• by April 5, 2007

DoubleClick's announcement of a plan to launch an online ad auction exchange looks like a move to buff its valuation prior to the hotly contested race between Google and Microsoft's MSN, which are both vying to acquire it.

The online ad giant--which is reportedly asking for at least $2 billion--has said it plans to launch the auction exchange in the third quarter, and that it has signed up nearly 40 online publishers and digital ad buyers to test the system. The firm will charge a commission for each ad impression traded. The proposed system will allow advertisers to check competitors' bids on specific ads, while letting publishers sell inventory at the highest possible price.

The announcement, following close on the heels of a reported bid by Google for DoubleClick, sounds like a pot-sweetener prior to the sale of the online ad firm.

"I think the timing is intended to boost the valuation of the company in advance of the acquisition. That's pretty clear," said Greg Sterling, analyst, Sterling Market Intelligence. And while DoubleClick has the technology and advertiser/publisher relationships, it's unclear whether it actually has the infrastructure required for setting up an exchange, according to Sterling.

DoubleClick is believed to have been working toward an online ad auction exchange for at least a year using the code name "Project Wolf," according to Michael Walrath, CEO, Right Media, one of the first ad auction exchanges founded four years ago. Yahoo bought a stake in the company estimated at $45 million.

Walrath claimed that Right Media has 150 billion ads crossing its exchange per month for an estimated $30 million in ad dollars. He spun the announcement as "a lot of marketing speak," explaining: "What I've heard about it is it's an ad network. That's quite different from an exchange. It makes all the sense in the world if you have an ad-selling platform, but calling it an exchange puts a different spin on it."

Walrath said he's not surprised to see DoubleClick pursue the exchange strategy. "They do have assets to go after this market, they have the entrenched user base of advertisers and publishers which is a meaningful asset....The devil is in the execution."

The ad auction announcement makes the contest to acquire DoubleClick potentially more interesting--especially as Google has signaled its intentions to dabble in all media vis-à-vis online ad auctions.

"I think that Google wants brand advertiser budgets. This helps toward that end," Sterling explained. "MSN's AdCenter would also benefit from the acquisition because Microsoft has brand ad vehicles but this would give them a real viable, established property that would help give credibility to AdCenter."

Shar Van Boskirk, senior analyst, Forrester Research, has said that Microsoft is a better fit for DoubleClick than Google because Google has a culture of developing its own proprietary technologies. She believes Google will "absolutely have an exchange," but the question is, "Will it buy DoubleClick or will DoubleClick have its own online ad auction system and will Google have its own. This is a way to say to Google, 'You don't have to create your own technology.'"

On DoubleClick's prospects for success in the auctions arena: "I actually think DoubleClick is well-positioned to be successful in this space because it's already an established brand in the online advertising world. Publishers and advertisers know and trust them," Van Boskirk said.

"The idea that Microsoft is in the bidding for this and if they fail to acquire DoubleClick, it will reinforce a perception of weakness, a sense that Microsoft has lost an opportunity," Sterling said.

Online ad exchanges are trying to address entrenched inefficiencies in the ad buying process, as well as trying to maximize return on investment for advertisers.

A recent Forrester Research study found that 25% of online advertising inventory is never sold, while an additional 15% is sold as "remnant" and some is never sold. Online publishers and advertisers currently operate in the dark in terms of pricing and inventory.

DoubleClick claims that its proposed system will enable sellers to automatically generate the best return on investment for each impression served and enable buyers to target and purchase only the inventory they want. The system will be integrated with DoubleClick's DART ad management platform and offer a single billing and payment point for transactions.

Media Contacts, a unit of Havas, is one of a handful of agencies that's seen prototypes of the new system and offered feedback. "We are making a commitment to look at it but we haven't committed a particular client to the test," said Eric Wittlake, vice president/director of data and analytics, Media Contacts. "We're certainly expecting this to be live and hopefully with real scale later this year. We've talked to a few clients about it."

Wittlake noted that where search is concerned, keyword level management is perceived as a big burden for clients. He said his agency will set up bid strategies similar to those of online ad auctions where clients can place more effective and targeted bids.

"Tiered values can be applied to almost everything," he said.

As for the competition for DoubleClick, "It comes down to who wants it more. And it becomes a matter of political will," Right Media's Walrath said. "The play here is you're buying a big footprint. The question is: by buying the footprint, do you actually shrink it?"

Of DoubleClick's potential for success, Wittlake added: "DoubleClick has the potential to hit the ground running because it can bring its stable of publishers. Right Media talks about the number of participants it has and its thousands of sites, but they're mostly represented by a network; they don't have direct relationships with publishers directly."