Saturday, April 14, 2007

Google-Doubleclick deal: Things we learnt

What Google really bought
With this deal, Google has bought wholesale relationships. Phil Wainewright says it right,
‘the most important asset DoubleClick possesses is its relationships with publishers and advertisers’.

What is Google’s aim?
Be the biggest ad broker in the world.

Size of online advertising market: $17 billion a year
Google’s 2006 revenue: $11 billion (mostly text ads)

Recently, Google announced that that it was extending its Adwords marketplace on TV.

Google’s competition: Yahoo, Microsoft’s MSN

Google’s Current Market Cap. and Cash position
As of Dec. 31, 2006, Google’s market capitalization stood at $145 billion and had $11.2 billion in cash and marketable securities.

About Doubleclick
New York-based company in the business of placing banner ads on websites. Founded in 1996, it was taken private in 2005 by Hellman & Friedman and JMI Equity for $1.1 billion.

Doubleclick’s revenues
According to New York Times, revenues are about $300 million a year.

By paying $3.1 billion in cash, Google paid 10 times revenue for Doubleclick, which some say is a healthy buy of a mature company.

DoubleClick’s clients

AOL
Friendster
Sports Illustrated
MTV
Meredith Corp.
Military.com
Autobytel.com
Slate.com

DoubleClick earlier announced that it is going to set up “a NASDAQ-like exchange for the buying and selling of digital advertisements”

Why did Google pay in Cash this time?
A. Lured in by Microsoft this time around?
A comment on Slashdot says that ‘Microsoft wasn't that interested in DoubleClick…they wanted to make damn sure that Google overpaid for it.’

B. Too many Google shares in the market, which was not helping Google’s stock price.

Kevin Kelleher writes that while Google’s share price has risen by just 1.5%, as of April 12, this year, the S&P 500 index, which Google joined a year ago, has given returns of 16.5% in 2006 and is up 2.1% in 2007. Google’s stock rose by only 11.0% to $460.48.

Reasons for glut of Google shares
1. Google’s secondary stock offering in September 2005 added 14.2 million shares to the 19.6 million already in the market

2. Google paid for its earlier $1.65 billion Youtube acquisition in stocks, by issuing another 3.2 million shares and paying only $15 million in cash.

3. A larger number of Google employees are exercising stock options.

What do detractors of the Deal say?
1. Google may have paid a bit too much.
2. This is a bubble.
3. Banner ads is ‘so last century’. (Phil Wainewrigt)
4. PPA (Pay per Action) will be real thing.
5. Clash with existing partnership deals with web sites.
6. Since Adserving is a commodity business, with charges as low as $.02 cpms, some say Google could easily have developed a better Adserver product inhouse which would not put any dent to its cash position. Moreover, Google could offered it for free if a website publisher accepted the Google adsense program to run on any remaining inventory. It would have been ‘disruptive’.

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2 Comments:

At 6:15 PM , Anonymous Rajesh said...

Nice post - sums up the deal nicely.

 
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