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Google's Baaaaack!!! And the "kicker" from DoubleClick is still to come

Clearly the market badly under-estimated Google's strength and resilience in a slowing economy given the ~17% leap in Google's stock price in after hours trading.  

  • Google's notorious lack of openness with investors helped make the market inefficiently, way-over-cautious.

42% revenue growth for an $18b a year company is amazing.

  • It is also amazing for there to be a business of this size and global scope that strongly asserts to have a business model that is unaffected by the turmoil in the macro-economy.
  • It certainly suggests some market power and network effects at work here, because this strong performance and guidance on the effect of the macro-economy -- is not "normal."

What I find most interesting is I don't think that the market yet understands what a growth kicker the DoubleClick acquisition will be for Google going forward. Google was coy about it and did not connect-the-dots for investors -- that they clearly see.

  • On the Google 1Q08 earnings call, different speakers shared different pieces of the what I call the "DoubleClick kicker" but they did not connect-the-dots for investors, because they appparently didn't want to appear too cocky. 
    • Up front in their announcement they said they were excited about the DoubleClick acquisition.
    • Omid stated that they expect to be the world's largest display ad provider and talked about the cross-selling potential.  
    • Sergy explained they are "optimistic' about integrating Adsense with DoublClick's DART for publishers. 
    • Another speaker responded to a question that Google did not see how Google-DoubleClick could be cannibalistic but only synergistic.
    • And Larry highligted the very positive new trend of the conversion optimizer -- which encourages customers to pay per sales conversion and not per click. 
  • Let me try and connect-the-dots here to spotlight what a big "kicker" DoubleClick will be to Google in sustaining its high revenue growth rate going forward
    • First, DoubleClick had a extremely weak monetization engine having had to reset its pricing and its business model to survive the bursting of the tech bubble.
      • Google understands that its superior ability to monetize online advertising presents a huge upside in display by moving DoubleClick's very poor monetization engine to the industry's best monetization engine.
      • The acquisition creates a do-over/clean slate opportunity with clients because they can offer a new integrated offering with new analytics.
      • In other words, the combined offering will be so much different and superior to the individual offerings that they will be able to provide much greater value and hence extract much greater value. 
    • Second, Google will be able to cross-sell itself to the hundreds of top 1500 global advertisers that Doubleclick has and Google does not. And Google will be able to introduce DoubleClick to the hundreds of thousands of long tail websites that DoubleClick does not reach.
      • Cross-selling is the single easiest part to achieve of this revenue growth kicker.   
    • Third, the combined Google-DoubleClick will be able to offer every one of its constituencies, users, advertisers, and website publishers vastly more value than either of them could provide before stand-alone and vastly more value than any other online advertising provider -- by far. 
    • Finally and most importantly, is the natural synergy and network effect of combining search and display -- with Google's powerful nascent conversion optimizer model. 
      • As I wrote in my Googleopoly analysis at www.Googleopoly.net, the best way to enhance search conversion rates is through targeted display advertising. 
      • Search and display are highly complementary and synergistic -- combined with Google-DoubleClick's superior and enhanced analytics and the coversion optimizer monetization engine, this is the real business kicker that Google is grinning ear-to-ear about behind the scenes.
        • This dynamic is like printing money online. And no one else can come close to replicating it.
        • Google-DoubleClick are at least 2-3 years ahead of Microsoft and/or Yahoo in this dynamic.

Bottom line: The integration of Doubleclick will be a much more powerful "kicker" going forward for sustaining Google's high revenue growth rates and gross margins than this skeptical market appreciates.           

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