A VC« Brad Responds To My Post | Main | The Highline - NYC's Next Great Park »
The Banner Is Back
Early last year I spent a couple posts talking about search versus banner advertising and suggested that banner ads were going to come back strong after years of playing second fiddle to search/CPC. That was the thesis behind my badly executed Yahoo (YHOO) trade.
Yesterday's announcement of Google's (GOOG) $3.1bn acquisition of Doubleclick says to me that the banner is back, big time. And here's why. There is infinite demand for search/CPC inventory at a price. Search/CPC is bought on a measured ROI basis. If you know what a click is worth to you, you'll pay up the that price for as many as you can get. But beyond that, you can't buy more.
Many marketers have reached the point that they can't easily buy more search. It's getting harder. Keyword markets are becoming efficient and supply and demand are coming into balance. Of course, that alone doesn't mean that all the other money will move into banners. Banners also need to produce measured returns.
But, banners carry branding value that text ads don't. The return on investment measure is not as cold and hard with banners. And the big branded advertisers that are leaving TV and print in search of better performance on the internet want to be able to brand with their ads. And they want to control where those ads are run. They'll pay more for those two features.
So branding/banners may grow faster than search/CPC in the coming years, or at least grow as quickly.
And for Google, the law of large numbers is catching up to them. How do you grow a monster at monster growth rates? Get into the other big bucket of money on the web. And the best way to do that is the buy the infrastucture that serves up all these banners. Doubleclick. New York's best known internet company.
The big winner here is Hellman and Friedman, the private equity firm that the guts and brains to buy Doubleclick for $1.1bn including (I think) $400mm of cash. They sold off the email business to my former portfolio company Epsilon Interactive for something like $100mm and owned the ad serving and related businesses for net $600mm. That's a 5x in a couple years and a $2.5bn gain if my math is right. And maybe they used leverage as well. If so, it could have been much more. Well done!!
Comments (13) | Posted April 14, 2007 in stocks , Venture Capital and Technology
Comments
Wow, good day for the clickers! So what now with Epsilon?
Posted by: Skellig | Apr 14, 2007 11:53:32 AM
Fred,
I agree with the broad conclusions, but in this case Google bought a commodity (ad serving). It did not really get inventory that it can exert pricing power (as demand for banners increase).
Google did not make $10B in revenues last year from serving search ads, it made that money from what it charged advertisers for those ads, there is a major nuance there. The ad serving revenue is capped with display ads. It's the difference between what you charge and remit to a publisher (the network business, in essence) that is valuable. Yet DCLK got out of the ad network business and is a software company now... that's not what Google needed!
Add to that the risk of publishers and advertisers bolting from Google, and this deal is not a wise one, in my humble opinion.
More here:
http://www.watchmojo.com/web/blog/?p=1451
Let me know what I am missing here... please!
Posted by: ashkan karbasfrooshan | Apr 14, 2007 1:08:27 PM
Agree in the strength of this acquisition as a platform move. Additionally, Google can use this acquisition to step into the market DoubleClick was originally built for: dynamically displayed, customized ad programs which have more to do with delivery of the right ad to a viewer beyond just the banner v. text or CPM v. CPC.
With Google's growing and retained user-specific search data, the ability to drive CPC and CPM based on user-specific ad delivery leveraging DoubleClick's technology and IP has the potential to provide even deeper value for advertisers looking to target delivery and results. As a result, Google can yield even higher prices from advertisers that know their core target and are interested in getting in front of them.
I do wonder whether the general public has moved beyond the consumer advocacy concerns that happened when DoubleClick first positioned themselves for user-specific targeted ads. If not, then this is purely a CPM platform acquisition that seems expensive.
DoubleClick has some compelling patents that will prove valuable to Google, covered here:
http://www.patentmonkey.com/PM/Default.aspx?tabid=63&EntryID=71
Posted by: CoryS | Apr 14, 2007 2:33:24 PM
Many marketers may be too lazy to work out how to buy search or how to do something really different but that doesn't, in my opinion, stop banners from being bad marketing.
Posted by: John Dodds | Apr 14, 2007 2:40:00 PM
Don't forget, the email businesss isn't all that they sold. They also sold Abacus for $435MM last year. Also, you should factor in their purchase of Klipmart, though it was probably less than $50MM. Any way you slice it, the "taking it private" deal looks to end up delivering some brilliant returns.
Posted by: Dave Morgan | Apr 14, 2007 5:53:13 PM
Hellman & Friedman's acquisition of Double Click is probably one of the best technology-media buyouts of all time. Not only did the H&F team take a gutsy contrarian bet at the time, as they called the ad cycle perfectly, they seem to have made all the right strategic operating moves along the way by breaking up the business. Kudos.
Posted by: Charlie Kemper | Apr 14, 2007 7:16:55 PM
This will embolden bulls in the tech space and dip buyers and private equity and the bears have mucho pain ahead.
Why price sometimes matters more than fundamentals.
Posted by: howard Lindzon | Apr 14, 2007 7:58:14 PM
Video ads like this one will bring banner ads:
http://www.youtube.com/watch?v=7XcN_N9AlfU
Posted by: Brad Inman | Apr 14, 2007 11:24:32 PM
How does GOOG position DC's new "Exchange"? Is this what they realy wanted?
Posted by: Tom Labus | Apr 15, 2007 12:59:23 PM
I worry when single transactions (no matter how large) generate posts saying "this is the way the industry is going..." is anyone else uneasy about that? Two more specific comments:
1. I think GOOG bought Doubleclick for the *data* and the smarts that come from mining the impression/click activity. For all we know, Doubleclick data might better-inform AdWords targeting, increasing the lead Google has over Yahoo's search platform. Comments above say DoubleClick is a "commodity" (serving, that is), but the data gleaned from serving is far from a commodity -- it *is* the end game.
2. To say banners are "less scarce" than search terms strikes me as an odd conclusion. A banner's "unit" space is by definition a single dimension and a single placement. Search is far more granular, and my sense is that a majority of searched terms are still not purchased, let alone clicked. Tools to help advertisers broaden their "net" (of keywords) and optimizing (increasing) CPC's will more growth than "re-focusing" on banners.
My guess is Google *will* grow eCPM yields on DoubleClick inventory by telling publishers that they will see more revenue by letting Google "rep" their sites and serve their ads. The recent launch of "AOL Search Marketplace," where Google is powering a portion of AOL search (that AOL sells) is a "reverse example" of this approach. In other words, once Google powers the infrastructure they say "may the best sales efforts win," and their pitting their targeting efficiencies and self-service scale against "old fashioned," traditional sales teams.
We'll see whch wins, but that's the bet they're making, I think.
Posted by: Chris | Apr 15, 2007 11:01:03 PM
Your statement that "The Banner is Back" is dead on. Below is an interesting link that has been stating just that for a few YEARS!
Posted by: Bob Chapman | May 9, 2007 1:01:28 PM
Your statement that "The Banner is Back" is dead on. Below is an interesting link that has been stating just that for a few YEARS!
http://www.carolinabannerexchange.com/banner-ad-comeback.htm
Posted by: Bob Chapman | May 9, 2007 1:03:28 PM
Patent Monkey is not working anymore.
However, I think Patent Retriever http://www.patentretriever.com is a very easy site to use to download patents in PDF format for free.
Posted by: johnsegal | Jun 16, 2008 4:55:46 AM
Main RSS Feed of All Posts
VC and Technology Posts Only
