• by Laurie Petersen , April 16, 2007

The perception of Microsoft as a serious contender in the online advertising business suffered a big blow on Friday when Google came out on top of the bidding war and announced its deal to buy DoubleClick for $3.1 billion cash.

"Microsoft definitely took a hit," said Bill Gossman, CEO of Revenue Science.

"I think Google was in a better position to monetize the DoubleClick network," said vice president and principal analyst Charlene Li of Forrester Network. She noted that the pieces are now all in place for Google to own the consumer relationship from beginning to end with display ad eyeballs, search, and Google checkout.

"It would have made eminent sense for Microsoft to keep that asset out of Google's hands. They could have immediately flanked them," added Gossman. "The question has to be: Is Microsoft really serious about this business now? Selling in to publishers takes a lot of work. Microsoft underestimates the value Google sees in linking search with display advertising."

The only acquisition that would give Microsoft the same scale is Yahoo--but at a price of at least 15 times more--or $50 billion--surmised Jordan Rohan, Internet analyst and managing director at RBC Capital Markets.

Microsoft may have underestimated the value of the DoubleClick relationships. But don't count out the other players yet, said Li. "They are still extremely powerful presences in terms of display ads."

Tim Vanderhook--co-founder, president and CEO of online ad network Specific Media--suggested that Google may have trouble digesting DoubleClick, and Microsoft could come out ahead in the long term.

"Microsoft in all likelihood is still going to be a very motivated buyer in the display or search advertising market," he said. "Look to Microsoft to purchase an ad network that can help them monetize their internal properties, as well as give them access to publisher inventory, similar to the highly successful acquisition AOL made of Advertising.com. This model will prove to be an easier integration and more lucrative in the long run.

"Microsoft may also be very comfortable with the targeting and ad-serving platform they have built internally over the past 18 months," he added. "Their AdLabs Web site shows a very promising pipeline of innovation in this space and they may just feel they have what it takes to go it alone."