Google has agreed to buy DoubleClick for $3.1 billion in cash, an acquisition that strengthens Google's status as an online advertising powerhouse.
DoubleClick's network of advertisers and web publishers, as well as its technology to serve ads and manage campaigns, is expected to boost Google's ad business, specifically for display and rich media advertising, which aren't Google's specialties.
Google generates most of its revenue from search engine, pay-per-click advertising, which are text ads that link to advertisers' websites, but it has lagged behind Yahoo and others in banner, graphical and video ads.
Google has agreed to pay $3.1 billion in cash to private equity firm Hellman and Friedman and JMI Equity and management, the owners of DoubleClick.
"It has been our vision to make internet advertising better – less intrusive, more effective, and more useful. Together with DoubleClick, Google will make the internet more efficient for end users, advertisers, and publishers," Sergey Brin, Google's co-founder and president, technology, said in a statement.
Recent rumours had Microsoft aiming to buy DoubleClick for about $2 billion, so Friday's announcement signals that a bidding war had erupted with Google, said industry analyst Greg Sterling of Sterling Market Intelligence.
The deal is a clear loss for Microsoft and it stands to affect Yahoo as well, because with DoubleClick, Google gets a much-needed boost in display advertising, Sterling said.
Companies such as DoubleClick that link advertisers and web publishers have thrived in recent years, thanks to the strong growth in online ad spending, said Clayton Moran, a financial analyst with Stanford Group Company.
"The facilitators of online advertising have done very well, because demand for internet advertising has been very strong," Moran said.
He doesn't track DoubleClick because it is a privately held company, but he does follow publicly traded competitors such as 24/7 Real Media and ValueClick. Last year, Real Media's revenue was $200.2 million, an increase of 43 per cent from 2005. Meanwhile, ValueClick grew its revenue to $545.6 million, an increase of 79 per cent from 2005.
The deal may make it harder for Microsoft's struggling online division to compete with Google.
Despite heavy investments of money, resources and personnel to develop its own search engine and search ad network, Microsoft hasn't been able to come close to matching the levels of online ad revenue Google and Yahoo have achieved. It is painfully clear that Microsoft has failed to benefit as much as it should have from the surge in online ad spending of recent years.
DoubleClick, founded in 1996, serves ad buyers such as ad agencies and corporate marketers, and ad sellers such as website publishers. It has two main divisions. Its Dart division provides tools and services to both buy and sell advertising, primarily display and rich media ads. Meanwhile, the Performics division focuses on search engine marketing, commonly based on the pay-per-click ads in which Google specializes.