In its largest acquisition yet, Google has agreed to pay US$3.1 billion in cash for online ad company DoubleClick, the companies announced late last week.
The deal gives Google a large network of advertisers and Web publishers to serve and sell ads to, and it boosts the search giant's banner advertising business, which lagged rival Yahoo's.
"The most compelling argument (for the deal) is it is accelerating our display advertising business," Google Chief Executive Eric Schmidt said on a conference call with reporters and analysts. "I'm calling from Argentina where Google is opening its latest sales and support office...I was so excited about this."
The acquisition, which is expected to close sometime later this year, also will give media agencies and advertisers the ability to manage integrated search and display ad campaigns through one centralized console, Schmidt said. "The whole system will run faster," he said. "Users will benefit from more targeted ads."
Google is buying DoubleClick from San Francisco-based private equity firm Hellman & Friedman, which acquired DoubleClick two years ago for US$1.1 billion, and JMI Equity and Management. The deal is subject to regulatory approval. David Drummond, senior vice president of corporate development at Google, said he was confident antitrust and other regulators would approve the agreement.
The announcement puts to rest rumors reported by The Wall Street Journal of a heated bidding war over DoubleClick between Google, Microsoft and even Yahoo and AOL. A Microsoft spokesperson said the company had no comment on those reports.
Forrester analyst Charlene Li said Google can not only better compete with Yahoo's strong display advertising business but make it even harder for Microsoft, which recently launched its own search advertising system, to jump in.
Google thought about buying DoubleClick for a "very long time", Schmidt said. DoubleClick is housed in the same building as Google's New York office, and employees of the two companies are on friendly terms. The companies have similar cultures and have been partners for a long time, Google executives said. "We'd had informal chats before, but the alignment wasn't there," Schmidt said.
With this purchase, Google breaks its own previous record for acquisition price: It paid US$1.65 billion in stock for YouTube last year.
The DoubleClick purchase is worth the price for Google, Li said. "Google has been trying to get into the display ad market for years. It was going to be a long slog for them to compete with DoubleClick for those advertiser relationships."
"They've just locked it up," she added. "They can leverage the relationships they have between display, search and transactions (with Google Checkout) better than anyone else can, and that justifies the premium price they paid. In that way it was a 'must-buy' for Google."
Asked whether Google would make information from search results available to display advertisers for targeting purposes using DoubleClick's system, Google co-founder Sergey Brin said it was unlikely. "Overall, we care very much about end-user privacy and that's really going to take the No. 1 priority when we contemplate new products," he said.
DoubleClick created a firestorm of controversy in the late 1990s with its efforts to combine consumer online and offline data and to track activity and target ads based on user profiles. The company was forced to kill an "intelligent" targeting service it had launched in 2000 that served ads based on consumers' personal tastes. Two years ago, the company settled state and federal lawsuits that charged it with surreptitiously tracking and collecting consumers' personally identifiable data and combining it with information on their Web surfing habits.
In addition to beefing up its online advertising business, Google has been aggressively expanding into offline advertising, including television with a deal earlier this week with satellite company DirecTV. It targeted radio by purchasing radio ad company dMarc, and print, with a deal with a group of newspapers.
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