As VP of Ad Sales for a mid-sized online publisher from 2000-05, I had the opportunity of working with every single vendor in the industry, and let me tell you Dart for Publishers (DFP) was no joy to work with. Don’t get me wrong, even aQuantive’s AtlasDMT (a stock I own) is clunky… but Doubleclick’s DFP was just horrible. I always figured advertisers really loved its advertising platform. I never understood why publishers used it, frankly.
I was hoping Google could build something simple and elegant, but now we’ll get Doogle, or Googlick… of course, if they manage to turn DCLK into Analytics (what they did with Urchin), I’d be happy.
But that is all secondary to the number of publishers that are about to check their contracts to see how quickly they can get out of the DCLK contract. And I’ve already addressed the number of advertisers who probably don’t want to work with a Google-owned ad server here. Just think of how eBay’s marketplace flopped. Sure, that was in TV, but who do you think Google is trying to win over with this deal? The major advertisers, who already fear Google’s ambition.
“I use DFP Reports daily to run the business. The ability to get detailed information on our ad operations has helped us to maximize our selling efforts and keep our advertisers happy.”
Matthew Goldstien, Vice President of Ad Sales Operations, MTV Networks
Taken from Doubleclick’s website. I really wonder how much longer Viacom’s MTV - the same Viacom who is suing Google for $1B - will be using Doubleclick’s (now Google’s) Dart for Publishers.
I am hoping the Monte Carlo guys took this into consideration before they paid $3B in cash for DCLK.
Which begs the question: why cash? What does that say?
I love this industry…
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WatchMojo NewsletterWhen Google bought YouTube, the general feeling was “Google outsmarts its competition once again.” Yes, there were some who thought the deal would prove to become Google’s Broadcast.com moment, but these were in the minority. Today, six months after the deal, everyone is calling bust, even though realistically, that is way too premature as well.
The point: right now, while many are thinking that Google’s $3.1B cash deal to acquire privately held DCLK - which a couple of years ago was bought for $1.1B, has since sold a handful of units for $535M, and last year generated $300M in revenue - is a smart one.
You can find my reaction to the deal here, which also summarized most of the initial postings around the Web.
No one, and I mean no one knows what this deal will mean. The options though range from:
Nightmare scenatio: Google Becomes Microsoft
The antitrust chiefs - willing to look the other way at Google’s 50%+ market share in search cannot overcome its dual stranglehold in search & display network advertising, as well as user generated video content. Google is labeled a digital advertising monopoly, and is forced to break up into a) search, b) advertising networks, c) video and well, d) the rest. Google resists, and wages legal battle against government and Viacom et al.
Much like MSFT fended off both companies and government in the courts for numerous years, Google becomes, like MSFT, enbroiled in legal battles and direct and indirect competitors pass it by.
Worst Case Scenario: Publisher Become Frightened of Google Stranglehold, Flee Networks
People who don’t work in the space might not understand the implications, but trust me, any self-respecting advertising person does not really like this deal. Two reasons: one, two.
Most Likely Scenario: Yawn
While everyone is feeling good about themselves, let’s put down the koolaid and note a couple of observations:
- DCLK was in the advertising media business, it got out. It’s now in the advertising technology business, which is a commodity. DCLK charges folks < $0.05 CPM. It needs tremendous scale and reach to make the numbers worthwhile. In all likelihood, this deal will get a lot of press now, make Redmond curse the day Sergey Brin's folks picked up and came to the US... and die down, much like the "lights out" prognosticators were wrong about GooTube being a "MSFT/YHOO/AOL killer"
- This is not Google's first foray in any non-search venture, and everytime, it has fizzles. DCLK, while a great brand of the Web 1.0 era, is, in my humble opinion, not as impressive as aQuantive (note to Redmond: buy Seattle-based aQuantive; note II: I own shares in AQNT - for a reason). The point is: Google has yet to demonstrate traction in anything other than search and advertising... of course, the fact that it kicks ass in both of these means we can't have anything but much respect for them.
Best Case Scenario: World Domination
Of course, third time is the charm… and just because dMarc was a bust (radio is dead, after all, right?) and YouTube’s UGC was so 2006 does not mean that getting a stranglehold on all of that display/banner advertising inventory does not make Google a formidable, one-stop shop for advertisers. Also, while up to now, advertising online has been fragmented (S&M clients use search, F500 use branding, etc.), it’s true that these buyers will be buying across the board, meaning that Google’s timing could be impeccable.
And, if online advertising is poised to be a $60-80B industry by 2010, then maybe a $3B deal for DCLK ain’t too dumb after all.
Thoughts?
Here’s one: MSFT, spin off MSN.com into Yahoo!
Disclosure: Long AQNT, YHOO!
I saw this first on TechCrunch. The NYT reports that it’s a done deal.
When I wrote that MSFT won’t buy DCLK, I was right. But I was wrong when I thought that Google wouldn’t, because that would cause a publisher flight.
An ongoing theme pertaining to Google has been its desperate desire to diversify revenue streams. Just this morning we talked about Google not looking for traffic, but rather, ways to monetize its traffic. And since the next wave of growth is display/banners at the expense of video (and the one after that being video), Google did not apparently blink today, spending twice what it spent on YouTube to keep DCLK out of the hands of MSFT.
“Keeping Microsoft away from DoubleClick is worth billions to Google,” an analyst with RBC Capital Markets, Jordan Rohan, said. Indeed, MySpace got $900M in an ad deal, and this $3.1B deal is the price to pay to maintain Google’s lead online, I presume.
As Om Malik states: “the amount Google spent is shade under Google’s revenues in the fourth quarter of 2006 ($3.21 billion) and what the company earned in entire 2006. At the end of 2006, Google had $11.2 billion in cash.”
While many folks will rush out and say this is a brilliant deal (and frankly, from a defensive, Monopoly-money using perspective, sure it is), I personally do not see this being a wise, long term investment… the publisher risk is enormous, in my humble opinion. But then again, as the line between search and display advertisers gets blurry, offering a one-stop solution is in theory a good one:
Or better yet, this graph I found on Business Week via B2.0 when asked “Which medium will represent the largest percentage increase in spending this year for your brand (or your top client)?”:
That says it all.
Of course, when most banks merged to offer that to clients, we learned, it was not sound. Furthermore, many media firms that did just that also learned the hard way that this does not always work in practice.
But when you have over $10B in cash and securities and a market cap of $145B - much of which is hinged on growth, then cost is secondary.
Just this morning, GigaOm looked at the year-by-year appreciation of Google’s stock price:
Google, which joined the S&P 500 a little more than a year ago, has since failed to outperform that index: The S&P 500 returned 16.5% in 2006 and is up 2.1% this year.
But do ask yourself this: YouTube got $1.65B in stock, DCLK got $3.1-3.3B in cash. Of course, private equity financiers prefer cash… and DCLK could parlay MSFT against GOOG to get cash, but what does that say about the likelihood of this deal really being accretive for Google? I don’t think it will, no matter how large display/banner ads are.
In fact, just earlier this week, Eric Schmidt said that if given the choice, Google would prefer building solutions in-house than buy them… yet they pull this deal?
Is Google desperate, or is DCLK such a great deal? One thing is for sure, the blogosphere will be talking about this one all weekend, and great arguments will be made on what this means for Google, MSFT, Yahoo! and the industry in general.
It’s also breathtaking how much things have changed, between 1994-2000: Doubleclick was synonymous with online advertising, then it got out of the advertising network business for technology. Today, Google is synonymous with online ads… even though, as Business 2.0 reminds us:
Here’s the grand irony, though, that the Times missed.
Google is spending a mere 2 percent of its $145 billion market cap on DoubleClick. But at one point, Google was counting on the much-mightier DoubleClick for its survival. When Google launched AdWords, even its founders had doubts that the newfangled advertising system would work. Sergey Brin once told Business 2.0 columnist John Battelle that if AdWords failed, he and cofounder Larry Page figured they could swim to DoubleClick as a “life preserver.”
A more global theme I’ve covered here is how large new and old media, as well as technology companies essentially keep prices of startups and valuations of these high by bidding for assets to keep them away from one another. In other words, Google recognizes that it’s a vicious cycle, they need growth to maintain their stock price, and so long as the multiples on their earnings and growth are healthy, they can afford to pay anything to keep MSFT (and Yahoo!) at arms’ length.
DCLK generated about $300 million in revenue last year, mostly from providings ads on Web sites, so it got 10 times revenues which is very healthy, especially when you consider that after being bought for $1.1 billion by private equity firms, it sold off a couple of assets to net these $535M. In other words, Google needs to ask itself what it paid $3.1B for?
Don’t get me wrong, Google is laden with smart people, but after acknowledging that billion dollar acquisitions for dMarc and YouTube are not as synergistic as they would have hoped, I am, frankly, shocked by this news!
Naturally, Yahoo! did not need to partake in this deal, since they have a more healthy display/banner business… but MSFT - that has been trying to get into this game - now feels like a distant competitor in the online advertising war.
Here’s how Google - whose stock is down less than 1% after announcing the deal - is spinning this, according to Google’s own press release, and paraphrased by PaidContent.org:
– “For users, the combined company will deliver an improved experience on the web, by increasing the relevancy and the quality of the ads they see.
– For online publishers, the combination provides access to new advertisers, which creates a powerful opportunity to monetize their inventory more efficiently.
– For agencies and advertisers, Google and DoubleClick will provide an easy and efficient way to manage both search and display ads in one place. They will be able to optimize their ad spending across different online media using a common set of metrics.”
All to say, it’s a great time to be in new media, I’ll tell you that.
Added since this post:
- Two questions to ask
- 4 Likely Outcomes, MSFT/YHOO repercussions
Disclosure: own shares in Yahoo!
A couple of weeks ago, Valleywag linked to a video of InterActive Corp.’s new building, designed by architect Frank Gehry. Today, Fred Wilson did so as well, adding that IAC is featuring it on IAC’s Vimeo service, which was acquired by IAC when it bought Connected Ventures, the parent company of College Humor, the most popular site in its category.
I had a chance to meet CV’s co-founder Josh Abramson a couple of years ago, and for the past few years, we’ve exchanged emails here and there. Point is: nice, intelligent guy, and definitely very deserving of his success when IAC bought 51% of his company for a reported value of $20M.
What’s interesting about CV is that the same guys who developed College Humor also developed Vimeo. Vimeo, for what it’s worth, was basically YouTube before YouTube was around; Vimeo was launched in November 2004, YouTube in May 2005!
You can say what you want about missed opportunities, but why look at the glass as half-full? There’s also such a thing about being ahead of the curve… The guys at CV, notably late add-ons (relative to Abramson and co-founder Ricky Van Veen) Jakob Lodwick and Zach Klein spearheaded Vimeo. I have no idea if Vimeo will ever be a Top 3 video file sharing service, and I have argued that when Google bought YouTube, it was a dark day for all YouTube challengers… and even then, I am not sure if user generated will be anything that will really drive value at companies, making YouTube, Vimeo and company hard-to-value assets.
But the thing that baffles me, is not that the CV guys thought and launched a YouTube six months before Chad Hurley and Steven Chen did… it’s that a few years before that, they developed CampusHook. When I first saw CampusHook, I thought it was going to be a massive success. Campus Hook was ultimately half Myspace, half Facebook. At the time, there was little value in social networks, and the CV guys were rightfully building the CollegeHumor.com site… eventually, they sold CampusHook… but right there, that shows that one team not only managed to build CV into a successful enterprise that IAC integrated into its online unit, but they also went on to recognize two of the greatest trends in online media of the past five years.
That’s pretty impressive. Anyway, we certainly went on a side issue there, but check out IAC’s new headquarters, on Vimeo.
To conclude (I swear there’s a point here), the lesson is that with IAC, technically, College Humor might have lost the race to YouTube, but if IAC does 10% of what they want to do in video online, Vimeo could end up winning the marathon.
All right, that might be very optimistic, but remember, online the game is never over. Sure, YouTube cashed out for $1.6B in stock, but long term, whomever is in the lead today has absolutely no guarantee to remain on top… and that’s why we haul our asses out of bed every day and get to work.
Rolling Stone, owned by Wenner Media, made many missteps when I competed with them from 2000-05 in the online publishing space.
Having become increasingly irrelevant, it now wants to rip off MySpace by launching a social network, when the rationale for all things Web 2.0 are being questioned, mind you.
So let me get this straight: RS wants to replace hordes of monetizable content for untouchable [user generated] content?
Oh my lord, magazines are in much bigger trouble than I ever thought. By the way, the announcement was made by Keith Blanchard, formerly of Maxim, who as Editor of Maxim told his readers that the Web was oh-so-uncool: “The Internet Bites,” in the February 2001 issue of Maxim… I would know, since I used that very old statement and Editor Letter to win business away from Maxim at my old gig.
“What are you doing on the Internet today? (…) I can’t believe Al Gore invented this crap.”
Always be careful what you say, on the record (and that applies to my spineless ertswhile colleagues too, whom I helped defeat Maxim, by the way, but let’s not get off track).
Rolling Stone could be made very relevant, and trust me, a social network is not the answer. Blender tried to kill Rolling Stone because it realized it was stale. Growing up (I’m 29), Rolling Stone was one of my favorite magazines, there’s no reason why it needs a MySpace clone, frankly. What it needs is to understand what its strengths are and adjust them for the Web… but if your readership is 30-something, a social network ain’t the answer…
