A bidding war between Google Inc and Microsoft Corp ended on Friday with Google agreeing to pay US$3.1 billion to add online advertising firm DoubleClick to its Internet money-making arsenal.
Google's stock price dipped slightly in after-hours trading as investors wrestled with whether its victorious bid resulted in it overpaying for DoubleClick.
"Google is throwing a lot of money at things and it is not clear that they are spending wisely," analyst Rob Enderle of Enderle Group said.
"After the negative press that followed the YouTube purchase it looks like investors are looking at this acquisition more carefully. Maybe buying DoubleClick is strategic, but it is not clear they are not wasting money," he said.
Video-sharing Web site YouTube, which Google bought in November in a US$1.65 billion stock deal, has generated copyright litigation instead of profits.
San Francisco investment firm Hellman and Friedman reportedly paid US$1 billion for DoubleClick in July of 2005 and put it on the market about a year later for twice that amount.
"DoubleClick did not increase in value three times from initial purchase to when it was sold," Enderle said while discussing Google's winning bid.
"Previously, Google has been able to buy stuff and pay a premium and have the market reward them favorably. This time the market is down," he said.
Google's stock price slipped slightly more than US$1, or nearly a quarter of a percent, to US$466.29 in after-hours trading.
The Mountain View, California-based Internet search colossus will combine DoubleClick's technology with its proven advertising platform.
Google and DoubleClick, which is based in New York City, will provide an efficient way to manage both search and display ads online, Google chief executive Eric Schmidt said.
"We've come to an agreement to purchase DoubleClick," Schmidt said in a conference call from Argentina, where Google is opening a new office.
"It is something we have thought about for a very long time," he said.
Google and DoubleClick executives expect the cash deal to clear regulatory hurdles and close later this year.
The companies should easily combine operations because they share a "common vision" and have offices in the same building in New York, according to DoubleClick chief executive David Rosenblatt.
"We are both Internet companies of the same generation," Rosenblatt said in the conference call with investors and reporters.
"There is a lot of overlap. We are in the same building. There are former DoubleClick employees who are at Google and vice versa. I see very little problem with integration," he said.
Many of Google's major advertisers use DoubleClick's software platform for buying, selling and tracking digital advertising, Schmidt said.
Combining DoubleClick's prowess in display and video advertising with Google's search-ad savvy, promises to enable Google to create products that better target Internet users and measure results, the companies said.
DoubleClick technology is likely to be part of a strategy to generate revenue from YouTube.
"Certainly [video advertising] is a category that could be served with better measurement tools and better targeting," Google co-founder Sergey Brin said during the conference call. "The combination of the companies together with YouTube will be a better experience for advertisers."
Brin said DoubleClick technology will also enhance Google's ability to protect the privacy of search engine users.
"Overall, we care very much about end-user privacy and that will take a No. 1 priority when we talk about advertising products," Brin said.
"There are quite a few plans with respect to how we feel about privacy," he said.
DoubleClick came under fire several years ago from consumer advocacy groups that accused it of planting software known as "cookies" on users' computers to record what people were viewing online.
The company was targeted for investigation by attorneys general in 10 US states.
It negotiated a settlement in 2002 that included being more open about what data it keeps and removing the information from the Internet within three months of its collection.
"We've had informal chats before but the alignment wasn't there," Schmidt said of the acquisition, Google's largest. "We got that alignment now. We felt we could afford the price and that it is a very good deal for Google and our shareholders."
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