GoogleClick, Microsoft’s Air Supply, & Bid ‘Em Up Brin

How much worse can things get for Microsoft? After having almost certainly begun the DoubleClick bidding, thus putting the online ad company in play, Microsoft has seemingly been outbid — again — by Google.

Some seemingly think the price is vertigo-inducing, working out to something like 30-times DoubleClick’s $100-million in 2006 ad placement revenues, or 12-times this year’s forecast ad revenues of $230m or so. Yoicks! Can you justify that price based on economics? Some people will try, and that is always good fun; others will go on endlessly about the bubble-ish price. Both sides are wasting their time because the more interesting rationale is mostly elsewhere.

To borrow a phrase from Microsoft’s past, this is a brazen attempt to cut off Microsoft’s future air supply. The latter company is losing share in search, failing at ad placement, trying to find a new leg to growth, and generally floundering expensively in these crucial new fast-growing markets. What better way and time for bid-’em-up Brin to stick the knife in deeper every time Microsoft spots a possible life raft than for Google to buy the target acquisition company — like DoubleClick — out from under Microsoft.

This was, in other words, a strategic and offensive buy, not a financial one, even if you can make a financial quasi-justification for the price. Google is playing very hard ball with Microsoft, deploying brutal tactics right out of the Redmond playbook, circa 1995. Call it $2-billion for DoubleClick’s revenues and customer list, plus another $1-billion for a pinched air tube to Microsoft.

As a a related aside, this buy pretty much guarantees that Yahoo will sooner rather than later be in play, perhaps in the next two quarters, and I can’t wait to see what happens.

Related posts:

  1. Google and 3M’s 30% Rule
  2. Sergey Brin Hears Me Through His Fillings
  3. Google to Launch Web-based Spreadsheet App
  4. Google 2.0, and the Hunt for the Next Googly Thing
  5. Google TV: Sergey Brin on Streaming News Search

Comments

  1. benditlikebuffett says:

    omg you really don’t believe its that dire at msft do you? Air supply? Search is a Tiny tiny part of msft’s business.
    I am so happy that there is Adult supervision at Msft. Let google pay 10x revenue for this asset that was worth less than a third of that two years ago, primarily to keep it out of msft’s hands.
    msft’s most vexing problem continues to be whether to pay out higher dividends, buy back more stock, or make more Sensible acquisitions, (like tellme) with its ever increasing cash hoard.

  2. JL says:

    Wow. I was thinking precisely the same thing when I read the news. I even thought hmm, what would Paul make of it. Online advertising to Google is like online auctioning to Ebay. The switching cost (mostly psychological) is very high. Even if Microsoft starts giving away free, it won’t make a dent on google’s pricing power. It would be like giving away free vacations to Iraq. Microsoft is finally getting a taste of its own medicine.

  3. Microsoft could have outbid Google, but chose not to overpay. Why does Microsoft even bother with advertising? It should focus on its core business — software. It needs to figure out how to transition Office to the Web and have people pay for it instead of having it paid for by advertising. The problem is that Google charges only $50/seat for its suite, which will improve and eventually become competitive with Office. The other problem is that online applications don’t lend themselves to bundling on a new PC, which is how most people buy Office.

  4. franklin stubbs says:

    “msft’s most vexing problem continues to be whether to pay out higher dividends, buy back more stock, or make more Sensible acquisitions, (like tellme) with its ever increasing cash hoard.”
    We don’t know that MSFT gave up the doubleclick chase out of fiscal propriety. Google might have given doubleclick a 24 hour can’t refuse type of deal, or there might have been other reasons MSFT got shut out.
    A lot of Buffett-style investors seem to be salivating at the prospect of Microsoft as a value stock, reining in expenditures and throwing off gobs of cash for eons to come.
    This is wishful thinking, and the reason why can be summed up in two words: Steve Ballmer.
    If Warren Buffett were running MSFT, he would say forget new growth, forget competing with Google and all the rest… just focus on maximizing cash flow and investing the proceeds in other businesses.
    But Ballmer ain’t no Warren Buffett, and Microsoft ain’t no textile mill investment vehicle. Ballmer is hyper-competitive to the point of insanity (and stupidity). Ballmer has to WIN, WIN, WIN, and that means BEATING Google WHATEVER IT TAKES. (Caps representing the monkey-boy speech style.)
    If that means chairs have to be thrown across the room and the war chest has to be utterly squandered on a wild goose chase / fight to the last breath, so be it.
    Ballmer’s head would explode at the idea of implementing a sunset plan for microsoft. I bet the Google guys know this.
    The only way microsoft fulfills the value crowd’s wishes and succumbs to a docile cash cow fate is if Ballmer leaves the building. This is possible–Buffett whispering in Gates’ ear and all–but I’m not holding my breath.

  5. Thanks Franklin. That context was implied in the post, but not made clear enough, so I’m glad you made it so punchily.

  6. Andi says:

    This may also deny a few breaths of oxygen to that Panama Project, a more immediate threat than Microsoft.
    From the official blog: “…a tremendous opportunity for us at Google to broaden and deepen our inventory of available ads and to better serve both our publishers and users.”
    I think I’ll be holding my breath between Tuesday’s numbers and Thursday’s.

  7. Jarid says:

    I agree with the analysis, but…
    How come nobody is talking about the petabytes of advertising impressions and click-thru data Google just acquired? It’s like they just deployed Google Analytics on every major content site throughout the web.

  8. Varun Mathur says:

    Nicely put.

  9. Bob M says:

    Hey, bendit, were you on the LVLT board a few years ago? What do you think of them now?

  10. hey Paul -great post
    what it also impplies is moree dip buying and emboldened private equity players and a big techrun posible.
    Anybody is in play in tech that is broken at this point.
    Beyond the players yo mentioned, this is beaucoup money and inflation now being created in the stock market.

  11. Thanks Howard. I agree with you, although this is will drive very narrow price-inflation. No-one believes much of “traditional” tech is coming back from the dead, except of course, for anything attached to search-related advertising. That is why Yahoo is newly the belle of the ad-ball.

  12. don says:

    Great post, but if “bid ‘em up Brin” refers to the astronomical price paid, it seems a more appropiate label applied to the loser of the bidding war, say, “bid ‘em up Ballmer”.

  13. bob m, lots of lvlt bulls hang out on iv.
    I don’t see msft and yahoo teaming up. the branding seems awkward to me. I think msft will one day emerge with a competitive strategy to take on goog. but today, goog vs. msft sure makes for great blogosphere drama. until then what keeps Ballmer up at night is wall street pressure to do “stuff” with all that cash. It’s nice to see he passed this test. If msft would have bought at 10x like goog did the stock would go down. in fact lets see how ws reacts to goog paying 10x..or was it 30x?