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Advertising - Sunday, April 15, 2007

Pundits Break Down Google/DoubleClick

We just returned from a long-overdue man weekend (no brides, no babies. Just brew, bbq, ball, and man talk. One of the men was NY Times tech writer Miguel Helft, who we congratulated for breaking the Google/DoubleClick story. Just speculating, but it seems that Google probably planned to make the announcement Monday (Friday afternoon is the worst time to announce a big deal) but when the PR flaks saw that the Times had gotten the skinny they scrambled to hastily arrange a conference call.

It seems that everyone who is able to publish to the Web has an opinion on the deal. The undeniable winners are The New York Times for besting the WSJ and DoubleClick's private equity firm owners Hellman and Friedman. Other concepts that find broad agreement is that Google is buying relationships and data (not technology).

Here's a quick tour among opinion makers:

"DoubleClick was a publicly traded company two years ago and valued at less than $1 billion. Anyone could have acquired DoubleClick, but a private equity firm took them private less than two years ago for $1.1 billion. They later sold off two divisions for $525 million. Yesterday Google paid $3.1 billion for what remained of DoubleClick. Why did Google wait two years and pay billions more?"
Microsoft employee Don Dodge

"What it tells us is that Google is not going to surrender its position to Microsoft." "It tells us that Google's management team is getting back to focusing on the core business...Also-- in this situation, I do believe that the relationships were more important to Google than any technology that Doubleclick built. "
Global Equities Research analyst Trip Chowdhry.

This was, in other words, a strategic and offensive buy, not a financial one, even if you can make a financial quasi-justification for the price. Google is playing very hard ball with Microsoft, deploying brutal tactics right out of the Redmond playbook, circa 1995. Call it $2-billion for DoubleClick's revenues and customer list, plus another $1-billion for a pinched air tube to Microsoft.
Paul Kedrosky

What's $3.1 billion between friends? Or, put differently, what's it worth to fix your display-advertising problem, corner the market for the "advertising operating system," and deliver a hammer-blow to an already prostrate Seattle-based competitor? $3.1 billion? Sure. Only a few quarters of free cash flow.
Internet Outsider

I sat in on a presentation by a Google rep to a New York agency — it was a big, wet sloppy kiss. Here was Google, king of impersonal, self-serve online ad efficiency up to its eyeballs in gooey “relationship building.” It’s no accident that Google’s New York office has more humans than servers...People aren’t nearly as efficient as machines, but that doesn’t mean they can’t be programmed to feed Google’s money making machine...The Google rep I heard present towed the party line about Google not wanting to be an ad agency — and that’s probably right. Instead, Google is creating a people-driven platform centered on their huge regional offices and DoubleClick’s advertiser and publisher relationships.
Publishing 2.0

Look to see Google sell some of the businesses they are getting through the DoubleClick acquisition. This deal reminds me a lot of the the Sprinks acquisition. They bought Sprinks just to get access to About.com distribution and they did away with everything else (Most of the old Sprinks guys went on to join the Kanoodle team). In this situation, Dart for Publishers (DFP) and Dart for Advertisers (DFA) were the jewels that Google was really after.
ClicketyClack

"The price is almost inexpensive for what Google secures. They're now the unequivocal leader in the online space."
Forrester analyst Shar VanBoskirk

"I like the fact DoubleClick is partnered with a strong company. You always think are they funding it for the future or for window dressing? Google has vision; people are clamoring for better metrics and I think that's what you're going to get." But, he warned, "[microsoft's] MSN will have to do something more dramatic now. The game can't be over."
Martin Reidy, president of Modem Media

"It's in the data that the power resides. There's no effective counter any of the other players in the online space could make."
David L. Smith, CEO of Mediasmith, San Francisco in Ad Age

"I agree with Steve Rubel's assessment that this means that Google owns the end-to-end marketing relationship, from branding through to search. But also remember Google Checkout, which allows Google to close the loop on not only search but also display ads all the way through to transactions. There are privacy concerns, but if advertisers and publishers agree to this -- and they will because they will each benefit from the synergies created -- it won't be a problem."
Charlene Lee, Forrester analyst

The big winner here is Hellman and Friedman, the private equity firm that the guts and brains to buy Doubleclick for $1.1bn including (I think) $400mm of cash. They sold off the email business to my former portfolio company Epsilon Interactive for something like $100mm and owned the ad serving and related businesses for net $600mm. That's a 5x in a couple years and a $2.5bn gain if my math is right. And maybe they used leverage as well. If so, it could have been much more. Well done!!
Fred Wilson