The GoogleClick era begins

By Yi-Wyn Yen

With the European Commission blessing Google’s $3.1 billion purchase of ad network DoubleClick, the question on everyone’s lips is, what now?

After nearly a year of waiting to close its largest acquisition, Google chief executive Eric Schmidt is wasting no more time folding DoubleClick into the company. “That work will begin in earnest now,” he said in a blog post.

Schmidt said that the Mountain View-based company will begin the integration process by seeing how many of its nearly 17,000 employees overlap with the 1,500 at DoubleClick. Google (GOOG) says it will sort out the staff integration by early April and that there may be layoffs. Schmidt did not indicate how many jobs will be cut and if the company plans to move DoubleClick, headquartered in the media capital of New York City, to the Googleplex.

Beyond Googlers with jobs at stake, many industry watchers wonder how a Google-DoubleClick merger will change the online advertising landscape. Google, which built its business with search advertising, can now aggressively move into the graphical advertising market with DoubleClick. A Google spokesperson says the company is currently not providing further details of the integration.

Privately, some ad networks say they fear a two-headed Googzilla. Google’s DoubleClick is one of the leading companies which targets banner ads for both advertisers and publishers with its Dart technology platform. Google’s AdSense is the leading ad network that supplies text-based ads for both advertisers and publishers. Some speculate that Google won’t keep DoubleClick as a separate entity and will join to create a super-sized ad network. These people say they worry that Google now has too much information and can use it to squeeze out other players like AOL (TWX) and Yahoo (YHOO) that primarily focus on the display ad business.

Even if an explicit integration doesn’t happen, a Wall Street analyst estimates that Google will instantly gain a huge share of the graphical ad market, which will reach an expected $28.6 billion by 2010. “Google will now have behavioral data from search, e-mail, video, and web usage on network sites,” JP Morgan analyst Imran Khan wrote in a report. “We believe this will allow the company to provide much better ad targeting, leading to increased CPMs on DoubleClick sites.”

Microsoft (MSFT), Google’s chief opponent of the DoubleClick must speed up its proposed takeover of Yahoo if it has any hopes of catching up to Google. A Microsoft spokesperson reiterated on Tuesday that Google’s acquisition of DoubleClick justifies a need for a powerful No. 2 player.

That echoes what Brad Smith, Microsoft’s general counsel, said last month: “The reaction from publishers, which includes a lot of the media companies, has been very positive. They have been encouraging us to make this kind of acquisition…. This is the right kind of step that is going to create a more compelling and competitive number two in the marketplace.”