Google, which has dominated search advertising, is hoping to take over the display advertisement space by launching new DoubleClick Ad Exchange to create an open, real-time marketplace for large online publishers and ad networks and agencies to buy and sell display advertising space. In an announcement made on the company’s blog, Google says that display advertising, which are ad formats that include videos, images and interactive ads are becoming “vital in boosting awareness and sales” on the web.

Traditionally, publishers and advertisers using Google’s AdSense and AdWords products would have to manually plan their display ad campaigns. Now, publishers can tap into Google’s ecosystem for ads where prices are set in a real-time auction and advertisers can access a large pool of inventory within one platform.

Google says the benefits for publishers include the real-time allocation, letting them allocate ad space to the advertiser that pays the most at a given time; access to more advertisers; greater control over advertisers and ad formats, a sleeker UI, and payment system managed completely by Google.

And of course advertisers can access a platform that provides more publishers and ad space, a greater control over where a display ad appears, and access to a new API that lets advertisers and networks integrate their own functionality and systems when working with the Ad Exchange.

Google bought display ad provider DoubleClick in 2007 for $3.1 billion in cash, after apparently winning a bidding war with Microsoft. The announcement of this new marketplace is a direct move against Yahoo, which has dominated the display ad marketplace for some time.

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Adgregate Markets, a TechCrunch 50 startup, has signed a distribution deal with Google’s DoubleClick. Adgregate’s ShopAds allow consumers to browse, interact, and ultimately purchase directly within an ad unit. Normal display ads take users away from a publisher’s site and brings them to a third-party store but Adgregate lets users buy products featured in ads without moving away from the page. Adgregate, which presented its technology at TechCrunch 50 last fall, received positive reviews from our panelists, who included entrepreneur Marc Andreessen; MySpace CEO Chris DeWolfe; Salesforce founder Marc Benioff, angel investor Yossi Vardi; and former Yahoo executive VP Ash Patel. The panelists unanimously agreed that Adgregate was a great idea that will make money and address a need in the display ad market.

It was only a matter of time before Adgregate’s technology attracted big-name interest. ShopAds, which is a widget, can replace any size banner ad and will now be available to all of DoubleClick’s advertisers. If a user views the ad widget and wants to buy the product it’s advertising, they need only to click the description button under the ad and click “add to cart” to buy it. From there, the user can pay directly in the widget by inputting credit card information in a secure buying process.

Adgregate will share revenue with both DoubleClick and the retailer whose goods are being sold in the ShopAd widget. But the publisher of the ad only gets a share of revenue if the retailer has accepted them as an affiliate publisher. If that is the case, then the publisher will also get a separate commission fee from the advertiser. This isn’t a bad deal for publishers. Advertisers have an incentive to pay a higher commission to publishers so they put their ads in a more prominent spot on their page, but the money is being split an awful lot of ways.

Competitors to Adgregate include Nooked and Lemonade, which both also allow publishers to embed an e-commerce widget on their sites, but lead users to the retailer’s site for purchases. Adrgregate’s technology is useful to publishers because users can purchase an item in the ShopAd widget without having to ever leave their site.

Display ad network DoubleClick was bought by Google in 2007 for a $3.1 billion, outbidding Microsoft and pushing through eventual approval of the deal in both the U.S. and Europe.

Here’s an example of one of Adgregate’s embeddable ShopAd widgets:

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As online advertising spending continues its meteoric rise — the Wall Street Journal is reporting a healthy gain of 20 percent in the second quarter alone — not every form of advertising is enjoying such success. In fact, as economic troubles continue, more and more advertisers are only willing to spend money on search ads and are increasingly ignoring other forms of advertising.

According to eMarketer, search ad spending will reach $10.4 billion this year, more than twice as much as advertisers will spend on display ads. More importantly for Google, search ads will represent 42 percent of all advertising spending, while display ads will account for just 21 percent of all online advertising.

With an economic downturn running amok, Google is quickly becoming one of the few companies that can actually withstand its onslaught. Because search results currently provide the best place for advertisers to spend money and realize a positive ROI, Google’s control of over 60 percent of the search market becomes even more important.

“We believe that if there were (a U.S. recession), we’ll be well positioned,” Google CEO Eric Schmidt said in a recent earnings call.

Generally speaking, search ads are better targeted than display ads. And in an environment where companies have less money to go around, they need to find the best ways to utilize that cash and speak to the target audience. For now, display advertising will not be the best place to spend ad dollars and although Microsoft and others will do their best to compete, Google is still in the cat bird’s seat.

Just don’t mention DoubleClick.

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As we reported March 12, Performics presented a major conflict of interest for Google as the service offered SEO services that were focused on improving site rankings in Google.

Tom Phillips, Director, DoubleClick Integration at Google wrote on the Google Blog:

It’s clear to us that we do not want to be in the search engine marketing business. Maintaining objectivity in both search and advertising is paramount to Google’s mission and core to the trust we ask from our users. For this reason, we plan to sell the Performics search marketing business to a third party. We believe this will allow us to maintain objectivity and the search marketing business to continue to grow and innovate and serve its customers. While we have not yet identified a buyer, we’ve received preliminary interest from a number of our current partners. Search Marketing will continue to run as a separate entity until the division is sold.

Phillips noted that Google will keep the affiliate marketing arm of Performics and integrate it into existing Google services.

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DoubleClick’s Performics offers search engine services that include “natural search solutions” such as “link building.” Some highlights from the Performics service

Our experts methodically optimize copy and content for each page to boost page rankings…

Addresses external ranking factors and new business opportunities

Now there is nothing wrong with what Performics offers; SEO and SEM are legitimate businesses. The catch is that Google is now offering paid services that promise improved search engine listings in Google itself, a 100% conflict of interest. Danny Sullivan at Search Engine Land calls for Google to divest itself of Performics, and it’s a call that should be supported.

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New York based Eyeblaster offers online campaign management solutions and services to advertising agencies and advertisers. Eyeblaster manages campaigns across digital media channels in multiple formats including rich media, in-stream video, display and search.

Eyeblaster’s major competitors include Google through DoubleClick, and Microsoft with Atlas.

The company was founded in 1999 and has 221 employees in 23 countries with R&D facilities in Israel. The company booked a $7.4 million profit in 2007 on revenue of $44.7 million from 979 customers.

(via CNN)

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One company petitioning against the acquisition is Microsoft. The NY Times has a copy of a leaked Microsoft document here (.doc) that details in dot points the case against the acquisition. One choice quote:

By acquiring the dominant provider of ad-serving tools that publishers use to manage and make their inventory available to advertisers, Google will force other online ad networks to build and market their own ad-serving tools. Unless and until Google’s competitors are able to obtain access to competitively neutral and unbiased ad-serving tools like those currently provided by DoubleClick, the ability of Google’s rivals to create viable alternative pipelines will be very difficult, if possible at all. Moreover, by the time competitors are able to assemble their own pipelines, given the network economics that characterize online advertising, Google likely will have obtained in non-search advertising the same unbeatable market position that it now enjoys in search advertising.

And then there’s the Powerpoint slides. Here’s Microsoft’s case in pictures:

As Erick previously noted: “The European Commission won’t bow out so easily.” The EU has a much stronger track record against anti-competitive behavior that the FTC has under the Bush Administration, and with Microsoft spending time and money lobbying against the deal it would a brave person who bets that Google is assured of getting unconditional approval for the acquisition.

(slides via Slashdot)

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Third party ad serving markets are highly competitive. [No argument there].

Privacy not a part of the merger review. [You lucked out, boys].

Data combination wouldn’t pose problems. [That means Google won't be hobbled by any separate-but-equal clauses keeping Google and DoubleClick data apart, which would have probably squirreled the deal].

Advertisers and publishers aren’t concerned. [Well, at least not enough to complain publicly about it to the FTC].

Now that the U.S. is cleared, Google still has its toughest hurdle ahead. The European Commission won’t bow out so easily. It could very well delay a decision until April. (Those Old World regulators like to take things at an Old World pace). In the meantime, Microsoft will keep trying to steal away more business from DoubleClick, as it did yesterday with its Viacom deal. Oh, and it will be spending a lot of time lobbying its good friends at the EC as well. The longer the delay, the more Microsoft can use that time to try to catch up. But come April, DoubleGoog will start to punch back.

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The FTC has been investigating the acquisition on competition grounds since it was first announced in April. A number of high profile respondents argued against the acquisition, including AT&T and Microsoft, and in July Scott Cleland of telecom research group Prescursor presented a strong case arguing against the merger.

At the time we noted:

The FTC has acted against anti-competitive behavior in the tech industry before (most notably with Microsoft), however the FTC under the Bush Administration has become far more laissez faire towards business practices than it was in the past. It won’t be all clear sailing for Google, but given recent history it would be surprising if the FTC did block Google’s DoubleClick acquisition.

The acquisition has already been cleared by authorities in Australia, but still faces regulatory review in Europe.

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Truth be told, that is precisely what Google is hoping for, although it must say the exact opposite to try to get the deal past regulators. Google CEO Eric Schmidt is crying that all of his rivals’ advertising deals (Microsoft-aQuantive, Yahoo-Right Media/BlueLithium, AOL-Tacoda/Quigo) have already been approved or face no similar scrutiny. But that misses the whole point of an antitrust review: to prevent the concentration of too much market power in any one company.

Those other deals don’t threaten to cement any one company’s market dominance, as the DoubleClick deal arguably does. (This must be the only time Steve Balmer is tickled that Google is being treated like the new Microsoft). There are also related privacy concerns, as tracking consumers across sites with ad cookies becomes the industry norm, but that is beyond the official purview of the European Commission.

In the U.S., the Federal Trade Commission has yet to approve the deal as well. But historically, it has been the European Commission that has always been tougher in approving big mergers because it doesn’t have as much enforcement teeth after a deal is already consummated. Its biggest influence (in terms of being able to squash a deal) is always at the initial approval stage, when it has to basically guess what the future may hold. In a sense, it is a futile exercise.

While search and display advertising may make up the bulk of online advertising today (40 percent and 22 percent, respectively, according to the Interactive Advertising Bureau), who is to say that social ads or some other as-yet-to-be invented form of digital advertising won’t sweep the world and make the DoubleClick deal irrelevant? In all likelihood, the deal will go through with the European Commission demanding a set of tough, but ultimately misguided, concessions.

Are there concessions it should demand that would make sense and promote a more competitive digital advertising market? Or should it just stop holding Google back and let the market decide who to reward and who to punish? Comments are open.

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