Tuesday, April 17, 2007

Click go the Cheers Boys .....

Google has just announced that they are acquiring ad management company DoubleClick for the sum of US$3.1 billion in cash. There are a few things about this which are of note.

The first thing is that DoubleClick has been around for a LONG time in the online advertising space. Being a bit of a veteran myself in this industry (I can’t wait until I get Seniors Parking in SecondLife) I remember when DoubleClick first emerged in the second half of the nineties. Their idea was revolutionary then – attach some custom code to the display advertising used on websites and use it to automate the management, measurement and commerce around online advertising. Like most of the companies that were around then, I got the impression that they had to weather some tough storms as the business, the technical infrastructure and the rest of the world caught up with their vision. From my perspective, these were some guys with a big idea in a market which was then not quite big enough for it. Fast forward to today and they are a company which is clearly a market leader and clearly very valuable. Well done DC Guys!

The second observation is that this is an interesting acquisition for Google. They have bought one of the largest players in the digital display advertising space. Add this to their existing capabilities in search advertising, video advertising and their plays with print advertising and so on, and it appears that a piece of the puzzle (which it would have been VERY tempting for them to build in house) has just been added which really rounds out the offering for Google. No matter where you want to advertise, you can buy it from Google. I’d have to think that this puts further pressure on the traditional media buying relationships. The guys who used to be big in a particular segment or a particular geography are now under competitive threat from a competitor who is HUGE everywhere…. What does this mean for the local online media buyers who’s annual revenues are a fraction of the interest costs on the funds applied to this transaction…..

The third observation is that there is clearly a “race to scale” play going on here. Google are a very smart company and they clearly have the strategy of being number one in each offering in each market. US$3.1 billion invested here is but one option which would have been available to Google (they could have aggregated smaller players, maybe taken a multi-geography approach or as I said above, even toyed with the idea of having a go themselves) but al of these would have taken TIME to reach the scale required to achieve a “Number 1” strategy. By thumping down the cash they have created an opportunity to dominate another segment of the digital advertising market …. And changed he horizons for many companies in many markets around the world.

My fourth (and final) observation is that these guys paid, US$3.1 billion … in CASH. A business that throws that sort of cash from operations is incredibly powerful. For market segments where geographic boundaries are irrelevant (like media buying is now) this creates a new competitive terrain and will accelerate the challenges for those companies who have been a bit slow establishing their strategies to survive or thrive in this new Digital Services age….

1 comment:

geoff said...

Hi Richard,
Every day the web becomes more and more like traditional media. Google and its competitors are the Packers, PBLs, Blacks and Murdochs of the online world - and they all want to own the lot! The sooner all organisations realise that what you do with traditional media can and needs to be done better with online media, the sooner they will enjoy the benefits of untold commercial relationships with consumers. For me there is a touch of deja vu about all this. I entered the advertising industry at a time that saw the acquisition and consolidation of disprate media by the moguls and barons. Those who hung on to the coat-tails of traditional media heavyweights need to let go and jump into the online media world. It's going to be far more exciting!