The sale of DoubleClick involved weeks of negotiation that included at one point Yahoo Inc. (Nasdaq: YHOO, stock), AOL and most importantly Microsoft Corp. (Nasdaq: MSFT, stock). Microsoft which has more cash than Google and trying to position itself as an advertising rival to Google was however outbid.

The acquisition will also strengthen Google’s position with respect to Yahoo, its chief rival in Internet search and advertising and a leader in the sale of display ads. Yahoo which has been trying to imitate Google’s online advertising program, Adsense, since 2005 has been so far disappointing as far as competing with Google is concern. It’s Panama project, said to be the ultimate weapon to challenge Google’s Adsense has been a failure so far. Yahoo advertising program is only applicable to online publisher and advertiser within U.S. while Google’s Adsense is available worldwide, well, almost.

Google made most of the money from basic online advertisement and the stock price has skyrocket to the $500 per share level not too long ago. But it lacks the strength which DoubleClick has, that is the flashy banner ads and video ads that are more like high-end magazine or television ads. DoubleClick on the other hand lacks the vast network of advertisers that Google has.

One attraction for Google was DoubleClick’s new exchange that brings Web publishers and advertising buyers together on a Web site where they can participate in auctions for ad space.

The sale raises questions about how Google will manage its existing business and that of the new DoubleClick unit while avoiding conflicts of interest. If DoubleClick’s existing clients start to feel that Google is using DoubleClick’s relationships to further its own ad network, some Web publishers or advertisers might jump ship.

Most of DoubleClick’s clients are locked into long-term contracts to keep using DoubleClick. And DoubleClick’s chief executive, David Rosenblatt, said in an interview last night that the company would protect its ability to remain neutral with its clients. “We are exquisitely sensitive to our role as Switzerland,” Mr. Rosenblatt said. “In the simplest sense, they bought customer relationships, and they’re primarily focused on making sure not only are those relationships preserved but that they are enhanced and made better.”

DoubleClick generated about $300 million in revenue and $50 million in earnings before interest, depreciation and taxes last year, mostly from providing ads on Web sites. While some suggested that $3.1 billion was a high price for DoubleClick others said Google was buying far more than DoubleClick’s cash flow. And, Google has plenty of cash to spare. At the end of last year it had $11.24 billion in cash and marketable securities.

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April 14th, 2007 by financetwitter

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