• by Mark Simon , April 2, 2007

Last week, rumors sprang up that Microsoft might be looking to buy ad-technology firm DoubleClick. Assuming that the rumors are accurate -- and they're certainly looking more truthful all the time -- I'm left wondering if a DoubleClick buy would actually be a step towards a much larger Microsoft acquisition down the road. Specifically, Microsoft may want DoubleClick so it can buy Yahoo.

Before I explain, allow me to give a bit of background.

Why It's Good For Microsoft

As it's raced to catch up with Google and Yahoo for online leadership, MSN has focused heavily on building a better product, largely through better technology. When it first entered paid search, MSN chose to break the mold with its super-targeted AdCenter, rather than simply build an AdWords look-alike. As I argued last month, MSN also seems to be looking to make its Live.com the most sophisticated search engine around, partially through integrating features of ultra-intelligent health-search engine MedStory.

A DoubleClick acquisition would be in keeping with that strategy of pulling ahead by building (or owning) a better mousetrap. DoubleClick's Dart platform is one of the best in the business for allowing both advertisers and publishers to manage display advertising over publisher networks. Having Dart in-house would put Dart for Publishers -- the publisher segment of the Dart technology -- at Microsoft's beck and call. That ownership could seriously boost Microsoft's ability to monetize its vast publisher presence, the MSN portal.

Why It's (Basically) Harmless To Google

If a DoubleClick purchase helps MSN, will it hurt Google? According to many experts, probably not. The insight that's getting bandied about most seems to be that of Trip Chowdhry, director of research at Global Equities Research. Chowdhry calculates that Google could lose up to $120 million in ad revenues to a DoubleClick-empowered MSN. That sounds like a steep loss; but, in the words of MarketWatch's Ben Charny, $120 million is "a drop in the bucket for Google, which had approximately $3 billion in profits in 2006."

Meanwhile, there are other rumors that Google is building a Dart-like publisher platform of its own. If that's the case, then Google has even less to fear.

Microsoft + DoubleClick + Yahoo = Trouble

But the rosy speculation for Google ignores the possibility that Microsoft will buy DoubleClick so that it can buy Yahoo. If that's the case, then Google really may have reason to be nervous.

The logic behind a Microsoft purchase of Yahoo -- first suggested last summer by Merrill Lynch's Justin Post -- is that while each entity is strong on its own, a combined Microsoft/Yahoo would be an incredible powerhouse. Yahoo is the largest publisher on the Web and the most popular site in the U.S.; MSN is far less popular, as the #3 engine and the #4 American Web destination. Meanwhile, MSN's back-end technology is considered the stronger of the two; and so a combined MSN-Yahoo would benefit from Yahoo's scale and MSN's technology. It would be that rare, highly lucrative media breed that's massive and intensely smart -- which would make it a gold mine.

But few voices have been entirely clear, just yet, on exactly how MSN would go about enhancing Yahoo through better technology. One option would be for MSN to build capabilities on top of Yahoo's current system; but MSN, a company in a hurry, might not want to sit through such a complex development process. A better option for Microsoft might be to buy the technology necessary to take Yahoo to the next level.

Enter DoubleClick. As the back-end technology for both AOL and MySpace's publisher programs, DoubleClick has shown itself to be highly capable at managing large publisher networks. And coupled with MSN's own publisher solutions, DoubleClick might offer exactly the capabilities that it would need to harness Yahoo's full potential. In other words, Microsoft may need DoubleClick -- as least in part -- as a way to capture the full potential that a Yahoo purchase would promise.

If Microsoft does buy Yahoo, the new entity would combine the second- and third-most-popular search engines, the first- and fourth-most-popular online destinations in the U.S., and a technology back-end developing at MSN's speed -- newly boosted by DoubleClick, assuming the DoubleClick buy goes through.

Which is an awful lot of online power. And if I were Google, I might be a little bit worried. After all, wherever a $2 billion DoubleClick buy might take Microsoft, one thing is clear: Microsoft is on a mission, and it's aiming to catch up with Google in the next few years. I wouldn't bet against it.