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Advertising - Friday, April 13, 2007

Friday Evening Bombshell: GOOG Pays $3.1B For DoubleClick

The ink is dry on the acquisition of DoubleClick and Google is the victor over Microsoft and other potential buyers. Or one could spin it that Google was willing to pay a multiple that everyone else thought was crazy.

The initial spin on this is that Google wants three things:

1. Keep Microsoft's hands off of DoubleClick and prevent it from expanding into online advertising too quickly. “Keeping Microsoft away from DoubleClick is worth billions to Google,” RBC Capital Markets, Jordan Rohan.

2. Jumpstart Google's brand advertising efforts. “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,” Dave Morgan, chairman of Tacoda.

3) Own DoubleClick's newly announced advertising exchange.

Google CEO Eric Schmidt called in on the announcement conference call and explained that Google did a strategic review this year and discovered that the scale of the display ad business was larger than the company had initially thought. To our ears this sounds like spin to justify the deal. Surely Google management knows that brand advertising is big business that Google has had problems with.

Regarding the multiple, DoubleClick earned $300M in revenue in 2006 says the NY Times, while the WSJ says its revenues were only $150M. A naysayer would argue that 10x or more is a sweet premium given that DoubleClick's current business mainstay- ad serving - is a commodity business. Ad servers are charging $0.02 CPMs and that price seems to fall ever year. The upside argument is that agencies are tired of having to deal with dozens of ad networks and with Google/DoubleClick they have a one stop shop.

The Wall Street Journal seems flummoxed about the valuation on DoubleClick's multiple: "Even as the Internet economy enters its second decade, the price shows just how valuable important market positions can be."

It will be interesting to see how DoubleClick employees will make out here. Many people currently working at Google, particularly in NYC, came from DoubleClick so they will no be reunited with their old peers. To what extent will their old peers be financially rewarded to stay with Google or will all that cash go to DoubleClick's investors?

As for the private equity firm that owns DoubleClick - Hellman & Friedman who paid $1.1B for its stake - wow what a party they are going to have this weekend!

Everyone in the blogsphere will have a post on this. So far, some of the most thoughtful analysis we have seen comes via HipMojo which concludes that the deal is bad for Google. We think its way too soon to say. Rather DoubleClick is the biggest test yet for Google management and the results won't be evident for a couple of years.

Read - Google Buys DoubleClick for $3.1 Billion (NY Times)