Since Google’s announcement of their decision to acquire DoubleClick for $3.1 billion on Friday, I have received a flood of emails asking for my thoughts on the topic. So, I am going to interrupt my previous series/postings on product development to share my thoughts.
Back in 1998, DoubleClick was my #1 competitor at L90. Our product, adMonitor, was a direct competitor to DoubleClick’s ad serving technology. When we started, we were the 7th horse in a 7 horse race. DoubleClick, like other competitors, had already underwent a successful IPO and their market cap was in the billions and their resources were virtually unlimited. Against the odds, within a few years, adMonitor had become one of the most dominant advertising networks on the Internet, serving billions of ads each month for over 3,000 companies such as Microsoft, AT&T and Visa. Ultimately, we gave DoubleClick a run for their money and shortly after we took L90 public, DoubleClick acquired adMonitor to take us out of the market. A move very similar to what Google is doing with DoubleClick today.
Recently, I have been looking very closely at the online advertising market. I was shocked to see how little has changed in the past 7 years. The online advertising market was hot 7 years ago, it tanked during the dot-com fall out and recently (a few years ago, along with Google’s IPO) has become hot again. Google is clearly the driving force behind its success. And, it has become clear to me why. Google was the only real technology innovation in the online advertising market. Google made it simple. (see my posting on “Keep it Simple“)
Google has cornered the online advertising market. Prior to Google, the online advertising market ran like the stock market without a NASDAQ computer. Everything was manual (shifting around excel spreadsheets) and there was little visibility available to advertisers and little exposure available for publishers. Google simply came in and automated it.
Most of the online advertising space today is made up of broker-dealers. I believe this to be the case because there is still a lack of technology in the space. There is some new technology, but mostly very specific, niche technology solutions such as video ad-servers, behavioral targeting, etc. Aside from these micro-innovations, the only other real innovation in the space are the advertising marketplaces where advertisers can purchase advertising from mid-tier publishers through an automated system.
Google is the dominant player because they have technology. Drawing an analogy from the online advertising business to the coffee business… It’s like Coffee Bean, Peet’s Coffee and other competitors leasing their cash registers and coffee machines from Starbucks. Many of Google’s closest competitors are using Google’s adserving technology to drive advertising revenue. Great for Google, bad for everyone else.
I am not the least bit surprised that DoubleClick sold for $3.1 billion. Personally, I think it was the smartest decision Google could have made. What’s the cost of not having it? What if there was another competitive cash register on the market? DoubleClick’s technology, while old and antiquated, was the only other decent “cash register” with any traction. Sure, there’s a wave of new technology solutions that have come into the market that are competitive with DoubleClick, but, they are unproven. Most of these new companies have been started by “newbies” to the advertising space and it’s going to take them a while to learn the advertising business. Most of the veterans from the first online advertising revolution 7-10 years ago are likely sitting on yachts counting their payouts.
So, now the large networks are revolting against the GoogleClick deal. They are challenging the deal with the government on anti-trust claims, saying that it gives Google too much power and they will have an unfair advantage. I think this is a bunch of nonsense. Sure, Google has a significant advantage, but I don’t believe they have an unfair one. They just happen to be the main supplier of cash registers and coffee machines. Anyway, come on, Google’s mantra is “don’t be evil”, right? How could they abuse their power? Besides, with Google trying to launch satellites, building mobile phones, trying to replace Microsoft Office, scanning libraries of books, who has time for advertising technology anyway?
However, make no mistake about it, Google is very much a competitor to any publisher. They have one of the largest websites on the Internet and that is their main business. They keep 100% of the revenue from their own website and only a fraction when selling advertising on other sites. There needs to be another supplier of cash registers and coffee machines and there is nothing preventing another supplier from entering the market. However, the problem with it is that it is damn hard to build advertising technology. It took us years at L90/adMonitor, hundreds of billions of ad impressions worth of learning, millions of dollars and hundreds of people to get it right… It’s not impossible, it’s just hard, time consuming and expensive. The GoogleClick deal doesn’t prevent anyone from competing, it just sets everyone else back another 12-18 months further than they were before.
Smart move on Google’s part and congratulations to the geniuses at the private equity firms (Hellman & Friedman and JMI Equity) that identified this hole in the market and bought DoubleClick for a fraction of what they sold it for. But, if I were a publisher or a major network using anything from GoogleClick, I’d want to find another supplier of cash registers and coffee machines before someone drives up my rental fee or takes my cash register away (with my customer list and cash still in the drawer). Ahh, maybe I’m just being paranoid… If I’m a publisher using Google, they already have my customer list, advertising data and revenue information anyway…
After writing this, I think I smell something… I can’t tell if it’s a fresh pot of coffee or Startup 6.0 brewing…
(For the record, I don’t drink coffee.)