Google's Performics Conundrum

Last week, I promised to continue my discussion of GoogleClick by exploring what the deal, assuming it goes through, will mean for Google itself. I'll make good on that promise now.

Overall, my grade for the deal is very high: I'd give it an A. If you think it's a Google world now, watch what happens when Google, the undisputed leader in search, gets DoubleClick, the undisputed leader in display ad management. Owning search and display advertising would mean that Google's dream of ruling all media would come a lot closer to fruition.

But I still can't give the deal an A+. For me to do that, Google will need to address its plans for Performics, DoubleClick's affiliate and search marketing division. As a search marketing firm that would be owned by a search engine, Performics presents a real conflict of interest for Google; and so Google needs to work out exactly where Performics would fit within the Google empire before GoogleClick goes through.

Actually, Performics doesn't pose just one conflict of interest for Google -- it poses two conflicts. The first is that, as a search marketing firm, Performics must be engine-agnostic with its clients' search spend. For clients doing well in Google, that means putting more spend into Google. For clients doing better in MSN, Yahoo, Ask, or anywhere else, that means placing more spend in those other engines -- at the expense of Google.



That kind of engine-agnosticism isn't so hard to maintain for a search firm that's completely independent of the engines. But if Google owns Performics, will Performics feel enough autonomy to put its clients' interests first, and its parent company's interests second? And even if Performics does feel that autonomy, how will Performics' clients feel? It's a serious issue that Google will have to grapple with.

The second conflict comes in the way of management fees. If Performics is owned by Google, then paying Performics to manage Google campaigns essentially means paying Google twice for Google ads: once for AdSense, and then again for Performics' services, which are Google services. That just doesn't seem right.

To be sure, Google could soften the double-payment problem by repositioning Performics as an AdWords platinum-level service. Standard advertisers manage AdWords on their own; on the next level up, advertisers work with Google reps. For the most help -- and an additional fee -- Google's in-house search marketing team, managed by Performics, delivers the highest level of AdWords service. But so long as Performics manages campaigns outside of Google, it's hard to accept an image of Performics as an AdWords service. And at least for now, Performics doesn't look ready to divest campaigns outside of Google: Performics' Web site still touts Performics' status as a Yahoo Strategic Provider.

So how could Google solve its Performics conundrum -- and get my grade of A+ for a DoubleClick buy? I see two possible solutions.

One solution would be for Performics to stop managing campaigns outside of Google, thereby becoming a true AdWords service -- and also eliminating the need for, or even the option of, choosing between clients' best interests and Google's. Of course, it remains to be seen how many advertisers will want to pay top dollar for a Google platinum service; for the same price, advertisers could hire independent search agencies to optimize spend across all engines, and not just within Google. To me, that seems to be a more efficient way to manage spend, which is why I'm not sure how viable that model is long-term.

Which is why, in the end, there really might be only one solution to the Performics conundrum: once Google fully acquires DoubleClick, it should let Performics go.

For DoubleClick, it wouldn't be the first time the company has dropped divisions in order to move forward. Since 2006 alone, DoubleClick sold off both DoubleClick Email Solutions and Abacus, the company's data management holding. Maybe Performics will need to be another DoubleClick division that takes one for the team.

And dropping part of a new purchase could be particularly valuable for Google, as it embarks on this new phase in its empire's growth. As with any company that's growing at lightning speed, it's crucial for Google to take heed of the fact that, in the long run, lean giants fare better than bulky ones. Taking a bold step of losing a division would show that Google understands the need to be lean -- which would bode well for Google as it continues to build its empire into the future.

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