Google's agreement to acquire the leading online ad network DoubleClick for the astonishing price of $3.1 billion in cash was both a bold move to keep the capabilities away from competing bidder
Microsoft and a recognition that Mountain View needed to get into the display advertising market sooner than later.
"Search and display on the Internet are converging. The evidence
is everywhere," said Jordan Rohan, Internet analyst and managing director at RBC Capital Markets. "The lines between search and display are faint today and will be gone tomorrow."
In the
conference call announcing the deal from Argentina, Google CEO Eric Schmidt said the purchase accelerates the search giant's entry into the display ad businesses by years, and the price reflects the
future value if the synergies anticipated by integrating search and ad display platforms are achieved.
In addition to its technical prowess, DoubleClick brings deep publisher relationships that
it would be difficult for Google to replicate quickly.
"With one acquisition they are buying their way into the one part of the marketplace where they have no presence," said Charlene Li, vice
president and principal analyst with Forrester Research, covering Google, consumer portals and search.
"This deal is about creating a network of publishers and advertisers that would number in
the millions," Rohan added.
Increased online ad spending is one expected end result if big brand advertisers and their agencies are able to tap a more efficient way to place, manage and evaluate
all online ad and search spending with a unified buying platform and metric.
"Hopefully, it means a more integrated decision-rich process for online advertising," said Rohan.
Non-search
Internet display advertising increased 17.3% in 2006 to $9.76 billion, as measured by TNS Media Intelligence. That spending now comes disproportionately from mid-size and smaller advertisers.
DoubleClick commands anywhere from half to an estimated two-thirds of the ad-serving market.
"If you talk to agencies, one of the biggest challenges we have is to reach the audiences we need to
reach because consumers are all over on the Internet," said Bryan Wiener, CEO of agency 360i. "If anyone can provide tools to make a single buy and optimize it, that's good for marketers. Still, the
marketplace is going to want competitors to Google."
Look for more acquisition activity as thwarted suitor Microsoft seeks an alternative. Yahoo, which is scheduled to release first-quarter
earnings tomorrow, can also expect more pressure to integrate its search and display ad capabilities.
Weekend speculation was rampant that the so-called "DoubleGoo" deal now puts Yahoo in play,
although the price, Rohan said, would approach $50 billion, including its stake in Yahoo Japan. Another talked-up target is Seattle-based aQuantive, which owns both No. 2 ad network Atlas, and
Accipiter. Still, some 60% of its revenues come from agency Avenue A|Razorfish.
"Google is all about performance and measurability," Schmidt said, also emphasizing the shared yield management
vision of Google's auction-based media buying model and the announced auction system DoubleClick plans to launch mid-year.
Users, Schmidt said, will benefit by seeing more targeted and relevant
ads; online publishers will get access to more advertisers to monetize inventory; and agencies and advertisers will get a new way to manage search and display ads in one place, with a common set of
metrics.
Google co-founder Sergey Brin said the company will adhere carefully to its consumer privacy principles when asked if consumer search behavior will be used to display behaviorally
targeted ads.
Both companies were equally reticent to describe future products that may result from the acquisition.
"DoubleClick is a very healthy company," said Rohan. "So Google only has
to not mess up in order for the deal to be a mild success. For it to be an industry transforming transaction" has to do with those future products.
The deal is expected to close by the end of the
year and must go through antitrust review by U.S. regulators under the Hart-Scott Rodino process. But company officials are optimistic it will pass muster.
"We believe this is a combination that
will generate significant efficiencies for the market," said DoubleClick CEO David Rosenblatt.
True winners are San Francisco-based private equity firm Hellman & Friedman along with JMI Equity
and management. DoubleClick was taken private in 2005 for $1.1 billion.
Google was one of the final four companies in due diligence during that process.