Why did Google buy DoubleClick? There are a number of reasons, but they all start with these three: display advertising, data, and playing great defense.
Display. It is no secret that Google wants into the display ad business online. They would like to do for brand advertisers with image ads what they have been doing for direct response advertisers with text ads. While they have been talking a lot about it, they haven't really been able to make much progress so far.
Enter DoubleClick. DoubleClick serves more display ads for more advertisers and more agencies and more publishers than any other company in the world. With this deal, Google now controls more display advertising than any other company, which nicely complements their other businesses where they control more search and contextual advertising than any other company in the world. For example, DoubleClick's Klipmart unit has a number of exclusive relationships with agencies, film studios and auto manufacturers for their rich media and video advertising needs.
Plus, many analysts are now saying that online display advertising is likely to start growing faster than search, maybe as soon as the end of this year. For Google to continue to grow at the rate that it has been, it needed to establish a foundation in the business. Now it has one.
Data. DoubleClick currently processes more online ad campaigns and more ad transactions than any other company in the world, by far, particularly at the high end of the market. This data is a treasure trove. If Google wanted to, it could know exactly how much money its AdSense distribution partners make from other ad distributors, be they Yahoo! or Advertising.com or MSN. This is very powerful data.
Even if they don't ever access the data itself, the metadata (the data about the data) is incredibly valuable. It is as if the world's biggest stock broker just bought the world largest stock exchange. Plus, DoubleClick probably sets more cookies on more consumer browsers than any other company in the world as well.
Just the analysis of this data could yield for Google the keys to dramatically improving the targeting of all of their ads.
Defense. By buying DoubleClick, Google guaranteed that Microsoft or Yahoo! couldn't, whether they wanted to or not.
If Google had lost the business, either of those companies could have been real threats to taking away Google's largest AdSense distribution partners -- companies like AOL, News Corp. (MySpace) and IAC -- all of which use DoubleClick for big parts of their ad serving. Plus, Microsoft or Yahoo! could have used DoubleClick's market position and new "ad exchange" technology to leapfrog Google into that business.
By no means does not getting DoubleClick mean that those companies can't leapfrog Google, but it does mean that they will need to take a different tack than just leveraging basic ad serving infrastructure. They will now need to do it with something else.
Of course, there are others reasons why the deal probably made sense to Google.
One, it sounds like DoubleClick had strong financials, not the least of which was a substantial "loss carry forward" which can accrue to an acquirer.
Two, DoubleClick has great talent. In one deal, Google acquired hundreds of the best online ad tech folks in the world. It would have taken them years and years to get them organically.
Three, it may seem trivial, but they don't have to move the DoubleClick team. Both companies are in the same office building in New York City. This will make integration immeasurably easier.
Finally, a number of pundits have speculated that DoubleClick's customers will flee; that many of their publisher and agency ad serving customers will not be comfortable with Google as their supplier. While that may be so, it probably isn't going to be as dramatic as some would imagine it.
Certainly, this transaction will benefit 24/7 Real Media and aQuantive. Some customers will be afraid of Google and will switch. However, it is important to note that most of DoubleClick's contracts are multi-year, so most customers won't have the option of switching for a while. Plus, aQuantive owns Avenue A, one of the largest online ad agencies at the same time that its Atlas ad serving unit serves a number of its competitor ad agencies. In this business, many are already quite used to "coopetition."
However this deal shakes out, it will certainly go down as the moment when the value of online display advertising, and the infrastructure and data to serve it, were recognized in a big way. I think that the entire market will start reevaluating their strategies in this area going forward.
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