Google: Tomorrow the World?

Google: Tomorrow the World?

APRIL 16, 2007

Does Google's acquisition of DoubleClick transform a concentrated industry into a monopoly?
David Hallerman - Senior Analyst

Google is set to earn $6.3 billion in net US online ad revenues in 2007. Meanwhile, total US online ad revenues will reach $19.5 billion. Many economists define a monopoly as a company that controls 25% or more of a given industry. With the announcement of its DoubleClick purchase, has the monopoly player just sealed the deal on control of the market?

Before the DoubleClick announcement, Google's position of strength had already prompted BusinessWeek to ask "Is Google Too Powerful?" in its April 9, 2007, cover story.
There is no doubt that Google has sought to grow its revenues and defend its position of strength. However, the DoubleClick purchase is not solely about buying display advertising revenue. The long-term play about acquiring deeper relationships with large publishers and advertisers.

Google has relationships with hundreds of thousands of online advertisers, from top corporations to a slew of mid-size and small companies. DoubleClick has relationships with thousands of large Web publishers. Together, Google and DoubleClick will create a robust one-stop shop for all types of online advertising purchases.

Google hopes these relationships will increase Web video advertising earnings. DoubleClick has a large client base of brand marketers who will invest larger budgets in online video over the next few years.

eMarketer stands by its projection for US online ad revenues, estimating steady growth to $36.5 billion by 2011.

The DoubleClick purchase may well have an impact in Google's favor on the distribution of these revenues between the key players.

eMarketer is not going to jump to that conclusion.

It is highly likely that Google also bought DoubleClick for its display advertising data, which could end up harming revenue growth over time.

On the one hand, access to ad-serving performance reports from competitors such as AOL and MSN would give Google very useful industry intelligence. On the other hand, unless this is handled with utmost care, those same publishers could grow wary of Google's dominance and pull their business from DoubleClick once their current contracts expire.

One clear trend is that Google's aggressive pursuit of online advertising growth will prompt bold ventures by other players, both in partnership with Google and as challenges to the search giant.