GoogleClick - Who owns your cash register?
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.)
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.)
Labels: adMonitor, GoogleClick, internet advertising, L90
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Great post, Frank. I think one of the aspects of this merger people should consider is who benefits financially from the deal (other than the GoogleClick folks). Publishers who currently sell their inventory at high premiums may NOT benefit from the transparency Google brings to the table. Advertisers may pay less for advertising, but there may be brand degradation as Google continues to serve their advertising in the wrong places due to the "dumb" technology currently in place. And publishers who don't know any better use Google AdSense because they like the detailed data provided more than they appreciate the higher CPMs good brokers bring them. As you pointed out, Google keeps 100% of their revenue. Clearly there are some conflicts here. I am interested to see what happens next.
Posted by
heather |
2:33 PM
Good insight and thoughts on behind the scenes.
Lal
Posted by
The Lal |
8:55 PM
Great post, Frank. I can't wait to hear about 6.0. Someone very wise once said, more data leads to higher yields leads to more control over inventory. To further your analogy, Google through its cash registers has all the data from its own traffic, all of the data from other publishers networks; Because it has the data, it can target better; and because it can target better, it can monetize more efficiently; Because it can monetize more efficiently, it can control/acquire all the web inventory by offering more to its network partners.
Next stop for Google...the mobile cash register.
Posted by
David |
4:27 PM
Good post, and I agree that Google’s technology making things simple is an important part of their success.
Frank seems to ignore the other side, however. Locking up the real estate is at least as important. People don’t necessarily advertise on Google because it’s the easiest to use. They advertise there because that’s where the users are.
DoubleClick’s agreements with publishers is the overlooked piece of all this.
Posted by
William Leake |
1:50 PM
I love your take – thinking out loud ::
1. I disagree that most advertising on the web is done through broker deals. This may be true for direct marketers but the there are advertisers with enormous media budgets are and typically cannot sell their product online (Anheuser anyone?). Their transactions are done by publisher reps and agency buyers.
2. If you can agree with me on point one, you will find the irony in this: Those advertisers are the very reason why 3rd party data may become obsolete. Brand advertising - as much as the ad agency will argue - does not require data. Brand advertising supports the industry but may contribute to the decline of 3rd party data.
3. I think the real question we should be asking is should all media work as an exchange? The internet has bragged since its inception that data could justify media spends when purchased, targeted and optimized. An exchange does this automatically and removes the human element. Why aren’t more people curious about the future of the online advertising agency (with regards to strategy and purchasing power, not creative)? Where will they fit in, if at all?
4. Google monetizes because their advertisers (ebay, classmates, scottrade) are selling something. I agree with David in that their success is due to the ability to return advertising to a user that is helpful. But again, what about brand? Doubleclick’s made it to a 3.1 billion dollar sale from selling to brand clients.
5. We had pop-ups, newsletters, retentention emails, text links (early search ads), display again (minus pops), and true search. Video pre-roll/in-stream is in its inception and that, my friends, is where our beloved brands will land. Google has not yet achieved the display side of the industry and as lucrative as search is, it does not work for many advertiser. They have not been able to monetize Youtube to its potential.
Finally, of course their are conflicts here ... the industry is changing dramtically. Agencies and publishers alike are gobbling up their own ad servers.
Posted by
Anonymous |
3:11 AM