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.

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