Microsoft as the Pot; Google as the Kettle

Double Click
Double Click

Google's acquisition of DoubleClick wasn't much of a surprise since blogs and news coverage over the past few weeks have indicated that the company was in play and had several suitors, including Microsoft, Google, Yahoo and various others.

But the big surprise happened over the weekend when we found out that Microsoft was building a coalition of companies to come out against the deal, and that the anti-trust poster-company was now playing the part of victim. Needless to say, this pot-calling-the-kettle-black legal strategy is raising some eyebrows.

"This proposed acquisition raises serious competition and privacy concerns in that it gives the Google-DoubleClick combination unprecedented control in the delivery of online advertising, and access to a huge amount of consumer information," says Brad Smith, Microsoft's chief legal counsel, in a statement. "We think this merger deserves close scrutiny from regulatory authorities to ensure a competitive online advertising market."

Well, if anyone knows anti-trust, it's Microsoft, so these concerns ought to be taken seriously. Or should they? AT&T and Time Warner are joining Microsoft's call for a Department of Justice look-see into this deal. There's talk that Yahoo could also join this alliance. Not to mention a bunch of others who may line up behind Microsoft, if only to keep Google's ever-increasing power and influence from expanding further.

If only to keep Google from becoming the Microsoft of a new generation. Gene Munster at Piper Jaffray tells me the 800-pound gorilla just added another 50 pounds with this deal.

"Who knows this better than these guys," says Brendan Barnicle at Pacific Crest Securities, with a chuckle. "I think you're absolutely likely to see them continue with this. They've had more experience dealing with the DOJ in technology issues than anyone else in recent history, so they're certainly in good position, with their own internal legal department as well as people they've hired to be able to pursue this and really understand these issues in great depth."

It's a great point. And so is his later point that Microsoft simply has nothing to lose. It already lost the bidding war for DoubleClick, so why not see if the DOJ can do what Microsoft's checkbook was unable to.

DoubleClick is a key asset. The company is the leader in display advertising as well as the top aggregator of consumer data. These are both beachheads Google needs to establish online if it's going to see its monumental growth continue, especially as search-advertising begins to slow, if only slightly.

DoubleClick was simply a deal that Google could not let get away.

At the same time, is there any merit to the Microsoft et al anti-trust arguments? Munster says no way.

"This is basically a classic Microsoft argument. When they're on one side of the equation, they claim they're not monopolistic. When they see someone else trying to make some inroads, they'll claim they're monopolistic," says Munster.

And while the market will be keeping a close eye on DoubleClick competitors like Aquantive and ValueClick, investors may want to look at Google a little more closely. The company has an ambitious and over-active R&D unit, throwing billions of dollars and thousands of employees at the "next big thing." But as of yet, none of those projects has led to any meaningful new revenue streams. Google took a $1 billion investment in AOL; the company spent $1.6 billion on YouTube. Now $3.1 billion on DoubleClick. Could this company be having difficulty with organic growth? It clearly has the bank account to acquire its way to meaningful growth. That's a strategy that works well for Oracle, for Cisco Systems and many others. But it's not clear that that strategy will be the winning one for Google, which maintains such a heavy emphasis on its own unique internal culture.

Meantime, the industry watches and waits to see what the DOJ will do, if anything at all. Microsoft's arguments are interesting, but remember: Google controls about 65% of the search business. Microsoft has 95% percent of the operating system business. Makes it kinda hard to throw much support behind one monopolist's claim of anti-trust behavior against someone else with far less market share in the disputed industry.

But hey, if this works out for Microsoft, look for the company's Zune division to rally support among Samsung, SanDisk, Creative and all the other "major" MP3 makers to take on Apple Inc. and its better-than-75% of the digital music market.

You can't blame a company for tryin'.

By the way, don't forget: Yahoo reports earnings tomorrow, and Google on Thursday. Look for the DoubleClick news to take a starring role on both companies' conference calls.


Questions? Comments?