RealTime IT News

Will 'GoogleClick' Cut Too Deep?

UPDATED: When Google bought DoubleClick on Friday for $3.1 billion, there were approving nods all around, a sharp contrast to the company's purchase of YouTube last fall for $1.65 billion.

There is speculation, however, that the deal will leave online publishers in a bind. Some in the online advertising industry wonder if Google DoubleClick will own so much market share that advertisers will build their relationships with it, an intermediate, rather than the publishers themselves.

Google did not respond to a request for comment.

News that Google bought DoubleClick for $3.1 billion in cash from its two primary owners, the private equity firms of Hellman & Friedman and JMI Equity, came Friday and after weeks of public negotiations played out in the media.

The early favorite to buy DoubleClick was Google rival Microsoft, which was said to bid near $2 billion for the company, according to an industry source familiar with the matter.

But Microsoft lost out and financial analysts are ready to call Google the big winner.

According to Merrill Lynch's Justin Post, Google's large market cap and experience in online brand advertising, make it easy to give the company the benefit of the doubt when evaluating the acquisition. Post is also optimistic about the online brand advertising business in general.

Cowen and Company's analysis of the deal is even more positive.

"Despite the high price tag, we believe that the purchase of DoubleClick is an important strategic acquisition for Google," according to the financial firm's morning research notes for today.

"Google's internally developed display advertising business has not achieved scale. In our view, the company had to make an acquisition to compete in the display ad market, especially since display advertising accounts for almost half of the online ad market."

Given the way negotiations went, it's perhaps not surprising that some of the most negative commentary on the deal is coming from Brad Smith, senior vice president and general counsel for Microsoft.

He said the Google-DoubleClick deal "deserves close scrutiny from regulatory authorities to ensure a competitive online advertising market."

The merger raises "serious" questions about competition and privacy, he added, since a Google-DoubleClick would have "unprecedented control in the delivery of online advertising and access to a huge amount of consumer information by tracking what customers do online."

But Microsoft, a Google competitor, isn't alone in worrying about Google's new position of power. DoubleClick's competitors have their own dark visions of the future this merger might bring.

One such competitor is Seevast, which is the parent company of Pulse 360, an online advertising network, which offers contextual sponsored links to compete with Google and DoubleClick offerings. Seevast President Mark Josephson told internetnews.com his concern is for online publishers.

"It's becoming increasingly worrisome for the Web's top publishers as Google continues to own more and more of the industry and the value chain," Josepheson said.

He spoke of a growing fear in the industry that Google is trying to disintermediate publishers from their advertisers and that Google is trying to make itself a middleman for every advertising transaction on the Internet.

This will cost publishers, he said, because Google's slice will cut into publisher profits too deep.

The contrary viewpoint would be that publishers are better off outsourcing their advertising sales force to Google.

Google, especially in possession of DoubleClick's recently unveiled online advertising exchange, will be able to move inventory efficiently enough to make up for whatever cut it takes out of a publisher's advertising revenue.

DoubleClick's exchange will allow publishers and other sellers to make specific inventory available for purchase and define a minimum bid value for it while specifying rules to restrict certain advertisers, formats and content.

The line of thinking is that Google will do this through better advertising targeting and the auction model it uses to sell search marketing.

Right Media CEO Michael Walrayth told internetnews.com he isn't buying it. He said publishers aren't likely to give up their sales forces and relationships with advertisers, their only source of revenue.

Publishers will be especially wary, Walrayth said, if Google remains unclear about how it will remain "fair and balanced" in allocating ads across its ad networks. Google has to show it isn't playing favorites for the sake of its own bottom line, he said.

Of course Right Media is another advertising network with its own online advertising exchange. And since Yahoo bought a share of Right Media last fall, it has at least two reasons to react pessimistically to the Google deal.

DoubleClick isn't the only deal that's been keeping Google busy. Google and Clear Channel Radio today announced a multi-year agreement that enables Google to sell a guaranteed portion of 30-second advertising inventory available on more than 675 of Clear Channel's AM/FM stations. The companies did not specify financial terms of the agreement.

The agreement will give Google Audio Ads advertisers national distribution, allowing them to reach specific audiences, at specific times, in targeted geographies, the companies said in a statement.

The market reacted positively to Google's moves, as the company's share price rose $7.98 to $474.27.