Google’s acquisition of DoubleClick for $3+ Billion was a homecoming of sorts.

DoubleClick was the original ad network. During the dot com boom, they were the pride of silicon alley and king of web advertising (outside of Yahoo! which was captive at the time).

Yet something happened between 2001-2005 . . . . DoubleClick lost it mojo. . . and its marketcap went from $15 BILLION to around $500M. And finally went private for around $1B in 2005.

Yes, $3B is an ungodly sum, but DoubleClick could have been Google; or atleast Google Adsense. But it didnt, so what happened?

Adsense kicked its ass . . . thats what. . .

DoubleClick was way too close to Madison avenue (physically and figuratively). It looked at the online advertising market with the same mindset as offline (TV, Print) advertising.

- It relied way too much on the sales force, deciding against investing in a self serve model which prevented it from scaling. Even more importantly, while the model worked in 1999 when traffic was centered around major portals and destination, as the web “long tail” proliferated, doubleclick lost a huge portion of its traffic monopoly as they were not able to serve that segment through its sales force.

-Just as important. DoubleClick looked at web targeting on purely offline terms. HH income, age, ethnicity, etc. Google, on the other hand, looked at it from an algorithmic angle and figured out that RELEVANCY was the variable which loaded the highest for click through rather than all the traditional targeting attribute. And ofcourse, relevancy and content are intricably linked. (and thus text).

MOST IMPORTANTLY. DoubleClick made a huge strategic blunder. They saw their adserving technology as something to be sold modularly rather than bundled with their ad network. They became a provider of commoditized technology and lost its ability to insert itself between the buyer and seller of advertising. It no longer controlled pricing and placement of ads. It quickly failed to become a NETWORK (with network effects) but became an ASP. There was no network based relationship . . . simply a licensing contract.

Adsense was/is brilliant in this regard. Its a black box; buyers really has very little say (until recently when Adsense has scaled significantly already) on where to place their advertising. Publishers on the other hand, has very little say in their rate card . . . EVEN MORE SO . . . both sides simply allowed Google to determine Adsense’s cut as it wishes. So long as both sides get what they want (clicks & $), the network effects kept both party from dis-intermediating Adsense AND switching to a different provider. People complain about the black box nature of the Adsense system and as a result, startups try to bring transparency to the ad network game. What they fail to realize is that the black box is the secret sauce; it gives Google the ability to increase optimization, monetization, and placement at its whim (usually for the better). The black box might seem draconian at first. . . but ultimately benefits both sides if all they care about is the all mighty dollar.

It looks like the secret sauce is going to get applied to DoubleClick soon . . .