Google DoubleClick Predictions Revisited

This is a follow-up to a post I wrote last April - Why the Google / DoubleClick Deal is Brilliant - when Google announced they were buying DoubleClick. I made a number of predictions at the time and thought it would be interesting to see how I fared. Turns out I did pretty well overall, although the jury’s still out on a few predictions.

I’ve given myself a grade for each of these predictions. Self-grading seems unfair, so let me know if you disagree with my grading scheme.

Prediction #1

SNAPSHOT:
- Search revenues are projected to triple to $44.5B over the next 5 years (Piper Jaffray). Google is already positioned to capture a significant majority of those revenues.
- But Search only represents ~50% of all online advertising revenue (current & projected).
- This deal is about positioning Google to go after the other 50% of revenue projected to come from non-Search ads.

Note: The projections for search revenues have actually increased.

PROJECTED GO-TO MARKET STRATEGY:
Google is most likely going to bolt the DoubleClick ad server platform and ad network on to their existing AdWords system over time. By doing so, Google will open up a lot of additional graphic/rich media/video ad inventory for AdWords, addressing a big hole in their current offering. While they’ve had the ability to serve up banners and video ads for a while, non-text ads currently account for only a tiny slice of their overall inventory and revenue. When this happens, Google will not only be serving those ads – they’ll be selling that inventory. Why? Because Google’s huge network of 500,000 advertisers will help publishers monetize that inventory better than they can themselves.

MY GRADE: A
Nailed this one. The Google content/placement network has expanded to cover the DoubleClick network, and the ad targeting capabilities have been enhanced to include some additional DoubleClick features. From the Official Google Blog: New enhancements on the Google content network.

Prediction #2

And if Google needs to partially subsidize some of those high-value publishers by paying guaranteed CPM’s for some time, they can do that. They certainly have the cash. And that will quickly become a moot point as the big brand advertisers (and their agencies) who are currently buying that inventory directly at high CPM’s will realize they’ll need to buy that inventory via Google or risk losing it to a higher bidder.

MY GRADE: TBD
I jumped the gun on this one, as there’s no evidence that Google is out there buying market share. But it could still happen at some point. They’ve certainly outbid Yahoo to serve search listings on other sites (see their CNN deal, for an example)

Prediction #3

They will probably continue to offer the DoubleClick ad server product as a standalone product for quite some time so as not to alienate existing advertisers/agencies or publishers, but the real goal will be to make participation in their marketplace a no-brainer for everyone by offering better distribution and accountability for advertisers and better monetization for publishers. As Google gains more advertisers and publishers, the holdouts will have a harder time resisting the gravitational pull.

MY GRADE: B
DART, DoubleClick’s ad server product, is still going strong – and probably will for as long as it’s more profitable for Google to offer it. Which is likely years, especially for large advertisers and agencies.

I’ll retroactively give myself an A if/when Google stops trying to promote DART in favor of the AdWords platform at all.

Prediction #4

WHAT IT MEANS FOR:
Advertisers - Win
Online advertising gets more efficient. With Google as the primary hub and marketplace, advertisers get to deal with one entity and cut one check for most of their online advertising. Managing those campaigns will be very complex, but will still be much more straightforward than dealing with individual publishers with different pricing and deal structures.

MY GRADE: B+
Yep. More and more of our clients are looking to traffic their banner campaigns via Google, and Google continues to gain an increasing share of advertisers’ budgets.

Prediction #5

WHAT IT MEANS FOR:
Publishers - Win
The enhanced AdSense program becomes even more attractive by offering better monetization via advertisers who are willing to bid up effective CPM’s for their inventory.

The market has spoken on this one. More inventory is coming online for Google all the time, as measured by impressions.

Probable side effect of this: Many mid-tier publishers who are currently fielding their own ad sales forces will likely decide they can make more by just selling their inventory via Google, meaning a lot of ad salespeople will likely get pink slips.

MY GRADE: B
Are some of the jobs being lost in the economy coming from the ranks of online advertising salespeople? I haven’t seen any hard evidence one way or the other.

Prediction #6

WHAT IT MEANS FOR:
Other Ad Servers - Lose
Over time Google will have the only ad server that will seamlessly integrate the dominant Search platform and Graphic/Rich Media/Video ad serving and reporting – thus partially resolving one of the major headaches advertisers and agencies face. And they’ll probably offer it at a substantially lower price. Some specialization will be required to compete.

MY GRADE: A
GoogleClick now has 77% share in the ad server market, as seen here on attributor.com’s post. While smaller ad networks continue to proliferate and benefit from the growing online advertising pie, the chances of anyone making much market share headway are slim.

Prediction #7

WHAT IT MEANS FOR:
Performics – Lose
Google will have to spin out or sell Performics in order to avoid the perceived conflict of interest inherent in a Search Engine owning a Search agency. The uncertainty accompanying this speculation and the eventual transition will likely result in at least a moderate loss of new and existing clients for Performics in the short term. (Full disclosure: My firm competes with Performics). Google has already updated their official statement on the deal relative to Performics from “no plans to dispose of it at this time” to “evaluating all strategic alternatives for this business.” So the writing on the wall is pretty clear at this point.

MY GRADE: A
GOALLLLLL!!!!! Google Sells Off Performics to Publicis Groupe, announced August 6, 2008. This one had me nervous for a while, as there was no word from Google for a long time, despite pressure from Danny Sullivan – “Open Letter to Google: Do the Right Thing, Divest Yourself of Performics” and, to a much lesser degree, from me – Google’s Stake in Search Engine Optimization. But then Google finally responded with an announcement in April, 2008 – Selling Performics Search Marketing

Phew.

My grade would’ve been an A+ if it hadn’t taken a year for Google to even say they intended to sell Performics.

Prediction #8

WHAT IT MEANS FOR:
Other Search Engines & Portals – Lose
With Google locking up so much inventory on 3rd party sites, other engines and portals will have an increasingly hard time growing their ad revenues beyond the market growth rate and will continue to lag behind Google in both revenue and prestige.

MY GRADE: A
Witness the 77% number above – and the Microhoo debacle.

Prediction #9

WHAT IT MEANS FOR:
Agencies - Win
As mentioned above, manually configuring and integrating reporting from Search and non-Search advertising is a major headache and productivity drain for most agencies. Google will go a long way toward easing this problem by seamlessly integrating Search and non-Search ad serving and reporting into a single platform.
Even more compelling for agencies, though, will be the opportunity to boost profits by cutting their ad server bills by switching over to Google’s lower cost ad server.

MY GRADE: C-
I missed the boat on this one. Certainly search agencies are taking full advantage of Google’s dominant market position and growing suite of valuable (and free) marketing tools. But many agencies are wary of Google’s power and, more to the point, Google’s intentions. Many fear that Google is trying to obviate the need for agencies by making it so easy for advertisers to work directly with Google to run their campaigns.

Personally, I’m not one to throw my body on the tracks of progress. I love that Google is bringing transparency to the advertising world. But by making it seem too easy, Google risks making it seem like there is no specialized knowledge required to get the most out of their platform, which of course isn’t true. Just because I CAN remodel my own kitchen doesn’t mean I should, as my wife can attest. Google also hasn’t helped their cause with agencies by occasionally trying to go direct with clients – effectively pushing out an existing agency. That doesn’t play well with agencies generally, but especially those for whom Search is a new tactic.

But I’m getting off-topic here…

Anyhow, most agencies haven’t embraced Google’s rise as a good thing as I’d predicted. But they are increasingly working together, out of necessity if nothing else.

Prediction #10

WHAT IT MEANS FOR:
Google – Big Win
The media has missed the point on this deal by viewing it as a defensive move or a technology play (which is really laughable given that Google already has the world’s largest ad server and marketplace). While they certainly paid more than they would have otherwise in order to outbid Microsoft, it’s important to point out that Google doesn’t think or operate with a defensive mindset. Virtually every move they’ve made has been part of a larger strategy. This is no different.

With this move, Google has put themselves in a position to capture an even bigger slice of the global online advertising revenue pie by giving them direct relationships with the advertisers/agencies and publishers who will be responsible for deciding how those funds are spent.

Google already accounts for 19% of all online advertising revenue (32% in the US) – almost all of that from Search. With global online advertising projected to grow to $81.1B by 2011, it is not unreasonable to think Google could break even on this deal in as little as a few years IF they execute this product integration and transition well.

Given their deft execution to date and penchant for blowing away expectations, I wouldn’t bet against them. This deal positions them to dominate the non-Search online advertising market in the same way that they’ve come to dominate the Search market – by making it easier and more efficient for advertisers/agencies and publishers.

Don’t be surprised if 50%+ of all online advertising revenues go to Google in five years (and possibly a decent chunk of offline ad revenues – but that’ll have to be a topic for another post). If that scenario plays out, this could be looked back on as one of the best deals in the history of business.

MY GRADE: A
OK, the whole “best deal in the history of business” thing may have been a bit overstated (I was on a roll by that point). But there’s no arguing that this deal has been a huge win for Google, and arguably the main reason Microsoft felt so compelled to pursue Yahoo – as they realized (too late?) that was their only hope of creating a contender to the Google juggernaut.

Prediction #11

DON’T BE DISTRACTED:
The press will play up these issues related to the deal because it’s easy to generate buzz on these topics, but they are ultimately insignificant.

Antitrust Concerns
There is very low likelihood that the FTC will block this deal, as the online advertising market is so difficult to define and, more importantly, there is no reasonable argument to be made for how consumers, advertisers or publishers will be harmed as a result of this transaction. And Google’s success with all of this isn’t assured anyhow, despite my views. The FTC can’t block this deal because Google might execute brilliantly.

Privacy Concerns
People will make a lot of noise about privacy concerns, but in the end most will act in their own economic best interests and ignore the conspiracy theories about what Google might do with all the data at their disposal (regardless of how much truth there may be to them). And while Google has certainly used the massive amounts of data at their disposal to benefit themselves by improving their products, there is no indication that they have done so at the expense of their users. In fact Google has a pretty strong record on protecting privacy rights, as Matt Cutts explains here.

MY GRADE: B+
I hadn’t expected Congress to get involved in investigating the deal. That worried me for a bit. I guess I should’ve expected a holdup as a result of the EU review. But the deal ultimately went through with few problems.

MY OVERALL GRADE: A-

(Why yes, I am using my own proprietary algorithm to weight the grading, thank you for asking)

I still contend that Google’s future growth potential is huge in the offline advertising space, but I’ll cover that in an upcoming post. Hint: People are freaked out about Google controlling half of the online advertising space, but online accounts for only ~10% of all media dollars. Imagine if they can make a dent in the other 90%. They’re closer than you think…

I’ll be off for a long overdue vacation by the time you read this, so apologies for the lack of responsiveness to comments, etc.