Google pays $3.1 billion for DoubleClick

Google has taken DoubleClick off the market for $3.1 billion in cash, giving it access another side of the online advertising world. Once again, Google leaves Microsoft, Yahoo and AOL in the dust (see statement).

As Larry Dignan surmised earlier this month, Microsoft once again has been trumped by Google in the search and online ad space:

Let's assume Google is serious about DoubleClick. If you combine Google and DoubleClick Microsoft will really have to play catch-up. And I'd argue we're beyond the point where Microsoft could build its way to parity. Take DoubleClick off the market and Yahoo becomes one of the few options for Microsoft's online advertising aspirations. And that's really going to be pricey.

You have to wonder how Microsoft plans to compete more aggressively with Google in search ads. The company has around $30 billion in cash that could be used to grow via acquisition. It's a bit strange that Bill Gates and Steve Ballmer talk about search and online ads being in its infancy, with the implicit meaning that Microsoft will eventually get it right and outlast competitors as it has in other categories, such as video games. In this case, Microsoft can't spend enough in R&D or develop technologies fast enough to bust the Google juggernaut, which has no problem in acquiring audience (YouTube) and market share (DoubleClick). 

Earlier this month Don Dodge, who works at Microsoft, speculated that $2 billion (supposedly DoubleClick did about $300 million in revenue last year) would be too much for DoubleClick, and that AOL (a Google partner) being DoubleClick's largest customer would be a problem if Microsoft did the deal. The $3.1 billion in cash does seem steep, but keeping DoubleClick out of Microsoft's hands must be worth a premium to Google.

Google watcher Donna Bogatin concludes:

Although Google reigns supreme in the category it catapulted to online advertising fame—PPC text ads—it has not achieved similar success with “image ad” serving.
The acquisition of a dedicated banner ad serving firm such as DoubleClick, with its established clientèle, would complete a virtuous circle of powered by Google online advertising:
Pay For Performance Text Ads,
Pay For Action Referral Ads,
Pay For Delivery Display Ads!