Google clears last hurdle to acquire DoubleClick; Closes deal for $3.1 billion

12 Mar 2008


Google made a quantum leap in its bid to be the dominant advertising platform on the web when it obtained regulatory approval from the European Union on Tuesday for the acquisition of DoubleClick, a significant player in the $37 billion online advertising business. This approval signalled the clearance of the last hurdle for Google who had expressed its intention to acquire DoubleClick for $3.1 billion in cash on April 14, 2007. However, several competitors in the online ad space like Yahoo, AT&T and Microsoft, had then protested citing possible privacy and monopolistic implications. Immediately after the approval was announced in Brussels, Google announced that the deal had been closed and the integration may lead to some job cuts. DoubleClick had earlier been the property of private equity firm Hellman & Friedman who had acquired the company in 2005.

How it helps Google
Eric Schmidt, CEO, GoogleWith this acquisition, Google can expand its existing supremacy in the search advertising market to the domain of graphical display advertisements. Google CEO Eric Schmidt was quite emphatic on the importance this acquisition holds for his company when he said, "With DoubleClick, Google now has the leading display ad platform". The acquisition had earlier been cleared by US authorities in December last year. The European Commission cited the presence of viable rivals like Yahoo, Microsoft and AOL while clearing the acquisition, and said that an ''in-depth market investigation'' had concluded that Google and DoubleClick could ''not be considered as competitors at the moment''.

Google's phenomenal success of recent times has largely been the product of its search advertising revenue, where advertisers bid on keywords and sponsored listings appear in results pages, placed through its AdWords program. In placing targeted display ads on relevant third-party Web sites, Google's AdSense program has faced a tougher challenge from rivals like Yahoo and Microsoft. This may very well change with this acquisition, because DoubleClick's strength lies in elaborate display advertisements and ''ad serving'', or using software to help advertisers narrow their aim to potential customers. With this acquisition, Google can now service the entire online advertising spectrum, right from simple text ads to elaborate graphical displays, coupled with targeted delivery, making it a one-stop advertising shop.

How it helps Microsoft
Although this acquisition had been extensively opposed by Google's bitter rival Microsoft, and the approval especially galling after the huge fine imposed on it a fortnight back by the same commission, (See: EC fines Microsoft $1.35 billion for defying sanctions), this deal may actually end up helping Microsoft's bid to acquire Yahoo. Microsoft can use this acquisition as argument to bolster its case of taking over Yahoo to create another ''digital colossus'', which many feel would be a threat to privacy concerns. Yahoo had initially rejected Microsoft's unsolicited bid of $44.6 billion citing it to be ''substantially undervaluing'' Yahoo's brand and assets. Undaunted, Microsoft is still pursuing this potential acquisition as a way of staving off Google's increasing dominance in the Internet world. However, analysts are divided over the utility this decision portends for Microsoft's bid.

Microsoft, in anticipation of the threat this merged entity holds towards its business, had earlier acquired DoubleClick's main competitor aQuantive last year for $6 billion. Yahoo had also moved towards acquiring a majority stake in Right Media and America Online bought out Tacoda.

A brief history of DoubleClick 
DoubleClick started life as Internet Advertising Network founded by Kevin O'Connor and Dwight Merriman in 1995, and was christened DoubleClick on being acquired by Poppe-Tyson (a division of Bozell, Jacobs, Kenyon & Eckhardt advertising) in 1996. It started out as a pioneer in the online media representation business by marketing websites to companies to sell advertising space. In 1997, it diversified into online ''ad serving'' and management technology, and was one of the few ''dot-com'' companies to survive the ''dot-com bubble'' of the late 90s and early 2000s.

It had also had its share of controversies, when it merged with data-collection agency Abacus and was discovered to be obtaining unauthorized finacial information. Due to the negative press, DoubleClick dropped any integration of their services with those of Abacus, and instigated stronger privacy policies and oversight. In April 2005, Hellman & Friedman, a San Francisco-based private equity firm, announced its intent to acquire the company and operate it as two separate divisions with two separate CEOs for TechSolutions and Data Marketing. The deal was closed in July 2005. Hellman & Friedman announced in December 2006 the sale of Abacus to Epsilon Interactive.

With this acquisition, Google has indeed covered up a large gap in its impressive resume of offering online advertisement services. However, several analysts have criticised these decisions of the United States Federal States Commission and the European Commission. They feel that this merger may very well open the floodgates to more consolidation and the concentration of customer data in the hands of a select few, starting with the proposed Microsoft-Yahoo combine, which may actually benefit from this deal. The market has responded favourably to the deal, with the result that Google shares closed more than 6 per cent higher following reports of the merger's approval, at $439.84.

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