Google-DoubleClick: Get ready for the fallout

Google-DoubleClick: Get ready for the fallout

Summary: Google paid $3.1 billion in hard cash for DoubleClick in a deal that could transform online advertising.

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TOPICS: Google
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Google paid $3.1 billion in hard cash for DoubleClick in a deal that could transform online advertising. At the very least, Google gets an entry into the display ad market--one of its weaknesses relative to rivals such as Yahoo.

Now the dealing is done (see story, Dan Farber, Donna Bogatin, Techmeme, Google statement), it's time for the fallout. It's going to be an interesting year (Google expects to close the DoubleClick purchase before year end).

Here's a look at just a few of the moving parts left in the Google-DoubleClick wake:

Yahoo: Talk about nuances.

Google-DoubleClick's effect on Yahoo is mixed to say the least. Bottom line: There are a lot of moving parts here.

For starters, Yahoo is a DoubleClick partner and uses the company's DART system. That won't be the case by the end of the year. It's highly doubtful that Yahoo is going to use a Google-owned ad serving system.

On the other hand, Google just validated Yahoo's display business, which just a year ago was the ugly stepsister of keyword ads. "When we did a strategic review we realized the scale of the display advertising was much larger than we thought," said Google CEO Eric Schmidt on a conference call Friday. "That was a change of view."

Bank of America analyst Brian Pitz goes a little farther. "We believe the second half of 2007 could be the inflection point where U.S. online branded advertising begins to grow faster than U.S. search," said Pitz.

So if you assume that Yahoo's Panama project pans out on search advertising the company could come out looking better as display ads gain.

For sale: aQuantive, 24/7 Media, ValueClick.

As VC Fred Wilson notes: It's safe to say banner advertising isn't dead. Don't be surprised if there's a run on companies tied to the old-fashioned banner.

If DoubleClick can go for more than $3 billion, $1 billion more than what was expected just a few days ago, DoubleClick rivals would be silly not to sell. Here are your options if you're a DoubleClick rival: Use DoubleClick's inflated price to find a bigger dance partner. Wait a year and then get trounced by Google. I'm no brain surgeon but the former sounds a helluva lot better than the latter.

Microsoft: To dance or not to dance?

Google apparently trumped Microsoft in wooing DoubleClick. I argued that Microsoft had to buy DoubleClick. Let's amend that: There's no way Microsoft should pay more than $3 billion for DoubleClick. That price--25 to 31 times EBITDA according to Pitz--is crazy.

The other thing to note: If the banner isn't dead the online advertising market may be coming to Microsoft's strength. Why? Microsoft's display advertising business isn't so bad. Microsoft has been weak in keyword advertising.

Still, Microsoft has to do something--don't be surprised if one of the companies mentioned above are on Redmond's shopping list. And an acquisition of Yahoo wouldn't be so bad either. Then customers could pick between two elephants--Google and Microsoft-oo.

Update: Mary Jo Foley, Donna Bogatin and Robert Scoble have some debate on Microsoft's role and whether the company had to bid for DoubleClick and whether it even upped its bid so Google could pay more. I maintain that DoubleClick got so pricey that Microsoft had to maintain discipline and stand aside.

DoubleClick: Congrats, but...

What's not to love if your DoubleClick? Well, you have to hold your big relationships for about 6 or 7 months. Any Google enemy--and there are a lot of them--is going to think twice about using DART. DoubleClick's mission: Hold it together.

As for DoubleClick's private equity owners it's all congrats. That return is stellar.

ROI: The new advertising benchmark.

With DoubleClick, Google moves closer to creating its advertising dashboard. Couple Google and DoubleClick's metrics and you have some real power. Google now has everything in place to be a complete advertising operating system with a host of business intelligence metrics. Google will still struggle in offline advertising, but that won't last forever. ROI will be the real winner here.

Google: We paid up because we had to.

Sure DoubleClick is a good fit with Google. They even share a building in New York. But the more I think about this deal the more defensive it feels. Did Google say "holy #$#! this display advertising thing is big and we've got nada"? Did Google notice its big weakness, see Microsoft moving in and spend a big sum on DoubleClick? We'll never know.

One thing that makes me wonder how defensive this deal was: Google paid all cash. Google has the best currency in the world to make acquisitions. Of course, Google has the cash flow to cover $3.1 billion easily, but it seems that DoubleClick's private equity owners wanted cash instead of stock. After all, why be greedy after making $2 million or more on DoubleClick. After that gain cash is king--even better than holding Google stock. 

Topic: Google

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11 comments
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  • Is Google crazy?

    Quoting the Comment:

    "I argued that Microsoft had to buy DoubleClick. Let's amend that: There's no way Microsoft should pay more than $3 billion for DoubleClick. That price?25 to 31 times EBITDA according to Pitz?is crazy."

    Google paid $3.1 billion in cash. If that price is crazy for Microsoft, isn't it crazy for Google?


    And the insistence on cash is significant. Quoting again:

    "Of course, Google has the cash flow to cover $3.1 billion easily, but it seems that DoubleClick's private equity owners wanted cash instead of stock."

    If the private equity owners had thought that Google stock was a good investment, it's possible they could have received even more in stock than in cash and be ready for the stock's gains.

    They didn't so decide.


    Confidence in Google is not now limitless, apparently.
    Anton Philidor
    • the price was lofty

      no matter who bought it, which is why it seems more defensive to me for Google. I think the cash aspect is very significant. Cheers
      Larry Dignan
  • Wish I had $3 billion to blow...

    But this is probably a good acquisition for Google. After all, why worry about developing something new when you can simply buy the established leader?
    chrisbacke
    • Exactly

      Exactly, why innovate when you can steal or buy someone else's ideas.

      Case in point, Microsoft.

      Case in point, Apple.

      And Google is definately a member of that club now.
      AdebisiTheGamer
      • Re: Exactly

        Huh?

        Are you saying that purchasing another software company is theft? Or are you saying that no company should ever purchase another company's ideas? All software companies must completely invent and develop their own code and never go elsewhere for code?

        What planet are you from?
        yyuko@...
  • Fallout?

    Yeah, everyone get your unbrella's. The undesputed king of web advertising is about to get in your face even worse than they already are.
    BitTwiddler
    • What Falloout

      Block every 3rd party ad everywhere you surf. FF + Adblock Plus + Adblock Filterset Updater. Toss in NoScript for blocking the usually useless Flash demo's and you are set.

      TripleII
      TripleII-21189418044173169409978279405827
  • Why buy rubbish?

    We have been scanning and deleting anything to do with doubleclick for years now with out spwyare removeal tools. Nobody wants any of it on their system. Why would Google buy such a thing. It's a sure looser in my book.
    OKJoe
  • Doesn't Matter To Me...

    I have never, not once clicked on any ad on any page I've visited since the birth of the net as we know it. If I am want to find something then I look for it on my own. If I see an ad that appeals to me, I just search for the retailer and go from there.

    I despise all of these ad heavy pages and damned if I'll click on them so someone gets paid to keep doing it.

    That's my 2 cents.
    Enorton42@...
    • yeah, but...

      They still gave you your tracking cookies, so don't act as if you never touched them
      kamahl928
  • RE: Google-DoubleClick: Get ready for the fallout

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