The future of Advertising

On May 18, 2007 Microsoft made its biggest acquisition ever by paying $6 Billion to acquire aQuantive Inc. - a digital marketing company in its never ending pursuit to play the catchup game with Google. Some (most) people will feel that Microsoft paid too much for a company that has just $14.2 million in net income on $142.6 million in revenues. It all started when Google acquired Doubleclick (for half the price Microsoft paid for aQuantive!), interestingly Microsoft too was in the race. Valuations of similar companies skyrocketed and Yahoo! had to shell out $680 million to acquire Rightmedia, while Global Ad agency WPP bought 24/7 Real Media and AOL acquired German online ad company Adtech.

One would be interested in knowing why companies such as Microsoft, Google and Yahoo paid such astronomical prices for such (relatively) small companies. Being the smart company that Google is, it quickly realised that concentrating on Search Advertising won't help in the long run, it needed to find new ways of earning advertising revenues and moving into Display advertising was an obvious choice. By acquiring Doubleclick, Google got the missing pieces that it needed to have an end-to-end offering in the advertising world - this business has four main entities:

1. Brand Owners (companies like P&G, Nike etc. who want to advertise their brands)
2. Ad Agencies (like O&M, JWT etc. who are responsible for creating, planning and handling advertising for Brand owners)
3. Media Owners (like Rediff.com, BusinessWeek.com who own web properties and allow Brand owners / Ad agencies to place advertisements on their web properties for a price)
4. Ratings Provider (like Webside story that specializes in Internet metrics and audience measurement technology)

While Google's self-service model was good for search advertising, it was not suitable for Display Advertising. Here, the Brand owners would want to serve ads across the Web to specific audiences (based on a particular segmentation criteria - demographic or psychographic) and for that they want television like reach numbers and ratings (e.g TRP ratings captured by TAM in India). Also, Google did not have particularly strong relationships with Ad agencies that was required for this. This is where DoubleClick was strong, they had good relationships with Ad Agencies and knew the business of Display Advertising. To capture better demographic information and surfing behaviour, Google quietly launched Web History - which would allow it to analyse user's surfing behaviour and build their profile.

Going forward, Google would build an Online Marketplace where Brand owners and Ad agencies will be able to completely plan and manage their Ad campaigns- not only the Online Ad campaigns but also their campaigns for television, radio, print, out of home and mobile as it would facilitate Media owners to auction available space to the Brand owners. This way, Brand owners will get accountability and their ads will be highly targeted. Media owners (or publishers) on the other hand will be able to charge premium on popular web properties and will be able to retain the visitors as the advertisement will be relevant for them.

Given all this, Google's Doubleclick acquisition makes a lot more sense and makes the competition look stupid - once again!

Cheers!

Anurag

(c) 2007. Copyright Anurag Saxena.