and DoubleClick shared with their boards and officers.

Showmick

RandomThoughts: Great line of thinking. Although, at some stage Microsoft has to make its own game better rather than pushing Google to outperform … lol

I admire Google’s guts to take risks. Sorry guys but Google is at least trying to build the future. Yahoo and Microsoft on the other hand are struggling unsuccessfully to find the gumption to drive anything remotely innovative.

Rodney

MSFT’s ability to outbid Google for DoubleClick might be used to counter elements of an antitrust claim (monopoly = monopoly power in a relevant market and anti-competitive conduct) but by itself, it does not say much about the whether such a claim has legs.

RandomThoughts

Om, I wonder if Microsoft was really interested in DoubleClick or were they just hanging around to make Google pay more? I think Microsoft did this when AOL was up for bids, and I have a feeling they may have been playing the same game with DoubleClick.

Make your competitor pay more for everything they do and you make your life easier, especially when it doesn’t cost you anything.

Steve Morsa

Under any scenarios or valuation methodologies, at 3.1 billion, this was a foolish and ill-advised purchase.

Microsoft (or Yahoo) weren’t “beaten to the punch” on this; they’ve got the money and could have certainly paid more…if they’d wanted to.

They’re both just smarter than that.

P. G.

$3.1 billion, in cash, is a hefty price for DoubleClick, and a big slap for microsoft! DoubleClick generated about $300 million in revenue last year, and the combined force of these two ad giants coould be very strong. Executives at Microsoft must be going crazy as its online mistakes stack up, one after another. It will be interesting to see online ad marketplace competition unfold itself in the days to come.

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