Just when you thought you had Google (GOOG) figured out, it goes and spends $3.1 billion in cash on DoubleClick. (See the official announcement here.)
In case the name doesn’t ring a bell – and unless you’re into online publishing or advertising it probably doesn’t – DoubleClick sells display ads. Display ads are those relatively static images you see on sites like this one. Unlike the text ads that made Google famous (and rich), display ads usually aren’t related to search terms, they’re often not closely tied to the words on any given Web page, and they’re pretty much Web 1.0.
Google’s deeply contextual ad system was supposed to make DoubleClick obsolete.
But that doesn’t appear to have happened. Display ads have staged a comeback. For more on the display ad revolution, see this Business 2.0 piece by Paul Sloan.
More on DoubleClick, from the New York Times:
For those keeping score, Google paid $1.65 billion for YouTube. This is nearly twice that amount.
Why would Google pay? DoubleClick simply has more relationships with display ads on more pages than Google could match. And DoubleClick had a plan, though its online ad exchange announced last week, to protect its lead in the category and make display ads even more valuable. From DoubleClick’s announcement of the exchange:
But there’s another reason. DoubleClick’s display ad expertise is an ideal launch pad for selling video ads – and video ads are likely an important piece of Google’s plan for YouTube. For more on DoubleClick’s thinking about the value of video ads, see this release from last month. An excerpt:
Google’s big spending is a good deal for private equity firm Hellman & Friedman, which bought DoubleClick for $1.1 billion two years ago (and for JMI Equity, which is also in on the deal). It’s also a good deal for every other company with roots in matching the buyers and sellers of display ad space, because Yahoo (YHOO), Microsoft (MSFT) and others are likely to continue shopping for companies to compete with GoogleClick. (Time Warner (TWX), the parent company of this blog, also has made it known that it’s shopping for ad market plays.)
But I’ve got another gut feeling about this move: It could actually be bad for Google.
On paper this is a great thing (though some might disagree given the $3 billion price tag), but it’s not the price that bothers me. DoubleClick has a lot of mainstream media clients, including newspapers like The Wall Street Journal (DJ) and the New York Times Company (NYT), who might feel unnerved that so much of their online revenue will now be filtered through Google. They might just rush more eagerly into the arms of Google rivals like Yahoo, which is reportedly negotiating an ad deal with newspaper giant McClatchy (MNI) even now. Some advertisers might feel uncomfortable too. (For an interesting take on the influence DoubleClick brings Google, see this piece from Steve Rubel.)
The display ad rush is on, and now it’s everyone vs. GoogleClick.
UPDATE: The companies I mentioned above, Microsoft, Yahoo and Time Warner, are also responding to this deal in another way; according to this Reuters report, they’re pressuring federal regulators to closely scrutinize the Google/DoubleClick deal. (For the record, Time Warner is the parent company of Business 2.0 and The Utility Belt, though the brass doesn’t let me in on their strategy meetings.)