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Online ad trends show the huge stakes in the Google-Doubleclick merger

A major reason why the stakes are so high in the FTC's review of the Google-DoubleClick merger is how remarkably fast online advertising is overtaking other advertising industry segments that have been around for decades.

An important development occurred just before the long Labor day weekend that I didn't want people to miss. Media Daily News reported that: "Internet displaces radio as fourth largest ad medium."

  • "EMarketer is pegging Internet ad spending at $21.7 billion, compared to $20.4 billion for radio. eMarketer's report comes as the Internet already has surpassed outdoor ad spending, and as a recent report from equity firm Veronis Suhler Stevenson predicts that the Internet will displace television as the No. 1 ad medium by 2011." [bold added]

So what?

What this underscores is how extraordinarily rapid the shift is from traditional advertising to online advertising. Let's put this in perspective:

  • Online advertising in a little over a decade has overtaken the original electronic advertising medium, radio, which had almost a seventy year head start. 
  • Online advertising is projected to overtake the current number one electronic advertising medium, TV, in ~2011, and TV has had an over fifty year head start.   

The extraordinarily rapid growth of online advertising, highlights what is at stake in the Google-DoubleClick merger. 

  • Simply, this merger proposes to combine Google, the company with ~73% of US search revenue share of the leading and dominant online advertising segment -- with DoubleClick, the company with ~60% share of ad-serving, the next biggest online advertising segment, and the segment that increasingly competes with search for ad dollars.
  • While the merger would create exceptional market dominance today, the market power and reach of this merger will only become more dominant as traditional ad dollars rapidly shift to online advertising going forward -- because online advertising is so much more targeted and measurable.
    • Simply think of Google-DoubleClick's Internet market power as 'surfing' the crest of the tidal wave of online advertising growth.  
    • In other words, market power on steroids.

So what is really at stake?

Advertising is the only proven business model for monetizing Internet content.

  •  The facts are that the Google-DoubleClick merger would combine:  
    • the #1 and #2 Internet audiences of users --
    • with the #1 and #2 networks of advertising websites --
    • with the #1 and #2 Internet networks of advertisers.
  •  Simply, merger approval would enable Google to dominate all sides of the online advertising market: business access to users, advertisers and website advertising space.
  • Google-DoubleClick could then leverage this practical bottleneck access control to corner the online advertising market, raise prices, fix prices and price predatorily.

While on the surface the Internet may appear to be diverse and competitive, underneath the practical reality is that the business model engine of the Internet demands scale and is extraordinarily concentrated and increasingly dominated by Google in search and DoubleClick in display advertising. Bottomline question for the FTC: Will there be one indispensable Internet middle man/gatekeeper, Google-DoubleClick, which every business must deal with -- if they hope to succeed in advertising in the Internet space?