Ad Wars: Google's Green Light

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For the time being, then, Google may be able to steal a march on its prime rivals. Google provided little immediate color about its plans for DoubleClick beyond a brief statement and a blog post by CEO Eric Schmidt. But it's clear Google sees the deal as a way to expand well beyond its mainstay search-ad business, where growth has been slowing in recent quarters. "Advertisers and publishers who work with us have long asked that we complement our search- and content-based text advertising with display advertising capabilities," Schmidt wrote on Google's official blog, most likely referring to an online ad dashboard it has discussed with advertisers and ad agencies. "DoubleClick gives Google the leading platform for display advertising, enabling us to rapidly bring advances to the market in technology and infrastructure that will dramatically improve the effectiveness, measurability, and performance of digital media for publishers, advertisers, and agencies."

For all the attention on the deal, however, the DoubleClick buy is likely to have little impact on Google and the ad industry in the short term. For one thing, DoubleClick's revenues, believed to be under $200 million a year, won't add much to Google's expected $16 billion in sales this year. That may be why Google's stock rose a relatively modest 6%, to $439.84 a share, still far below its high of $747.24 last November. And most of that gain arguably was driven by a strong day in the stock market, where the Nasdaq composite index rose nearly 4%. "It's still a very small piece of Google," says Clay Moran, an analyst at Stanford Group.

Indeed, many ad experts think it could take Google years to leverage DoubleClick's technology and relationships with advertisers and publishers into a formidable position in display ads. Google is believed to be less interested in DoubleClick's main ad-placement business than its staff of ad experts and thousands of clients that use DoubleClick tools. "By no means does this turn them into a guaranteed powerhouse," says Kevin Lee, executive chairman of search-marketing firm Didit. "But it does put in place a foundation that may give them a huge leg up in creating the next generation of Internet advertising."

Privacy Concerns

The biggest uncertainty—for advertisers, publishers, consumers, and Google—is how much and how well Google will tap DoubleClick's data on Internet users to target ads with the kind of precision that has made Google's search ads so lucrative. Unlike search ads, which are targeted based on what people are searching for—often products they're looking to buy—the placement of display ads has been relatively untargeted, more like traditional brand ads on TV and in print.

But new technologies and data-collection techniques have been developed to target display ads at Web users based on who they are and what they're doing as they surf the Web. That prospect is what frightens privacy advocates—and what has kept advertisers and publishers from targeting display ads more aggressively. So far, Google hasn't engaged in this so-called behavioral targeting, which shows ads to people based on what they do on Web sites. In fact, Google has said it has no plans to mix DoubleClick user data, which it says is the property of DoubleClick's clients, with the search and other user data it already collects. So it's unclear at this point how much benefit Google will derive from that data.

Still, some analysts are assuming that Google will crunch at least some of DoubleClick's data with the information it collects from its search, e-mail, and other services so it can target display ads more effectively. That would let Google command higher ad rates. "Google will now have behavioral data from search, e-mail, video, and Web usage on network sites," JPMorgan (JPM) analysts wrote in a report after the deal closed. "We believe this will allow the company to provide much better ad-targeting, leading to increased [ad-placement rates] on DoubleClick sites."

Privacy advocates are continuing to lobby U.S. and European regulators to consider such data collection and usage in antitrust proceedings—or at least to place limits on what may be collected and how it may be used. "We have to change antitrust policy to have a particular sensitivity to data collection," says Jeffrey Chester, executive director of the Center for Digital Democracy in Washington. For now, though, Google is free to explore the wider world of online advertising.

With Jennifer Schenker in Brussels