The EU Delays Google's Ad Buy

European officials want more time to review the proposed DoubleClick deal, and critics in the U.S. hope the FTC is paying attention




by Catherine Holahan (Business Week)

Sheer size has helped Google (GOOG) dominate much of the world's $30 billion online advertising market. But the search giant's massive reach is proving to be a liability in Europe. On Nov. 13, the European Union's antitrust authority held off on approving Google's proposed $3.1 billion acquisition of online ad company DoubleClick, opting instead to subject the transaction to further review.

The European Commission's move, which extends the decision deadline until Apr. 2, is a setback for a deal that would broaden Google's already considerable ability to determine ad placement not only on its own search engine—the world's largest—but also across untold sites across the Web. Google may have to jump through additional hoops to win approval for the deal, whereas rivals Microsoft (MSFT), Yahoo! (YHOO), and Time Warner's (TWX) AOL are moving ahead with similar acquisitions that have already passed EU muster (BusinessWeek.com, 10/1/07). "We can't just treat this as just another competition case," Sophia In't Veld, a Dutch member of the European Parliament, says in defense of the decision.

Approval Still Likely

Google was quick to cry foul. "We are obviously disappointed by the European Commission's decision to extend its review of our acquisition of DoubleClick," Google Chairman and CEO Eric Schmidt said in a statement. "We seek to avoid further delays that might put us at a disadvantage in competing fully against Microsoft, Yahoo, AOL, and others whose acquisitions in the highly competitive online advertising market have already been approved."

The Google deal will most likely also get a green light—but not before European officials take measures to prevent the enlarged company from exerting undue control over the market. "It could lead to additional conditions being placed on the combined company's actions, which could compromise Google's efforts to fully exploit the DoubleClick value," analysts at securities firm Stifel Nicolaus wrote in a Nov. 13 note. Only 3% to 4% of mergers reviewed by the EU in the last several years have been subjected to the second level of scrutiny, according to the Stifel analysts.
Pleased Opponents

Opponents of the merger are hoping the additional review will influence the U.S. Federal Trade Commission, which is also examining the deal. Like the EU, the FTC has approved comparable deals by Microsoft, Yahoo, and AOL. "The European Commission decision has sent a friendly European wind to prop open the doors at the FTC," says Jeff Chester, executive director of the Center for Digital Democracy, one of the 35-plus groups urging the commission and the FTC to impose restrictions on the merger. Other opponents include the International Advertising Assn., the World Federation of Advertisers, and Google competitors Microsoft, Yahoo, and Ask.com.

The concern is that Google would amass too much data on its users and their online habits. It already has a vast storehouse of information on what people using its Web search tool are looking for, and it uses that information to place ads alongside users' search results. The fear is that owning DoubleClick would improve Google's ability to use that data to place targeted ads on other sites, too. To date, the information DoubleClick collects on clients' site visitors is owned by the clients and is not shared.

Targeting + Reach = Ad Dollars

Google's girth is the primary reason it has attracted more opposition than its competitors. Google already has the most popular search engine in the U.S. and much of Europe, and it controls more than 75% of the $8.3 billion U.S. search advertising market, according to a recent eMarketer report. Google also owns YouTube, the largest video site on the Web, potentially giving it access to a significant slice of the nearly $2 billion online video advertising market. And it has deals to serve ads on some of the Web's most popular sites (BusinessWeek.com, 8/8/06) including the leading social site, News Corp.'s (NWS) MySpace.

Google isn't alone in expanding its sphere of influence with such partnerships. During the past few years, the fight for online ad dollars has become a battle of bulk. Audiences have become scattered across the Web due largely to the emergence of sites such as MySpace and Facebook, which let users create countless pages of their own content for public consumption. Little wonder that Internet companies are clamoring for advertising alliances with social networks. Microsoft, for example, recently paid $240 million for a stake in Facebook (BusinessWeek.com, 10/25/07) that enables it to serve ads on the site.

But the most important way online ad giants have sought to increase their influence is through the acquisition of ad networks. Because these networks serve ads on sites across the Web and often monitor the kinds of sites visited by unique computers, they are able to promise marketers large audiences comprising people likely to be interested in what they are selling, or at the very least give marketers information about the people who have responded to their campaigns. It's that power, and the potential to increase it, that spurred Microsoft to buy aQuantive for $6 billion and Yahoo to shell out about $1 billion for Right Media and BlueLithium.
Privacy Concerns

If the deal is approved, DoubleClick's large network of participating Web sites could expand Google's already extensive ability to serve ads off its own site—and render rivals incapable of competing with the Goliath for ad dollars. Why would a marketer bother, for example, to work with a small ad network that can only deliver ads to a relatively small audience on less popular sites, when it can buy the ability to reach a million members of its target market on premier Web sites across the Internet?

Further complicating the issue is the possibility that Google eventually could gain access to the user data DoubleClick collects for clients—information Google could use to better target ads to specific consumers on sites across the Web. "The Google-DoubleClick merger is truly unique because you are merging the global search leader with the company that delivers billions of data-collecting cookies to the world's largest corporations," says Chester, of the Center for Digital Democracy. "We have to be concerned about the creation of these private ministries of information…[this] handful of data-collecting giants could ultimately collude with the government and business."

Chester's privacy concerns also apply to recent acquisitions made by Microsoft, Yahoo, and AOL. But so far, those companies' individual shares of the online advertising pie have been too small to attract regulatory scrutiny. Google will argue it shouldn't be singled out for providing a search advertising product that Web surfers and publishers alike want to use. After all, users can switch to another search engine at any point. For that matter, so can advertisers. But with Google serving as the one-stop shop for ads placed nearly anywhere on the Web, why would anyone want to?

Philippine Bombing May Have Been Triggered by Cell Phone

By Douglas Bakshian (VOA News)

Philippine police suspect a bomb at the House of Representatives that killed a congressman and two other people Tuesday night may have been triggered by a cell phone. In the aftermath of the explosion, the entire security force at the Philippine Congress has been changed. Douglas Bakshian reports.

Police say initial indications are that the bomb was in a motorcycle at an entrance to the House of Representatives, and investigators have found parts of a cell phone that may have been used to trigger the device. Metro Manila Police Chief Geary Barias told ABS-CBN television that a person at the scene may have detonated the bomb.

"On site. In other words the device was under the control of the suspect. He would say when the bomb gets off," said Barias.

There was no immediate explanation of how a bomber was able to penetrate security in the building. Avelino Razon is director-general of the Philippine National Police, or PNP. He says security in the House and Senate has been changed, from one police unit to another, until the authorities have a better idea of what happened.

"We have relieved the entire PSOP security force and changed them with a company of PNP-SAF effective this morning," Razon said. "And that also goes with the contingency force in the Senate."

Congressman Wahab Akbar of the southern island of Basilan was killed in the blast. He is a former Muslim rebel who supported a military campaign against Islamic militants of the Abu Sayyaf terrorist group on Basilan.

The region is known for violent political disputes, and authorities say Akbar had many political foes and had received death threats. However, no one has claimed responsibility for the blast, and no suspects have yet been arrested or identified.

Members of Congress went back to work Wednesday in a sign that they will not be intimidated by the violence. President Gloria Macapagal Arroyo has put Manila and the region around the capital on a state of alert.

Oil detours from road up to $100

By Wailin Wong (Chicago Tribune)

Consumers feared it, speculators rooted for it, and markets waited anxiously for its arrival. But this week, the specter of $100-a-barrel oil appears to have receded.

On Tuesday, the December contract for light, sweet crude oil on the New York Mercantile Exchange fell $3.45, to $91.17 a barrel, backing further away from the historic $100 level that it had threatened to breach last week.

The price of crude has surged since late August, hitting a string of record highs as the dollar dropped to historically low levels against other world currencies.

The main catalysts for oil's price decline Tuesday were a monthly report by the International Energy Agency, which lowered its forecast for fourth-quarter oil demand, and a hint from Saudi Arabian Oil Minister Ali Naimi that the Organization of the Petroleum Exporting Countries might discuss increasing production when it meets next month.

Traders also played a role, since oil's flirtation with $100 was driven not only by current events but also by the activity of speculators eager to seize on sky-high commodities prices.

"A key reason why prices have spurted so quickly to high levels was there were a lot of financial investors in the market," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa. "There is a lot of options trading and other financial activity related to energy. That drove prices up, and that is now weighing on prices, at least temporarily."

In active and frothy financial markets, participants tend to become fixated on tidy benchmarks -- 14,000 points for the Dow Jones industrial average, for example. The magic number for oil was $100 a barrel, a level that was as tantalizing as it was hard to puncture.

Dave Kirsch, manager of the market intelligence service at consulting firm PFC Energy in Washington, described the attitude among many traders as, "It's never hit 100 before; wouldn't it be cool?"

Kirsch also said he believes the International Energy Agency had overestimated oil demand in its projections, which are crucial data for markets. The Paris-based agency revised its view on the fourth quarter on Tuesday, saying there are "strong indications that high prices are depressing demand" and reducing its projection for the period by 500,000 barrels a day, to 87.14 million barrels.

High prices may persist

But although oil prices have retreated from $100, they are likely to remain at elevated levels that will continue to nag at consumers. Economists note that unease over the U.S. economy, which is grappling with a battered housing sector and volatile financial markets, will persist whether crude is at $90 or $100.

The consequences of high oil prices are "a little more like termites as opposed to something more dramatic," said Carl Steidtmann, chief economist at Deloitte Research in New York. "It just slowly eats away at the foundation of consumer spending, and that will obviously continue to happen."

Steidtmann noted that high energy costs are helping push up the cost of food, while many consumers also are getting squeezed because of higher mortgage payments and less access to credit.

"Consumers have a lot on their plate right now," he said.

Gasoline prices have ticked upward but not at a pace that mirrors the meteoric ascent in oil. Zandi estimates that each additional dollar in crude prices translates to a 4-cent increase at the pump. According to data from AAA and the Oil Price Information Service, the average national gasoline price on Tuesday was $3.105 a gallon, up from $2.761 a month ago. The average price in Illinois is $3.185 a gallon, with Chicago at $3.208.

Gasoline use stable

Gasoline demand has remained relatively steady despite the price increases, with the onset of fall bringing an expected seasonal drop-off in consumption. Nicole Niemi, a spokeswoman for AAA in Illinois, said any lifestyle changes, such as trading in a sport-utility vehicle for a more fuel-efficient car, likely happened when gas prices topped $3 a gallon.

"It's not a rash, major change at the moment," Niemi said. "It will depend on how long prices stay at $3 and how far they continue to climb."

The crucial period will come in spring, when driving season begins and gasoline demand generally swings upward, pushing prices higher.

If the economy remains on shaky footing, elevated oil prices in the spring will be "difficult for consumers to overcome, given the severity of the housing downturn and a weakening job market and ups and downs of the stock market," Zandi said. "It's going to be very hard for the economy to overcome."

FCC chief proposes to relax media ownership ban

By Peter Kaplan

WASHINGTON (Reuters) - The head of the U.S. Federal Communications Commission on Tuesday proposed that the agency relax its ban on the cross-ownership of newspapers and broadcast stations in the 20 biggest U.S. cities. FCC Chairman Kevin Martin said the "relatively minor" rule change would help bolster the newspaper industry by allowing owners in the top markets to buy a TV or radio station. The plan is less ambitious than a 2003 FCC proposal to scale back the ownership restrictions, which was struck down by the federal courts. Martin said it was the only change he would seek.

"I think this is a balanced approach," Martin said. Martin outlined the proposal first in a column published in Tuesday's edition of the New York Times. The agency issued a formal announcement later on Tuesday morning.

"A company that owns a newspaper in one of the 20 largest cities in the country should be permitted to purchase a broadcast TV or radio station in the same market," Martin wrote his newspaper column. "But a newspaper should be prohibited from buying one of the top four TV stations in its community." Long-standing FCC rules restrict media cross-ownership and ban ownership of a newspaper and a TV or radio station in the same market, unless the FCC grants a waiver.

Consumer groups and Democrats on the FCC have expressed reservations about easing ownership rules, fearing that more consolidation in the industry would eliminate independent voices and degrade local news coverage.

If cross-ownership limits were eased or lifted, it could help some investors, such as real estate tycoon Sam Zell, who is leading a proposed leveraged buy-out of media group Tribune Co. Zell wants the FCC to reaffirm waivers that allow Tribune to cross-own daily newspapers and broadcast outlets in some markets.

Martin said the proposal would strike a balance between protecting the quality of local news coverage while preventing too much concentration of ownership. Allowing cross-ownership would not be a problem in the 20 biggest markets, Martin said, because there are a large number of outlets for news and opinion in those markets. Martin recently said he wants the agency to wrap up its examination of media ownership and reach a decision by December 18 on whether to ease limits on how many media outlets a company may own in a single market.

However, two senators have threatened to introduce bipartisan legislation that would impose a 90-day delay on any FCC decision to ease media ownership rules. The bill planned by Sens. Byron Dorgan, a North Dakota Democrat, and Trent Lott, a Mississippi Republican, would require the FCC to study the issue for at least 90 more days.

(Reporting by Peter Kaplan; Editing by Brian Moss)

ePerks - Bringing the real estate market to you

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ePerks has also added a new Home Improvement vertical if you're in the market for a contractor. They advertise 15% to 50% less than the going rate for top work so it's definitely worth a look. I've been looking into remodeling my place for a while and so it's great to be able to see what's out there. There's nothing better than to know that you're getting the best rate and that you have options when it comes to purchases like these. I highly recommend checking them out ePerks if you're in the market.

Home Depot Has Profit Decline on U.S. Housing Slump (Bloomberg)

By Mark Clothier and Mary Jane Credeur

Nov. 13 (Bloomberg) -- Home Depot Inc., the largest home- improvement retailer, reported lower profit and cut its full- year earnings forecast after the U.S. housing slump reduced sales of kitchen cabinets and appliances.

Home Depot said it will take a ``cautious stance'' on completing its $22.5 billion share buyback because of the volatility of credit markets and housing sales. Third-quarter revenue of $19 billion missed the $19.3 billion average estimate of analysts in a Bloomberg survey. Chief Executive Officer Frank Blake is spending more than $2 billion this year to improve customer service and the appearance of stores in a bid to reverse market-share losses to Lowe's Cos. Sales have declined for two straight quarters amid the worst housing slump in more than a decade.

``It'll take Blake about five or six quarters to turn the corner,'' said Burt Flickinger, managing director of Strategic Resource Group in New York. Net income fell to $1.1 billion, or 60 cents a share, in the quarter through Oct. 28, from $1.5 billion, or 73 cents a year ago, Atlanta-based Home Depot said today in a statement. Revenue a year earlier was $19.6 billion. Excluding the sale of its HD Supply unit, Home Depot said profit was 59 cents a share. On that basis, earnings met the average estimate by analysts in a Bloomberg survey.

Home Depot lowered its full-year earnings forecast from continuing operations to a decline of as much as 11 percent. Previously, it expected a drop of 7 percent to 9 percent.

`Continue to Deteriorate'

``We are facing a tough environment as housing indicators continue to deteriorate,'' Blake said in the statement. ``Our financial performance in the third quarter reflects these tough conditions.'' Sales at stores open at least a year fell 6.2 percent, the sixth straight decline. David Schick, an analyst with Stifel Nicolaus & Co., estimated a 6 percent drop. The company has bought back $10.7 billion, or about half, of the $22.5 billion in shares that it plans to repurchase. The buyback is being paid for with proceeds from the HD Supply sale, cash and bonds. Home Depot said it will take a ``cautious stance'' on completing the remainder of the buyback because of volatility in the credit markets and the ``challenging'' housing market. Home Depot added 43 cents, or 1.5 percent, to $28.89 at 8:22 a.m. before the start of regular New York Stock Exchange trading. The shares are down 29 percent this year before today, headed for their third straight annual decline. Sales of previously owned U.S. homes dropped in September to an annual rate of 5.04 million, the fewest since records began in 1999, the National Association of Realtors said Oct. 24. Housing starts fell to a 14-year low. Eleven analysts who cover Home Depot suggest buying the stock, while 10 say ``hold'' and one says ``sell,'' Bloomberg data show.

----With reporting by Ken Prewitt in New York.

IBM, Cognos, and the End of Best-of-Breed

The software giant's $5 billion acquisition of Cognos shows how difficult it is becoming for midsize software companies to survive on their own

by Steve Hamm (Business Week in New York)

One of the hottest segments of the tech industry, business intelligence software, is less and less a separate category of products as one major player after another gets scooped up by larger companies. The latest move was IBM's (IBM) announcement on Nov. 12 that it will buy Cognos (COGN) of Ottawa, Canada, for $5 billion. This followed SAP's (SAP) deal to buy Business Objects (BOBJ) last month for $7 billion, and Oracle's (ORCL) acquisition of Hyperion Solutions for $3.3 billion in April.

The software industry, once populated by hundreds of so-called best-of-breed companies, is now dominated by a handful of giants, including Microsoft (MSFT), IBM, SAP, and Oracle, with vast portfolios of products. It's very difficult for midsize companies to compete against the giants because large corporations prefer to buy their technology from a few strategic suppliers rather than a lot of smaller companies. Two other independents, BEA Systems (BEAS) and Sybase (SY), are seen as likely takeover targets. "In some sectors it’s really hard to find the independent, best-of-breed companies anymore, says analyst Paul Hamerman of market researcher Forrester Research (FORR). "Longer term, the industry will regenerate itself, and new ideas will incubate,”.

For IBM, the Cognos acquisition is a continuation of a "growth through mergers-and-acquisitions" effort it launched in February, 2006. Since then, IBM has bought 23 software companies as part of its Information on Demand strategy, which combines software and services to help corporations get the most out of all the data they gather about customers and their own business operations. "Customers want better and deeper integration (of their software programs), higher performance, and more real-time analysis of data," says Steve Mills, senior vice-president and group executive of IBM Software Group.

Good News For Shares
Cognos is a good match for IBM because the two companies have been working together closely for more than 15 years and their technology is compatible. Both have standardized the Java programming language, and Cognos has integrated its executive dashboard and business data analysis programs with IBM's DB2 database and its WebSphere technology for weaving together complex run-the-business applications. Mills says IBM will quickly merge Cognos into its existing operations and sell its products through IBM's software salesforce, which is more than 10,000 strong.

Cognos has long been one of the top companies in the business intelligence arena. The company reported net income of $115.7 million in fiscal 2007 on an 11.6% increase in sales, to $979.3 million. Its stock closed Nov. 9 at $53 per share, so IBM's offer of $58 per share represents a modest 9.5% premium. Cognos' shares rose more than 8% on the news, to more than $57 each. IBM's stock fell, dropping 5% to about $100 a share.

What's Around the Corner?
There are now only a handful of strong best-of-breed business intelligence software companies. They include SAS Institute, which is private, and Teradata (TDC), which spun out from NCR (NCR) last year and is publicly traded.

But, in the software industry, there's always something disruptive coming. In this case, it's QlikTech, a company started in Sweden that now has its headquarters in Radnor, Pa. It has radically different technology from the rest. It loads all of the data to be analyzed into a computer's memory chips so query results can be seen nearly instantly. Its tools are much less expensive than those of Cognos and Business Objects, and are designed to be used by many people within a company, not just executives or business analysts. "We make a big part of (the larger company's) current offerings obsolete," claims QlikTech chairman Mans Hultman.

Asked about QlikTech's claims, IBM's Mills acknowledged that its technology is attractive to customers, but says Cognos and IBM together offer a much broader and deeper array of capabilities. Will QlikTech be one of the next business intelligence companies on the auction block? Given the way this industry is consolidating, don't bet against it.