Google/DoubleClick buy ups market share, raises privacy concerns
With the proposed purchase of DoubleClick Inc. for $3.1 billion in cash, Google Inc. will position itself as the No. 1 company in the online display advertising space. The definitive agreement, signed April 13, has raised industry speculation and brought about a joint complaint, filed on April 20 with the Federal Trade Commission.
The FTC filing calls for an investigation into the deal's potential threat to consumer privacy. The acquisition, coupled with Google's lead in search marketing, could make the company a one-stop shop for online advertising - beating Microsoft to the punch yet again.
"This deal gives Google access to publishers outside of its current AdSense network and to behavioral data that will help them with ad targeting," said Shar VanBoskirk, senior analyst at Forrester Research Inc. "With the online space locked up, Google can focus on maturing its current offline efforts and on defining its next moves into traditional channels."
The Electronic Privacy Information Center, the Center for Digital Democracy and the U.S. Public Interest Research Groups are asking the FTC to stop the merger until it investigates Google's data collection and storage practices. The filing requests DoubleClick to sweep out its data storehouse and requires the search giant to offer a public plan for safeguarding consumer privacy.
The case brought to the FTC alleges that neither Google nor DoubleClick have taken adequate steps to safeguard the personal data that is collected. It also says that the proposed acquisition will create unique risks to privacy and violates standards for the conduct of online advertising.
If the deal goes through, it will combine DoubleClick's ad management technology for media buyers and sellers with Google's advertising platform and publisher monetization services.
The sellers are private equity firms Hellman & Friedman and JMI Equity & Management. They will collect nearly three times as much as they paid for New York-based DoubleClick in 2005.
Google will pay nearly double for DoubleClick the amount it did for YouTube, a $1.76 billion purchase concluded last year.
Ms. VanBoskirk said the $3.1 billion is "a worthy price for Google to pay to block MSN's bid and ensure it stands alone as the king in this space."
Gal Trifon, president/CEO of Eyeblaster, believes the acquisition makes perfect sense for Google.
"It bolsters Google's ability to grow and monetize inventory as a network and an exchange," said Mr. Trifon. "The valuation itself is a further indication of the growth potential of the digital marketing opportunity and the value Google attributes to better inventory and campaign management capabilities."
Dave Moore, CEO of 24/7 Real Media, does not believe publishers will be too happy with having to share data with Google, or entrusting mission-critical ad serving technology to a competitor.
"Publishers will not welcome the prospect of sharing data with Google," Mr. Moore said. "The same will be true for Performics clients, who will have to wonder about the objectivity of a search marketing firm owned by the largest engine. Competitor's may see this as an opportunity to begin a dialogue with current DoubleClick clients."
Advertisers may not be too happy either.
"The issue that may arise for advertisers is the disappearance of yet another independent, platform and publisher agnostic technology provider from the market," Mr. Moore said. "It's still early to make predictions of how marketers and publishers will react but there is little doubt that the need for neutral platform to create, execute and track campaigns across all publishers and platforms is as clear as ever."
This deal is reportedly worth billions to Google and will also strengthen the company's position next to its rival in Internet search and advertising: Yahoo.
"MSN and Yahoo focus on driving loyalty with their users and advertisers," Ms. VanBoskirk said. "Instead of constantly trying to out-Google, Google. This deal will push Google far enough ahead that Yahoo and MSN will finally accept their second and third place positions and invest in retaining customers and providing value to existing advertisers."
The DoubleClick/Google synergy will offer customers and consumers tools for targeting, serving and analyzing online ads of all types. The companies boast users will now have an improved experience on the Web since ads will be more relevant.
But is this all really just about relevancy?
"This deal is not so much about targeting as it is about display advertising, it is getting more widely understood by advertisers that display advertising is the driving force behind people making searches," said Tim Vanderhook, CEO/founder of Specific Media.
"Previously all the credit went to the search engines for producing a great ROI, now advertisers have recognized that banner ads actually drive the intent of the user to perform a search and Google is really just the conduit to get to a Web site.
"Because Google has such a dominant position in search marketing, they fear that search may be looked at less favorably in the future and are moving now to protect that," Mr. Vanderhook said.
Although Google says that the deal will give online publishers access to new advertisers, executives seem to be wary of this.
"The recent consolidation signals loud and clear that Google is no longer a friend to publishers or, even, to advertising agencies," said Mark Josephson, president of Seevast, parent company of Pulse360. "If there was ever a doubt that Google was trying to own every piece of a Web publisher's business, its bid for DoubleClick makes this perfectly clear. Publishers that allow Google to sell their display ads, text ads, radio ads, TV ads, print ads and now act as their 3rd party ad server, are quite simply letting the fox into the henhouse ... the more publishers let Google do for them here, the less directly relevant they become to their advertisers."
With the deal, agencies and advertisers will have an efficient way to manage both search and display ads in one place. They will be able to optimize their ad spending across different online media.
Both companies have approved the transaction. However it is subject to usual closing conditions. The deal is expected to close by the end of the year.
"Various media are reporting that Microsoft will likely seek to acquire another online advertising company to fill in the missing pieces it would have gained with the acquisition of DoubleClick," Mr. Josephson said.