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Google gets grip on ad firm

Times Staff Writers

Google Inc. got its groove back Tuesday.

The Internet search giant’s stock jumped more than 6% as it closed its long-awaited $3.1-billion purchase of online advertising firm DoubleClick Inc. The deal, which cleared its last hurdle with unconditional approval from European regulators, could dramatically boost Google’s presence in a lucrative online advertising segment it does not dominate.

Although Google rules the market for targeted text ads that are linked to search results on its own and others’ websites, New York-based DoubleClick is a leading provider of technology to deliver elaborate, targeted display ads to websites. Mountain View, Calif.-based Google aims to create a one-stop, full-service shop for companies placing ads online and off.

By combining the information it collects from users’ search requests with DoubleClick’s capabilities to track advertising viewership, Google hopes to serve up more relevant advertising to Internet users.

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The strategy poses a significant threat to Microsoft Corp. and Yahoo Inc., which have distinguished themselves by providing display and search advertising services. As a result, Microsoft’s push to buy Yahoo takes on greater urgency with Google’s DoubleClick purchase, said Jeffrey Lindsay, an analyst at investment research firm Sanford C. Bernstein & Co. Microsoft proposed a buyout of Yahoo last month but was resisted.

Ironically, the DoubleClick deal could strengthen Microsoft’s case with U.S. and European regulators, should it succeed in its quest to buy Yahoo.

“It is even more significant now for Microsoft to acquire Yahoo,” Lindsay said.

The announcement could not have come at a better time for Google, whose stock has sagged in recent months as an economic downturn showed signs of slowing the breakneck growth in search advertising. Despite its stunning success in search, Google has trailed Microsoft and Yahoo in display advertising.

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Then, last April, Google beat out both for online ad service DoubleClick, triggering fears that it would dominate an even greater share of the $40-billion online advertising market. Yahoo and Microsoft have spent billions of dollars snapping up online ad networks and other players to better compete with a more powerful Google.

“Make no mistake, Google is saying it is not in search advertising, it’s in the advertising business,” said Jon Miller, founding partner of investment firm Velocity Interactive Group and former chief executive of AOL. “This is what Google has to do to maintain the momentum that the company has.”

Despite complaints from Microsoft that DoubleClick would give Google too much power in online advertising, the European Commission followed U.S. antitrust regulators in finding that the market has enough competition and that Google and DoubleClick did not directly compete. Shortly after the European approval, Google Chief Executive Eric Schmidt announced that the company had closed the deal.

“Advertisers and publishers who work with us have long asked that we complement our search- and content-based text advertising with display advertising capabilities,” Schmidt wrote on the company’s blog. “Ultimately, we believe that by combining our advertising network with DoubleClick’s display ad serving products, and by investing resources in the display ad business, we will be able to help publishers and advertisers generate more revenue.”

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Google declined interview requests. But at Bear Stearns’ annual media conference on Monday, Tim Armstrong, Google’s North American president for advertising and commerce, said the company planned to have “a very significant position” in the display ad market by 2008 to 2009.

That might not be so simple, said Scott Kessler, Internet software and services analyst with Standard & Poor’s.

Although Google is extremely successful at its core search strategy, it hasn’t been as good at integrating acquisitions, he said. The DoubleClick deal is Google’s largest, nearly twice the size of its 2006 purchase of YouTube.

“The assumption was that Google’s acquisition of DoubleClick would result in a quick and very successful push into display advertising,” Kessler said. “Now some people are more skeptical, and with good reason.”

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The announcement of the DoubleClick purchase last April triggered a scramble by Google’s competitors to snatch up other online ad companies. In one of the deals, Microsoft paid $6 billion for AQuantive Inc.

“Google has now entered the fray but there is already a lot of activity and competition,” said Paul Levine, vice president of marketing at AdBrite Inc., an online advertising marketplace. “It’s an interesting starting point for them, but they still have a lot of work to do.”

But investors liked the deal, driving Google’s stock up $26.22 to $439.84. Lindsay of Sanford C. Bernstein said DoubleClick eventually could add $2 billion a year to Google’s revenue.

“We think it’s an important catalyst for Google,” he said.

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Although regulators worldwide must approve such deals, Europe and the United States pose the biggest obstacles because of their market size and concerns about economic competition. The Federal Trade Commission approved the DoubleClick purchase in December, but European regulators have been tougher on mergers in recent years.

The approvals came despite concerns by privacy advocates about allowing Google to merge its vast storehouse of data with DoubleClick’s. U.S. and European regulators said that merger guidelines did not allow them to place conditions on the deal for privacy issues.

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jim.puzzanghera@latimes.com

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jessica.guynn@latimes.com

Puzzanghera reported from Washington; Guynn from San Francisco.


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