The Tycoon Report

Watch Out, Microsoft

Wednesday, April 4, 2007 | Wayne Mulligan

This week’s article is going to be a bit different from most ...

I’m going to start off with my typical analysis of the tech sector, but the second half of today’s article is just as important, so please read everything!

First, let’s talk about the internet sector as of late.

Since I’ve been writing for The Tycoon Report, way back in 2005, you might remember my talking about this “new” breed of web companies.  Many, especially those in the media, have dubbed this “Web 2.0”.

While I’m not a personal fan of the term, I think it appropriately categorizes a new rash of businesses being started that usually pertain to social networking, user-generated content and most importantly, ad-supported business models.

While the late 90’s dot-com boom was also attributed to many ad-based businesses, it’s a bit different this time in that ad rates aren’t being arbitrarily set.

This “boom” in the dot-conomic (play on words; aren’t I clever?) cycle is largely due to that company we all know, love and use on an hourly basis – Google (Nasdaq: GOOG.)

That’s right, many of the ads that are appearing on these “small” start-ups are being served up by the search engine behemoth.

That means that most of these companies are getting their original revenue (and in some cases, all of it) from Google Ads.

In case you don’t know exactly how Google works, I’ll give you the quick rundown:

Google’s ad system is completely auction based – advertisers bid on top placements for sets of keywords.  Once a page Google serves ads on has a certain set of keywords associated with a particular set of ads, those ads are then displayed.  The advertiser only pays once someone clicks on its ad.

So it’s not about how many times an ad is seen – it’s all about how many times it’s clicked.  That translates into real business for the advertiser and real revenue for the publisher.

So if MySpace (NYSE: NWS) is the Yahoo! (Nasdaq: YHOO) for this generation of web companies, then Google is the DoubleClick of today.

DoubleClick was one of the largest ad networks on the web back in the late 90s, but today is a considerably smaller entity.

But who says you can’t mix the old with the new?

As reported by The Wall Street Journal last week, DoubleClick is exploring its options in the form of a sale.

At first, Microsoft (Nasdaq: MSFT) seemed the likely suitor, but it looks like Google just threw its mighty hat into the ring as well!

This could get very interesting – many people familiar with this space expect the bidding to go north of $2 billion for the privately held DoubleClick.

That would be Google’s largest acquisition to date (even bigger than its $1.6 billion acquisition of YouTube last year).

This could be a very lucrative area for Google to get into: while Google currently specializes in matching small advertisers with small buyers, DoubleClick acts as the middleman between much larger ad agencies and large online destinations.

In fact, AOL (NYSE: TWX) and MySpace are both DoubleClick customers.  Considering Google already has a relationship with both companies, this deal would obviously give Google a leg up in that Google would now account for an even larger portion of both companies' revenue.

Assuming Google doesn’t overpay for DoubleClick, it could be a very valuable addition to the company’s portfolio and act as a tremendous source for increased revenue and profit growth as Google consolidates its position in the market.

If I were in Microsoft’s shoes, I’d unlock those cash coffers and do whatever I could to stop Google from snapping this company up.  The same could be said for Yahoo! which also stands to see its competitive position weaken dramatically if Google keeps pulling the carpet out from under them.

I’ll definitely keep you updated on how this situation progresses – have a great week!

What Do YOU Think?

Now I wanted to talk about something very near and dear to all of our hearts here at Tycoon.

I’m sure you’ve heard my colleagues and I talk about all of the exciting changes we have planned for The Tycoon Report web site.

Over the last couple of weeks, you’ve obviously seen some of them first hand:

• We have a fresh new look to the site
• All of the products you subscribe to can now be found on a single page
• We’ve made it easier than ever to find the articles you want with our great ‘Search’ feature
• And there’s more to come…

And that’s what I wanted to talk about with you today -- I wanted to talk a bit about The Tycoon Report web site and get your thoughts on some of the changes we’ve made.

What I’d like you to do, when you get a chance, is to check out www.thetycoonreport.com and explore the page a bit.

Do you like the new look and feel?  Are you able to find the articles you want?  What are some of the problems you had?

This is the information we need in order to make the site better for you.

Because that’s what this is all about, after all – making sure you and everybody else in the Tycoon family have the best experience possible when using our services.

To let us know what you think of the new site and maybe give us some ideas for what we can do for you in the future, Click Here and give us some feedback.

We really appreciate it!




Wayne Mulligan
Contributing Editor
The Tycoon Report