Google buys DoubleClick. But will it backfire?

April 13, 2007, 3:20 PM UTC

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:

DoubleClick, which was founded in 1996, provides display ads on Web

sites like MySpace, The Wall Street Journal and America Online as well

as software to help those sites maximize ad revenue. The company also

helps ad buyers — advertisers and ad agencies — manage and measure the

effectiveness of their rich media, search and other online ads.

DoubleClick has also recently introduced a Nasdaq-like exchange for online ads that analysts say could be lucrative for Google.


really wants to get into the display advertising business in a big way,

and they don’t have the relationships they need to make it happen,”

said Dave Morgan, the chairman of Tacoda, an online advertising

network. “But DoubleClick does. It gives them immediate access to those


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:

Using the new platform, publishers and other sellers make specific

inventory available for purchase. Sellers define a minimum bid value –

or “reserve price” – for the inventory and specify rules to restrict

certain advertisers, formats and content. In parallel, buyers specify

the inventory they wish to purchase, and the associated bid value for

that inventory. They can also specify a rule to dynamically control the

bid so that the bid price is automatically adjusted in line with

inventory performance.

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:

“Online video ads are quickly becoming the medium of choice to drive

both brand awareness and sales,” said Rick Bruner, research director at

DoubleClick. “The results show that there are clear ROI advantages to

placing video ads. We expect to see strong growth in the number of

companies reaping the benefits of online video advertising in the

coming months and years.”

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.)