Google & DoubleClick

In an effort to further expand its advertising empire, or to defend it from encroaching competition, Google intends to acquire DoubleClick, for $3.1 billion. The move is similar to that of Microsoft’s acquisition of aQuantive, a DoubleClick competitor, for $6.1 billion in May. (Microsoft was forced to take aQuantive when it lost out to Google on DoubleClick.) It is also similar to purchases made by Yahoo!. Two weeks after Google announced their deal Yahoo! bought the 80 percent of Right Media it did not own already for about $650 million and just last week agreed to pay $300 million for the online advertising network Blue Lithium. Google’s deal differs significantly from those of its competitors in one key way: it has come under far more scrutiny. Google recently found itself in a U.S. Senate hearing where it defended its stance against competitors and consumer advocacy groups.While both are trying to stop the deal with their own interests in mind, the premise of the campaigns is the same. Google, they say, knows too much already and adding DoublClick to the mix would be a dangerous arrangement.

Competing companies argue that if the DoubleClick deal is allowed to go through it would grant Google a monopoly. With the company’s existing dominance in search, and the extended advertising reach from DoubleClick, opponents of the deal say it would create a single pipeline with Google at the controls. According to BusinessWeek, “The reason, they argued, is that Google’s ability to reach the majority of U.S. Web surfers on the most highly trafficked Web sites would be so great that advertisers would be forced to work with the company.” Similarly, publishers of Web content would feel the need to work with Google. This would add to the company’s reach and create a vicious and ever-expanding circle. While there is truth to the scenario that is being put forward, it will likely be only time that reveals its degree.

Interesting at the moment is the source of the comments, and what that reveals. What is being seen now in the Google-DoubleClick debate is in some ways very similar to what was seen in the lead up and aftermath of the recent Microsoft EU debacle. That is, it appears companies may be trying to use the legal system as a tool to block the competition. Injecting a bit of humor into this issue is the fact that one of the most vociferous opponents is Microsoft, which, as stated, just bought a similar company for similar means. Perhaps Microsoft is angry that they needed to take their second choice but had to pay twice as much. More likely Microsoft is trying to seize the day and just slow down the relative newcomer that has arguably become one of their biggest competitors. Forbes quotes Danny Sullivan, “I think it reflects that this is all a lot of political grandstanding. Microsoft is really just trying to slow Google down.” With Yahoo! in the ring, despite their two recent acquisitions, one cannot help but see at least a little humor.

On the other side of the campaign against the deal are consumer advocacy groups which feel that Google will end up retaining far too much data about users for anyone to feel safe. According to one group, the Center for Democracy & Technology, “the same companies that provide search services, store emails, support online personal calendars, and run chat applications may begin to engage in behavioral targeting, dramatically increasing the amount and types of data that can be brought together to create consumer profiles and the ease with which such information can be shared.” This scenario will only get worse, they argue, as more consolidation occurs in the space.

In its defense Google points out that DoubleClick is not in the advertising business, they are in the advertising delivery business. According to David Drummond, Google SVP for Corporate Development and Chief Legal Officer, “DoubleClick is to Google what FedEx or UPS is to Amazon.com.” Furthermore, in the months since they let the deal be known, Google has stated that they welcome regulation to aid user privacy and that they have already taken more steps than others in this direction. While competitors may not wish it to surface in the current context, it must be recalled that Google stood its ground against the Department of Justice when it was asked to submit information on its users. Earlier this year when the request went out, both Microsoft and Yahoo! (and AOL) willingly complied.

On another level something else is revealed in the situation. It is the change of color of the spotlight on Google; it is no longer rose colored. It is questionable, given the changes both Yahoo! and Microsoft have made to their search platforms whether or not Google would have made it out of the lab today. However, they did that nearly a decade ago; now Google is growing up and that growth is presenting them with a new set of challenges. Will Google be able to face the challenges of a major-leaguer while retaining the identity which has helped it get this far?

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light’s Internet & Information Services Market Intelligence Center.

And in the following articles:

Microsoft’s Right to Fear a Google/DoubleClick
TheStreet, October 2, 2007
Microsoft is terrified of Google’s plans to buy DoubleClick. As well it should be. Last week, the Redmond, Wash., software giant’s push to block Google’s proposed acquisition of ad-serving firm DoubleClick reached a fevered pitch. Microsoft’s lawyers told a Senate subcommittee investigating the deal that a combined entity would violate antitrust laws and would make it that much harder for anyone to take on Google in the online ad space.

Google Defends the DoubleClick Deal
BusinessWeek Online, September 28, 2007
Google is watching you. But you already knew that. Every time you conduct a search using its search engine, Google keeps tabs—and uses the information to send you ads tailored to the interests and tastes suggested by your searches. Here’s something you probably didn’t know: The company may let you close the blinds, digitally speaking. Google Chief Executive Eric Schmidt told legislators on Sept. 27 that the company is exploring whether to let users keep Google from tracking the sites they’re visiting.

Google Fights to Save DoubleClick Deal; Microsoft Fights to Kill It
InformationWeek, September 27, 2007
Google Thursday defended its planned acquisition of online ad company DoubleClick, even as a Microsoft-funded think tank, AEI-Brookings Joint Center for Regulatory Studies, released a report arguing against the deal. Google announced that it would acquire DoubleClick for $3.1 billion in April. The deal has raised antitrust concerns in the U.S., the E.U., and in Australia. It is being reviewed by the Federal Trade Commission and was the subject of a Senate hearing on Thursday.

Google’s DoubleClick Purchase Questioned by Senator
Bloomberg, September 27, 2007
U.S. lawmakers questioned whether Google Inc.’s $3.1 billion purchase of DoubleClick Inc. will give the Internet search company a “stranglehold” in the online advertising market. “Once these two companies have joined forces and combined their gigantic information resources, will the barriers to entry for a new entrant into the marketplace simply be too high?” Democratic Senator Herb Kohl of Wisconsin said at a hearing today in Washington.

Is Search Too Smart?
Forbes, September 26, 2007
Google’s proposed $3.1 billion acquisition of the ad-serving company, DoubleClick, is slated to come under the spotlight on Thursday during a hearing in the U.S. Senate. Although Congress is unlikely to create major roadblocks for the deal, privacy advocates hope to use the opportunity as a soapbox for discussing controversial privacy practices throughout the online ad industry.