WITH ITS purchase of DoubleClick, Google hopes to serve up more relevant advertising on the net, write Jim Puzzangheraand Jessica Guynn.
Google has got its groove back. The internet search giant's stock jumped more than 6 per cent on Tuesday as it closed its long-awaited $3.1-billion (€2 billion) purchase of online advertising firm DoubleClick.
The deal, which cleared its last hurdle with unconditional approval from European regulators, could dramatically boost Google's presence in a lucrative online advertising segment it does not dominate. The DoubleClick deal is Google's largest, nearly twice the size of its 2006 purchase of YouTube.
Although Google rules the market for targeted text adverts that are linked to search results on its own and others' websites, New York-based DoubleClick is a leading provider of technology to deliver elaborate, targeted display ads to websites. Google aims to create a one-stop, full-service shop for companies placing ads online and off.
By combining the information it collects from users' search requests with DoubleClick's capabilities to track advertising viewership, Google hopes to serve up more relevant advertising to internet users.
The strategy poses a significant threat to Microsoft and Yahoo, which have distinguished themselves by providing display and search advertising services.
As a result, Microsoft's push to buy Yahoo takes on greater urgency with Google's DoubleClick purchase, says Jeffrey Lindsay, an analyst at investment research firm Sanford C Bernstein & Co. Microsoft proposed a buyout of Yahoo last month but was resisted.
Ironically, the DoubleClick deal could strengthen Microsoft's case with US and European regulators, should it succeed in its quest to buy Yahoo. Lindsay says DoubleClick eventually could add $2 billion a year to Google's revenue.
This could not have come at a better time for Google, whose stock has sagged in recent months as an economic downturn showed signs of slowing the breakneck growth in search advertising. Despite its stunning success in search, Google has trailed Microsoft and Yahoo in display advertising.
Then, last April, Google beat out both for DoubleClick, triggering fears that it would dominate an even greater share of the $40 billion online advertising market. Yahoo and Microsoft have spent billions of dollars snapping up online advertising networks and other players to better compete with a more powerful Google.
"Make no mistake, Google is saying it is not in search advertising, it's in the advertising business," says Jon Miller, founding partner of investment firm Velocity Interactive Group and former chief executive of AOL. "This is what Google has to do to maintain the momentum that the company has."
Despite complaints from Microsoft that DoubleClick would give Google too much power in online advertising, the European Commission followed US anti-trust regulators in finding that the market had enough competition and that Google and DoubleClick did not directly compete. Shortly after the European approval, Google chief executive Eric Schmidt said the company had closed the deal.
At the Bear Stearns annual media conference on Monday, Tim Armstrong, Google's North American president for advertising and commerce, said the company planned to have "a very significant position" in the display advertisement market by 2008 to 2009.
That might not be so simple, says Scott Kessler, internet software and services analyst with Standard & Poor's, noting that although Google is extremely successful at its core search strategy, it hasn't been as good at integrating acquisitions.
The announcement of the purchase last April triggered a scramble by Google's competitors to snatch up other online ad companies. "Google has now entered the fray but there is already a lot of activity and competition," says Paul Levine, vice-president of marketing at AdBrite, an online advertising marketplace. "It's an interesting starting point for them, but they still have a lot of work to do."
Investors liked the deal, though, driving Google's stock up $26.22 to $439.84 (€286.2).
US Federal Trade Commission and European approvals came despite concerns by privacy advocates about allowing Google to merge its vast storehouse of data with DoubleClick's. US and European regulators said that merger guidelines did not allow them to place conditions on the deal for privacy issues. - (Los Angeles Times service)
