When 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!

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