Google-DoubleClick: Get ready for the fallout

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.