Google/DoubleClick Deal in Trouble

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Confirmed?  No.  But sure feels that way. 

As Google and Microsoft execs head to Washington to plead their respective cases, a Microsoft-funded 51-page "research paper" on the legal aspects of the fight is making the rounds.  (PaidContent has a brief summary).  Google will likely argue that the paper might as well have been produced by Microsoft's legal department, and it might as well have been, so the actual legal details remain unclear. 

But here's a layman's take, one that is apparently gaining traction in Washington, the EU, Australia, and elsewhere: 

One key argument in support of the deal, that "paid search" and "display" are two different businesses, is bogus. Why?  In part because Google itself sells search and display exactly the same way (PPC).  In part because some "display" ads look just like paid search ads.  In part because the whole premise of AdSense for Content is that web users won't have to bother "searching" to find the ads--they'll appear next to what the users are already interested in.  In part because Google's closest competitor, misfiring Yahoo, treats all web advertising as a single business.  In part because search and display ads sometimes appear on the same pages.  Even the distinction between selling "technology" and "advertising" is a subtle one.  From an outside perspective, it's all just web advertising.

If the Microsoft-funded paper's most basic premise is correct, the market share of the combined Google-DoubleClick will exceed 50% (52% to be precise)--above the "warning level" for anti-trust cases.  And Microsoft's argument, that it's all just web advertising, makes more intuitive sense, especially to those who aren't immersed in this industry.

Microsoft is no stranger to getting deals killed by anti-trust concerns, and its lobbying efforts here are working.  Regardless of the actual legal merits of Google's position, if any, Microsoft's argument is more persuasive.  If Google had bought DoubleClick three years ago, when it could barely give itself away, the deal would have sailed through.  Now, however, it seems that Microsoft may finally win one.

See Also: What Happens if GOOG/DCLK Blocked or In Endless Purgatory
New: Google/DoubleClick Inside Story: ""FTC Will Approve", Microsoft May Litigate



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ben allen said:
That 'research report' and the 50% thing is a bunch of hocus pocus B.S. here is why. What Microsoft is claiming is a share of online ad expenditures getting too concentrated right? Well, here is an important point to understand the difference between what Google does and what Doubleclick does. Google sells ads to advertisers and in the process pockets more than half the money which exchanges hands. Doubleclick runs ads as a service for advertisers and keeps maybe 1.5% in ad serving fees. Huge difference.
Think of this analogy. Say there is a piece of software, WillSoft, out there that helps lawyers prepare final will and testaments, and 25% of wills in the world are prepared using WillSoft. Let’s also say that there is a top will writing legal firms, WillLegal, that handwrites wills, and writes 30% of the wills on the market.
One day WillLegal decides to buy WillSoft. Is this anti competitive? Why not? The number of wills /will expenditures controlled by WillLegal will now exceed 50% of total market, right?

Danny Sullivan said:
Thanks, Henry. I guess I stick to my guns that search and contextual are radically different things. I've spoken about the "contextual pollution" for years, where it gets lumped into search simply because Google sells it as well.

Look, offline, the closest match you have for search are yellow pages. That's the "we know the user is looking for something" medium. Now let's say you're a yellow pages company who then starts telling TV ads -- the "we hope the user will want something" model. Are those the same? No way. They are fundamentally different mediums. Radically different.

I agree -- the difference might be lost on a national audience. It shouldn't be lost on elected leaders (though I have little faith here).

Henry Blodget said:
Danny, thanks for the thoughtful analysis. I still think the distinction between search and contextual is a very fine, especially when one is arguing that they are two fundamentally different businesses.

(The difference, in my opinion, boils down to "We know the user is looking for something" and "We hope that the user will eventually look for something")

The distinction between an "ad serving service" and a "media company" is greater, but Google's network blurs this distinction, too (As you point out, Google already serves ads on other sites--it just doesn't sell this serving as a service yet).

I think the real risk here is public perception. The distinction between "Serving as a product," serving as a support technology," contextual search, and contextual display is likely going to be lost on a national audience, especially when Congress is trying to inflame passions.

Based on what I learned after I wrote this post, I think the deal will come down to whether the FTC can resist political pressure, and, then, whether Microsoft will aggressively try to litigate to block it. Every day of delay works for Microsoft, so the latter strategy seems possible, if unlikely.

Lynne said:
I fully agree with Danny. I have a hard time with Microsoft screaming about any issue of anti-trust. Did they not just purchase Aquantive?

As far as we're concerned Google already owns far beyond 50% of the online advertising market, DoubleClick or not. Sorry, this whole thing is just a huge case of Microsoft sour grapes.

Danny Sullivan said:
Search and display are completely different things. It's not bogus. And it's more complicated than that.

First, search ads are ads delivered against an actual express desire. You enter words, get results and ads with them. There's little guessing about what you want.

Contextual ads are NOT ads that you somehow don't have to search for to get but are somehow searchy. Contextual ads are targeted to the content of the page you are reading. But just because you are reading some web page does NOT indicate any expressed desire that you have a particular interest in a product or service. Read a story about someone murdered -- you don't want ads on murder. And so on. It is this inaccuracy and guessing that has forced Google to discount the amount it can get for contextual.

Display -- aside from the behavioral target that Yahoo and Microsoft are doing (and Google is NOT) -- is poorly targeted. This is largely brand building, guessing to match ads delivered against a demographic. You don't need to do much demographic targeting in search because is is so precise. People tell you they want cars. With display, you guess where car buyers might be and hope showing enough ads may catch a few fish.

Now to the 50 percent thing. I'm not an anti-trust expert by any means. But Google already -- without DoubleClick -- has the ability to deliver display ads on the web. Indeed, it already does -- AdSense For Content image ads (as opposed to text ads) are simply display ads.

So if Microsoft manages to kill the merger, and then Google still gets a more than 50 percent share of online ad market (heck, aren't they there already?), what happens -- they have to rollback to 49 percent? And does Microsoft have to give up some of that 90 percent share of the operating system market it has?

DoubleClick gives Google some new capabilities, but Google already has without it a massive network -- and the massive network that Microsoft seeks to build on its own, in part with its own acquisition that merrily breezed through.

Jellica said:
It would be a real victory for Microsoft if they can pull this off especially after the European fiasco.

I hope they can prevent the takeover.

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stone said:
Of course this deal is in trouble. Google uses anti-competitive tactics to build their network. Combined with DoubleClick this would be very bad for the Interney economy.

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