Saturday, April 14, 2007

Google "If we will count all hits on ads as DoubleClick we will double our revenue! CS

This must be the logic in recent move of Google to acquire DoubleClick for 3.1 billion dollars. Sorry Henry it did not work out in 2000 it will not work out now. It is just great investment approach - powerful and simple: nobody is worrying about short term or even any business perspective. Ego and arrogance and Bubble Vision "GBF" - Get Big Fast in its pure essence. Microsoft and Yahoo! are doing their job as competitors masterfully: they are hitting in the Core of Google strength: it is not technology (plenty of competitors and some even claim superior results in relevant Search), it is not product line (there is no really any product line - it is just one product - search and whole business depends on it results), but financial strength of the company before YouTube move - it used to be the company with pile of cash (over 10 billion dollars) and strong increasing cash flow until 3rd Q 2006. I can not see any other reason for this decision, but fear that somebody else could acquire Double click and challenge "near monopoly" in Search. The problem here is with word "monopoly" you can not "corner the market for the "advertising operating system". This "monopoly" in economic sense is completely different from monopoly in Gas supply for example, it is mirage of a "monopoly" of choice. Any monopoly is putting constrain on consumer choice and is giving opportunity for price dictate. If someone will corner the Gas supply market, it will be monopoly, you want to drive - you come to us, only. No hydrogen around, welcome to our shop. With Google or any search company we have "monopoly" of choice when consumers are putting restrictions on themselves and decide to use mostly this particular service. Should trend and fashion change tomorrow all competitors are just click away. With such sensitive and unstable base which is in saturation point of growth you can not "corner" advertisers as well. If tomorrow 30% of your audience moves to Facebook and Joost your advertisers will move with them. Price tag of 3.1 billion dollars for company with 150 million dollars in revenue (DoubleClick had roughly $150 million in revenue last year, according to the Wall Street Journal) even if it is strategic asset shows that bubble mania is back in full force in silicon valley and decisions are not based on any kind of sensible financial analyses. Interesting to note that Microsoft worked away when price surpass 2 billion dollars. "
"Strategically it could make sense but the suggested acquisition price is way out of line.
Google is moving into this space so DoubleClick’s existing revenues and margins are likely to shrink.
Third, as ClickZ points out, AOL, DoubleClick’s largest customer, is likely to leave if a competitor like Microsoft buys them.
Fourth, a fellow Microsoft employee just pointed out to me that, DoubleClick’s DART system has an enormous collection of cookie and clickstream data on its customers that could raise competitive and privacy concerns.Lets look at the numbers. Hellman & Friedman acquired DoubleClick a little over a year ago for $1.1 Billion. Since then, according the WSJ, they have divested two divisions of the company for $525M, leaving a net investment of about $600 million. And they want to sell it for $2 billion? Ya , right.The revenue multiples don’t make sense either. DoubleClick had about $150M in revenue last year with about $100M coming from ad placement. Presumably the rest of the revenue came from businesses that were divested. So, H&F wants 20 times revenues for DoubleClick? Maybe 20 times earnings would make sense, but 20 times revenues? You have got to be kidding?"
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