Two weeks ago, when it seemed that Microsoft might actually acquire DoubleClick, we wrote, upon learning of Google’s interest in the billion dollar ad serving company, that DoubleClick would go to Google. A press release by DoubleClick and call ended the speculation when it became official that Google topped Microsoft, agreeing to pay $3.1 billion in cash. If anything, news of the 30x revenue purchase has only ignited a new, more intense wave of discussion around the idea of Google buying ad serving leading DoubleClick. And, while it feels like weeks have past since the news broke, certainly from the quantity of news written, in reality less than one has passed. To help you catch up, in this week’s Trends Report we highlight some of the major happenings in the online advertising space after G-D day.
- The Day After – News of the Google Doubleclick deal occurred Friday after trading hours. No one knows what a Google DoubleClick world will mean, certainly not the first trading day after the announcement, but the price of more than 2x YouTube meant one thing to investors, don’t overlook Internet advertising. If you held ValueClick, aQuantive, and/or 24/7 Real Media Monday, especially the latter two, you would have realized a greater than 10% gain in the value of your stocks for each. If you had purchased shares of either on the 16th, you haven’t fared as well. Of the three stocks, only aQuantive, and to some degree Valueclick, has held on to most of its monumental gains from investor exuberance.
- Companies on the Offensive – Of the better known publicly traded Internet advertising companies, and certainly when compared to Valueclick, aQuantive, and Doubleclick on its own, 24/7 has the smallest market cap and footprint in the display advertising segment. At just north of $400 million, they have a value 1/6 that of aQuantive and 1/7 that of Valueclick, an amount that represents a shade over 1% Yahoo’s value. As the smallest guy in a market that just consolidated, leaving them even further on the edge, they had a choice to make. They could fall off the side of the cliff, i.e. cower and see what happens next, or they could go on the offensive. They chose to go on the offensive. They launched a campaign aimed at Doubleclick users, playing on the power and potential conflicts of interest that a Google Doubleclick could mean for them.
- Companies on the Defensive – Despite their stock having outpaced Google’s this year, up almost 25% (until last night’s after hours trading), Yahoo cannot seem to catch a break. Their earnings announcement yesterday certainly didn’t help (hence the up 25% until last night). They saw a revenue bump of 7% to $1.67 billion but a profit slippage of 11% to $142 million. That news was enough to overshadow an impressive extensive partnership with eBay that has Yahoo and PayPal teaming up to facilitate PayPal enabled companies to list on Yahoo. Those that do, even get a little shopping cart logo, mirroring the treatment Google Checkout users see when advertising on Google. Things certainly don’t look all that bad, but you can understand how, with Internet advertising still seeing double digit growth, people expect to see more out of Yahoo. That said, I cannot agree with (soon to be ex?) CEO Terry Stemel’s comments found in a recent Reuters article where he claims to welcome the competition a Google DoubleClick brings and how, "It’s a good validation of [Yahoo’s] strategy for the last few years."A validation of Google kicking their butt and getting ready to do so in display? That kind of validation?
- Google Machine Keeps Cranking – The acquisition stands out, enough so that Google could lay low for a while and work on figuring out exactly what they plan on doing with their newest toy. But, with a "holy-cow, really?" 11,000 employees, and their track record to erring on the side of over development, Google has done anything but that. In almost typical Google fashion, they continue to roll-out enhancements and new deals, with this week being no exception. The latest in a month that saw a new look for search results, a new API for developers, and preferred cost bidding just to name a few, also saw a far ranging deal with radio king Clear Channel. Having already done a deal with satellite TV provider EchoStar, this deal, as reported in the Washington Post, has Clear Channel allowing Google to sell a guaranteed portion of the 30-second spots available on its 675 radio stations in top U.S. markets. While Yahoo pushes more into newspaper ads, Google has its sites set on playing catalyst for the large but tepid, with respect to growth TV and radio, ad businesses. Says Google CEO Eric Schmidt, "If our technology can bring more advertisers to radio, I think that is a good thing." In theory, it sounds brilliant. We’ll see, though, as Google isn’t the most beloved company in the traditional media space.
- What about Microsoft – don’t worry, the Redmond giant hasn’t given up, yet. Although, it’s hard to say that their current strategy will work. In what others have already called the pot calling the kettle black, Microsoft has, as reported in Financial Times, leveled a charge of anti-competitive behavior against its new arch-rival. Reports the Times, between them, Google and DoubleClick account for "over 80 per cent of the adverts delivered to website publishers, so their combination in a single company has big ramifications," said Brad Smith, Microsoft’s general counsel. In addition to Microsoft, Cingular, I mean Southwestern Bell, I mean AT&T have raised regulatory concerns with the deal and would like it scrutinized (read: not approved). Yahoo and AOL also squirm at the thought but have stopped short of publicly raising any anti-trust issues.
Looking back, it is hard to believe just how dominant Google has become. In 2005, we joked about where their growth might lead, and with their Quality Score updates, those jokes became more real. Today, as pointed out by Microsoft’s general counsel, Google will own 70%+ of all online advertising. Perhaps the biggest challenge in all this will be to stop referring to them as the search leader and just the leader.
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