Google has agreed to buy DoubleClick for $US3.1 billion in cash, an acquisition that strengthens Google's status as an online advertising powerhouse.
DoubleClick's network of advertisers and Web publishers, as well as its technology to serve ads and manage campaigns, is expected to boost Google's ad business, specifically for display and rich media advertising, which aren't Google's specialties.
Google generates most of its revenue from search engine, pay-per-click advertising, which are text ads that link to advertisers' Web sites, but it has lagged behind Yahoo and others in banner, graphical and video ads.
Google is buying DoubleClick from private equity firm Hellman & Friedman and JMI Equity and management. The deal is expected to close by the end of the year.
"By working together, we're going to be able to offer a variety of tools for advertisers to do better Internet targeting," said Susan Wojcicki, a vice president of product management with Google, speaking on a conference call with reporters. "Advertisers will be able to spend more and be able to make rational decisions about how they are spending their ad dollars."
The fact that there is such an "obvious alignment" between Google and DoubleClick advertising partners was an impetus for the deal, said Google Chief Executive Officer Eric Schmidt. "DoubleClick has been a partner of ours for a very long time, and some of the most important advertising partners of Google are in fact very big DoubleClick users," he said.
Google officials spoke only generally about product plans. "It's not good for us to speculate right now on what we might do," Schmidt said. "This merger is really part of a global growth strategy for Google. It's a way of solving, in an end-to-end way, problems in search and display advertising."
Recent rumors had Microsoft aiming to buy DoubleClick for about $US2 billion, so Friday's announcement signals that a bidding war had erupted with Google, said industry analyst Greg Sterling of Sterling Market Intelligence.
The deal is a clear loss for Microsoft and it stands to affect Yahoo as well, because with DoubleClick, Google gets a much-needed boost in display advertising, Sterling said.
Companies such as DoubleClick that link advertisers and Web publishers have thrived in recent years, thanks to the strong growth in online ad spending, said Clayton Moran, a financial analyst with Stanford Group Company, in Boca Raton, Florida, prior to Friday's announcement.
"The facilitators of online advertising have done very well, because demand for Internet advertising has been very strong," Moran said.
He doesn't track DoubleClick because it is a privately held company, but he does follow publicly traded competitors such as 24/7 Real Media and ValueClick. Last year, Real Media's revenue was $US200.2 million, an increase of 43 percent from 2005. Meanwhile, ValueClick grew its revenue to $US545.6 million, an increase of 79 percent from 2005.
The deal may make it harder for Microsoft's struggling online division to compete with Google.