Google to Buy DoubleClick in Bid to Dominate Display Ads

Apr 17, 2007 7:09 PM  By

(Direct) Search power Google announced late Friday that it will pay $3.1 billion in cash to acquire Web ad platform DoubleClick from private equity firm Hellman & Friedman, which bought the company almost two years ago. The news ends a month of speculation that either Microsoft or Yahoo! would wind up owning the New York-based ad company, which also owns the Performics search marketing and affiliate management divisions.

Google was not named in the early rumors about DoubleClick’s acquisition because the company had been thought to be working on a proprietary platform for delivering display ads. But in a teleconference following the announcement on Friday, Google CEO Eric Schmidt explained that the company had recently come to raise its expectations for online display advertising, and because a significant number of advertisers who both bought text ads on Google’s search platform also used DoubleClick DART for graphical ads, the buyout make sense.

Google cofounder Sergey Brin added that while “we’ve had a lot to keep us busy in search and search advertising… we can now afford” to branch out into display ads. Google has been testing expanding beyond its dominant search marketing base into numerous offline marketing channels in recent years, including newspapers, magazines, and television. But most analysts have placed the company behind Yahoo! in the selling and placement of display and rich-media ads.

DoubleClick serves as a digital marketplace for bringing together online display advertisers using banners, graphic ads, and videos and the Web publishers that serve those ads through its DART ad-delivery platform. The company also tracks clicks on those ads to gauge their effectiveness and sells software that helps online publishers optimize their ad inventory. The company has extensive relations with top Web publishers such as AOL, News Corp. (including MySpace), Friendster, and Viacom’s MTV Networks.

Early this month DoubleClick announced a test of an auction-based exchange for buying and selling digital ads. Marketers will log into a Website that will permit them to see what competing advertisers are paying for specific ad placements; publishers will be able to set a floor price for their pages and use the auction to get the maximum return for their real estate. DoubleClick will clear the transactions and transfer payments to the publishers.

Paid search marketing has grown at a faster rate than display advertising in recent years, accounting for $6.76 billion in online ad spending in 2006, according to a report from eMarketer. But the ability to target display ads to users depending on their Web behavior could make Web display ads more attractive to marketers, particularly large brand advertisers.

And ownership of DoubleClick’s tracking and measurement tools could help Google make sense of YouTube, which it purchased last September for $1.6 billion. “Certainly is a category that could be served with better measurement tools and better targeting,” Brin said. “The combination of the companies together with YouTube will be a better experience for advertisers.”

Questions have been raised as to how Google will integrate DoubleClick’s key services. By buying DoubleClick, Google will acquire its Boomerang technology for delivering cookies, small data tags that signal that a user has visited a specific Web page. When these are delivered by an ad network rather than by the We site itself, they’re known as third-party cookies. A Google FAQ accompanying the DoubleClick announcement said that company policy has opposed the use of third-party cookies on Google sites “because we could not guarantee the quality of the ad or that it would comply with our format policies.” But partnering with DoubleClick, “we will increase the relevance of ads online so that we maintain a positive user experience while provided [sic] targeted ad opportunities for advertisers and increased monetization for publishers.”

Deploying “tagging” technology on its sites might arouse the ire of privacy watchdogs, but at Friday’s conference Google CEO Schmidt said, “We at Google are very committed to preserving people’s privacy. DoubleClick will help us do that.”

“Overall, we care very much about end-user privacy, and that will take a number-one priority when we talk about advertising products,” added Brin.

Within a few years of its founding in 1996, DoubleClick encountered protests from watchdog groups and drew investigative attention from state attorneys general regarding its cookie practices. The company negotiated a settlement in 2002 that required more honesty about the data it stores on visitors and set a three-month erasure deadline on that information.

Unease over online tracking through cookies might also add fuel to early arguments that the deal is anticompetitive because it combines two ad vendors that dominate their respective digital markets.

DoubleClick followed an early strategy of acquiring related businesses in the online marketing space. After buying the company in July 2005 for a reported $1.1 billion, Hellman & Friedman put it on the market again in 2006 for about twice that price. The owners then sold the Abacus data management division to what is now Epsilon in December 2006 and sold its e-mail solutions division to the same buyer in February 2007. The company had revenue of about $300 million last year.