Google Buys a Major Stake in the Online Display Ad Business
By the beginning of 2007, Google was making billions as the leading supplier of search-related advertising. However, the company had made little progress in the other important part of online advertising: graphical and multimedia display ads. The display ad business was heating up as major advertisers grew more interested in reaching consumers online. In addition to the option of using display ads, these advertisers wanted to be able to run entire ad campaigns across carefully selected websites while targeting viewers based on their online behavior. To compete in this booming market, Google CEO Eric Schmidt knew his firm needed to boost its resources and capabilities, and fast.
With more money than time on its hands, Google opted to buy rather than build. In April 2007, the company purchased DoubleClick, a pioneer in online advertising. For $3.1 billion in cash, Google acquired an experienced engineering and sales team and DoubleClickâ€™s extensive ad serving and tracking technologies. These systems allow advertisers to target ads to specific types of web surfers, controlling where, when-and to an increasing degree-who sees their ads. The systems also let advertisers monitor the effectiveness of their ads by tallying click-through rates and other key data.
The acquisition brought more than just talent and technology, however. In the words of one industry executive, DoubleClick had â€œrelationships with virtually every major online publisher and more than half of the online ad agencies.â€ With advertising at the core of its business model and major advertising capabilities, Google helped secure its future with one swift move.
Speaking of swift moves, competitive urgency also played a significant role in the purchase decision. The online advertising industry was quickly consolidating during that time frame, with the three major companies-Google, Yahoo!, and Microsoft-each trying to assemble the most compelling one-stop solution to entice big-name advertisers. A few months earlier, Yahoo! had purchased a minority stake in Right Media, a company with capabilities similar to DoubleClickâ€™s, and Microsoft was competing with Google to buy DoubleClick. Then soon after Google snagged DoubleClick, Yahoo! bought the rest of Right Media, and Microsoft turned around and shelled out $6 billion in cash for aQuantive, another major player in display advertising. Within the course of a few months, the entire industry was reshaped.
Of course, as with all mergers and acquisitions, the deal is only the beginning, not the end. Google still needs to integrate DoubleClickâ€™s people, technologies, and business relationships into its existing operations. The company also faces some criticism and government review of the deal. Privacy advocates werenâ€™t happy that Google could now analyze the search, browsing, and even buying habits of online consumers (although DoubleClick stressed at the time of the acquisition that data on web-surfing habits belongs to its clients and was therefore off-limits to Google). The federal Trade Commission (FTC) also stepped in to review the deal. Although few people expect the FTC to prohibit Google from finalizing the acquisition, it could eventually require the company to sell off some parts of its newly combined operations to avoid giving it too much competitive dominance in the market.
Critical Thinking Questions
1.Why wouldnâ€™t Google take the simpler and cheaper route of creating a strategic alliance with DoubleClick, rather than purchasing the company outright?
2.The FTC doesnâ€™t have the authority to stop the Google acquisition on the basis of privacy concerns, but should it? Why or why not?
3.What are the risks of buying a company simply to keep it out of a competitorâ€™s hands? What is likely to happen to the acquired firm when this happens?