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April 13, 2007


The Shadow

This is not a wholly unexpected development - but at first glance seems to be a purchase at a substantial premium. Since DoubleClick was taken private - it is only a matter of conjecture what growth rates have been obtained.

However, there are less tangible probems that arise when you swallow a varmit without taking the time to digest it properly...

As I have observed over the last 20 years in the high-tech industry - acquisitions such as this more often than not result in some culture conflicts that degrade the anticipated efficiencies, economies of scale, and predicted synergies. The recent acquisition of JBoss by RedHat - as well as TimeWarner's acquisition of AOL - being two cases that immediately come to mind.

At the end of the day - it comes down to people. How well will the two organizations mesh?

The skeptic in me wonders how much of this price reflects Microsoft's willingness to bluff a potential acquisition to lure Google into overbidding - and thereby reducing the size of its available cash to perform other acquistions.

And as far as adding to their "world-domination dashboard" - I would seriously challenge anyone to cite anything they are doing that is dominate outside of search and their adwords revenue behemoth.

It seems to me that they continue to "ready-fire-aim" without producing any measurable results outside of their core competence of search.


Google "If we will count all hits on ads as DoubleClick we will double our revenue!

This must be the logic in recent move of Google to acquire DoubleClick for 3.1 billion dollars. Sorry Henry it did not work out in 2000 it will not work out now. It is just great investment approach - powerful and simple: nobody is worrying about short term or even any business perspective. Ego and arrogance and Bubble Vision GBF Get Big Fast in its pure essence. Microsoft and Yahoo! are doing their job as competitors masterfully: they are hitting in the Core of Google strength: it is not technology (plenty of competitors and some even claim superior results in relevant Search), it is not product line (there is no really any product line - it is just one product search and whole business depends on it results), but financial strength of the company before YouTube move - it used to be the company with pile of cash (over 10 billion dollars) and strong increasing cash flow until 3rd Q 2006. I can not see any other reason for this decision, but fear that somebody else could acquire Double click and challenge "near monopoly" in Search. The problem here is with word "monopoly" you can not "corner the market for the "advertising operating system". This "monopoly" in economic sense is completely different from monopoly in Gas supply for example, it is mirage of a "monopoly" of choice. Any monopoly is putting constrain on consumer choice and is giving opportunity for price dictate. If someone will corner the Gas supply market it - will be monopoly, you want to drive - you come to us, only. No hydrogen around, welcome to our shop. With Google or any search company we have "monopoly" of choice when consumers are putting restrictions on themselves and decide to use mostly this particular service. Should trend and fashion change tomorrow all competitors are just click away. With such sensitive and unstable base which in saturation point of growth you can not "corner" advertisers as well. If tomorrow 30% of your audience moves to Facebook and Joost your advertisers will move with them. Price tag of 3.1 billion dollars for company with 150 million dollars in revenue (DoubleClick had roughly $150 million in revenue last year, according to the Wall Street Journal) even if it is strategic asset shows that bubble mania is back in full force in silicon valley and decisions are not based on any kind of sensible financial analyses. Interesting to note that Microsoft work away when price surpass 2 billion dollars. "
"Strategically it could make sense but the suggested acquisition price is way out of line.
Google is moving into this space so DoubleClick’s existing revenues and margins are likely to shrink.
Third, as ClickZ points out, AOL, DoubleClick’s largest customer, is likely to leave if a competitor like Microsoft buys them.
Fourth, a fellow Microsoft employee just pointed out to me that, DoubleClick’s DART system has an enormous collection of cookie and clickstream data on its customers that could raise competitive and privacy concerns.Lets look at the numbers. Hellman & Friedman acquired DoubleClick a little over a year ago for $1.1 Billion. Since then, according the WSJ, they have divested two divisions of the company for $525M, leaving a net investment of about $600 million. And they want to sell it for $2 billion? Ya , right.The revenue multiples don’t make sense either. DoubleClick had about $150M in revenue last year with about $100M coming from ad placement. Presumably the rest of the revenue came from businesses that were divested. So, H&F wants 20 times revenues for DoubleClick? Maybe 20 times earnings would make sense, but 20 times revenues? You have got to be kidding?"


I actually think this will be a positive for the stock. Google has gone out of its way to prevent MSN winning any substantial deals: AOL, MySpace, YouTube, and now DoubleClick. This means that MSN's adcenter will founder because it doesn't have critical mass in terms of inventory. So in the short term Google may have smaller margins, but it's getting close to monopoly power in the ad space and I don't think it'll be long before this helps its margins grow.

Media Curmudgeon

I subscribe to your blog and enjoy your insights. I linked to your post in the most recent post on my blog, However, I disagree that the DoubleClick acquisition will be a significant long-term gain for Google or will move its stock price in the long-term. It's purchase of dMarc has not been successful and broadcasters and cable will not give their good inventory to Google to sell, especially after its purchase of YouTube and Google's arrogant attitude--it thinks it can sell anything and knows how to do it better than the networks do. Google is not smart to pick a fight with the big media guys.


Henry, are we gunna do the sweepstakes again?

Jeff Shattuck

Henry, you rock, hut I have a different point of view on Google's Doubleclick acquisition. Would love your thoughts if you get a moment.

Google's core competency is search, and selling keywords (an idea Google stole from Overture) is how Google makes money from search. Selling keywords is a brainless activity that does not distract Google from its primary information of making the world's information available. Running Doubleclick's business, however, will not be brainless, and I wonder if Google can do both search and ad serving with equal aplomb. I also worry about the potential conflict of interest in terms of Google's two businesses: one, its search businesses and two, an ad serving business that seeks to objectively monitor the performance of the ad itself as well as the media.


Another huge deal roles around Henry. Google and Clear Channel:

Nathan Van Prooyen

The behavioral targeting implications of this are huge...if Google decides to go down that road.


Henry -

gotta say, I think you're analysis is a little simplistic. Two things -

Google, had the oppty to buy DCLK 2yrs ago in the 1.1b range, but declined to advance to the final round, mainly because they could not see how to monetize the data underlying the DART cookie. So now, 2yrs later - they pay 3x that amt and they 're being hailed as visionaries??? In the words of my best friend - Bitch, Please! :)

2. People seem to be forgetting that DCLK remains subject to a settlement agreement they entered into to end lawsuits and investigations due to the privacy issue of circa 2000. Those agreements dictate how that data can be used and add some obligations (i.e. costs) that competitors won't have to contend with. These obligations were transferred to HF and will still be in play for Google - perhaps more so when the Europeans do their review.


What Google's Purchase of DoubleClick Means to Publishers and Advertisers

Last fridays' announcement that Google is paying $3.1 billion (with a "b") for fledgling ad serving company DoubleClick didn't really come as a suprise considering plans to sell the company were not a secret.

Talks of an anti-trust uproar from competitors like Yahoo! and Time Warner could delay completion of the deal, but will it really make a difference?

With reports that Google's pay-per-click (PPC) advertisers are planning to cut back what they spent just a year ago, Google obviously is not abandoning PPC advertising, but is offering another sign that it believes other advertising models work. Add to the mix ongoing click-fraud allegations and PPC advertising may have reached its apex.

Google is about to get its hands on a company that deals a lot with
CPM (cost-per-thousand) impression advertising and now is beta testing a CPA (cost-per-action) model. Of course there's cost-per-lead, cost-per-acquisition, cost-per-fill-in-the-blank and even some flat rate models offered to advertisers by publishers of all shapes and sizes.

Frankly, publishers and advertisers are experiencing a dwindling reliance to use services like DoubleClick DART for advertisers. Publishers have ad serving technology readily available to them and advertisers are having increasing difficulty justifying the costs.

John K

I think a lot of people are overlooking the Ad Exchange component that Google is picking up. It could be the differentiator as to why they decided to buy DCLK now instead of 1-2 years ago.

I also think Yahoo could emerge reasonably well once Microsoft realizes it's the big loser:


Seems to me that if this was only about behavioral targeting and nothing else, it might be worth the price. It will be a big and risky job, but if Google can successfully integrate DoubleClick, they could see a giant leap in relevance -- both for search results and for ad serving.

Google's already trying to profile based on search history, but they can only detect what keywords are entered and what search results are clicked. Unless you use the Google toolbar or land on a site with AdSense ads, Google doesn't know what other sites and pages you're interested in.

Imagine I search for the term [maya] in Google. I'll get results for Maya Angelou, Autodesk Maya Animation Software, and Maya archaeological sites. If I'd previously visited a DoubleClick partner like and searched for flights to Cancun, maybe my search results could be better personalized to emphasize the Mayan civilization rather than poets or software. I'd be much more loyal to Google if their search results are more relevant, and the search ads Google displays could be more finely targeted and will get more clicks -- and those relevant clicks will more often lead to sales so advertisers will bid up CPCs.

Every management team trots out "synergies" when justifying a merger. There's a real virtuous circle here that could dramatically boost the relevance of search results, search ads, DoubleClick ads, AdSense ads, and even Dish Network/DirecTV ads. If Google can pull off the integration without spooking the privacy watchdogs, Google will be able to print money.

I don't know that they can. Google's competitors have every reason to sound the privacy klaxons to limit the juice Google can squeeze from this transaction.

j0hn g4lt

According to the AP on Fri May 18, 8:17 AM ET:

"Microsoft Corp. said Friday it will purchase online advertising firm aQuantive Inc. for about $6 billion in cash in a move to expand the software company's role in the Internet advertising technologies market."

'nuff said. The war is on.


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