That Microsoft is thinking of acquiring online advertising company DoubleClick has been the gently vibrating buzz all week. A Microsoft executive, though, says a deal is unlikely.
The buzz seems likely generated by the PR machine, for as soon as I heard about it from a surprising tipster, everybody else seemed to have heard about it as well, bloggers and reporters alike. Let the speculation begin: nothing like a little buzz to justify a $2 billion asking price.
As to whether Double Click is worth that, Don Dodge, Director of Business Development for Microsoft’s Emerging Business Team, says “Ya, right.”
“Hellman & Friedman acquired DoubleClick a little over a year ago for $1.1 Billion, said Dodge on his blog. “Since then …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?”
Dodge balked at the company’s revenue in relation to the asking price as well. DoubleClick brought in about $150 million in revenue last year. “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?”
According to various sources, a large part of the asking price is DoubleClick’s audience and reach. Plus it offers a service Google doesn’t…yet. As Google plans to enter the third-party ad serving business, as both Dodge and John Battelle report, DoubleClick’s existing revenue is expected to shrink.
A Microsoft acquisition would also alienate AOL, DoubleClick’s largest customer. Google’s five percent stake could cause AOL to walk. But also, says Dodge, DoubleClick’s DART system collects reams of cookie and clickstream data on its customers, raising competition and privacy concerns.
“Small acquisitions ($50M to $100M) are easier to integrate, easier to leverage and find synergy, and carry less risk if they fail. Everything is harder with a billion dollar acquisition,” he said.
From Battelle’s exposition on the Google factor, Microsoft may also want to wait to see what the search advertising giant does. He seems certain Google will soon offer a third-party ad service for free, which is a strategy straight from Microsoft’s playbook:
How did Microsoft kill Netscape? Yup, made the browser free. How will Google try to own the entire ad serving biz? Make it free. Why would they do this? Because the most valuable thing in the world of advertising is not the commodity , it’s the information the commodity will provide.
