US markets are returning to the days of dotcom madness with the purchase this week by Google of internet advertising specialist DoubleClick for around 20 times its paltry $150 million revenues, or $3.1 billion in cash.
But despite this deal almost doubling Google’s previous highest ever acquisition, that of YouTube for $1.65 billion, it seems to make far more sense than the YouTube deal. The payment for Doubleclick was all in cash, whereas YouTube shareholders took theirs in stock, so this is real money.
The truth is that although revenues are not considered very high at DoubleClick, the volume of advertising that goes through its DART system is colossal. Much of it relates to basic display advertising, a market where Google is doing fine, but does not lead. We would suspect that Google will innovate at the platform level, and integrate advertising auctioning into the process.
Microsoft immediately complained about being outflanked, and issued a statement saying, ‘This proposed acquisition raises serious competition and privacy concerns in that it gives the Google DoubleClick combination unprecedented control in the delivery of online advertising, and access to a huge amount of consumer information by tracking what customers do online. We think this merger deserves close scrutiny from regulatory authorities to ensure a competitive online advertising market.’
The deal was definitive, and will complete by the end of 2007, and the sellers were the US private equity firms Hellman & Friedman and JMI Equity and the company management. We said last week that although it made more sense for Microsoft to buy DoubleClick, simply because it gave it more of what it doesn’t currently have, but added the proviso that Google has an uncanny way of getting deals done ahead of, and to the exasperation of Microsoft. This time instead of a clever deal relating to performance under the Google brand, it was brute force cash. It’s not that Microsoft doesn’t have bundles of that, but it has to balance what it pays with what it would take to build or create the same amount of value, and it clearly never realized the bidding was going to go this high. Last week the New York Times was talking about a $2 billion price tag.
The fact that Google appeared happy to go this high is possibly because it sees a strategic way to combine its auction systems with the management and placement of advertising that DoubleClick’s DART gives the company.
DART became the de facto standard for placing and tracking advertising over the web back in the 90s, and although there are many other advertising networks on the market now, many buyers still won’t touch a site if it doesn’t have DART reporting.
DoubleClick, once high flying and public was taken private through a private equity group purchase during 2005. Today it is a shadow of its former self, but it has just begun acquiring again and last month bought TangoZebra, a European rival that is strong in rich media including broadband video.
Just last week DoubleClick, launched a marketplace product that would have led it to compete head on with Google’s advertising auctioning system. Now it won’t have to bother and can use the original.
Virtually every advertising agency the world over is used to relying on the DoubleClick DART application which delivers advertising and reports on the number of impressions and clickthroughs from that advertising. Effectively it’s the Nielsen Media of the internet world.
The company said that the combination of Google and DoubleClick will offer superior tools for targeting, serving and analyzing online ads of all types, significantly benefiting customers and consumers. And it went on to hint that it will improve the system to offer more relevant advertising, so either content driven advertising or addressable advertising which comes from databases that understand each web visitor’s demographic.
It also says that DART will be able to work with both the search advertising where Google is dominant and display advertising, DART’s traditional territory.
“It has been our vision to make Internet advertising better – less intrusive, more effective, and more useful. Together with DoubleClick, Google will make the Internet more efficient for end users, advertisers, and publishers,” said Sergey Brin, Google’s Co-Founder and President, Technology.
The natural reaction through the markets was to anticipate Microsoft and potentially Yahoo going after second placed companies with similar products to DoubleClick and share prices moved up in this sector accordingly.
One report cited surges in aQuantive, Real Media and ValueClick in hectic trading, but somehow we don’t think any of them offer Microsoft the same type of value and it may be happy to stick with its own system.
Interestingly enough the market approved of the deal and instead of the traditional post-acquisition share price fall, Google rose slightly on news of the deal.