Google has agreed to buy DoubleClick for $3.1bn (£1.55bn) in cash, in an acquisition that strengthens the search giant’s status as an online advertising powerhouse.
DoubleClick's network of advertisers and web publishers, as well as its technology to serve advertisements and manage campaigns, is expected to boost Google's advertisement business, specifically for display and rich media advertising, which are not Google's specialties.
Google generates most of its revenue from search engine, pay-per-click advertising, which are text ads that link to advertisers' websites. However, 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 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 rumours had Microsoft aiming to buy DoubleClick for about $2bn, 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 advertisement spending, said Clayton Moran, a financial analyst with Stanford Group.
"The facilitators of online advertising have done very well, because demand for Internet advertising has been very strong," Moran said.
The deal may make it harder for Microsoft's struggling online division to compete with Google.
Despite heavy investments of money, resources and personnel to develop its own search engine and search advert network, Microsoft has not been able to match the levels of online advertising revenue Google and Yahoo have achieved.
Although Microsoft consistently ranks first in website visitors worldwide it has not monetised this traffic as efficiently as it might, experts say.
Moreover, Microsoft has not been able to compete effectively for traffic in the search engine market, where Google dominates.
In December, Microsoft's share of US search engine queries was 10.5%, while Google took 47.3%, according to comScore Networks. In July 2005, Microsoft's US search engine query share stood at 15.5% and Google's at 36.5%, according to comScore.
DoubleClick, founded in 1996, serves advertising buyers such as agencies and corporate marketers, and advertising sellers such as website publishers. It has two main divisions. Its Dart division provides tools and services to both buy and sell advertising, primarily display and rich media ads. Meanwhile, the Performics division focuses on search engine marketing, commonly based on the pay-per-click ads in which Google specialises.