The deal is done. With European regulators finally clearing the way, Google
It's welcome news. Google should take a bigger role in display advertising, especially as Google gets more space for eye-candy ads on social networking partner sites like MySpace and its own YouTube video-sharing site.
Investors should still temper their enthusiasm. Henry Blodget suggests that something as simple as incorporating DoubleClick's graphical ads throughout Google's own site could result in an additional $3 billion to $4 billion in revenue, or $2 billion in profit.
I don't buy that kind of optimism. Display advertising works on many sites. Yahoo!
The reason why Google is able to deliver so much more ad revenue by serving up fewer pages than Yahoo! globally is because of paid search. Blodget's suggestion of wallpapering Google's search engine with banner ads and rich media spots would be a disaster.
Yes, a disaster.
For starters, display advertising doesn't pay as well as paid search. Yahoo! proves it. Google users may wind up clicking less on the more lucrative paid search ads if they are distracted by the eye candy. Perhaps more importantly, Web users may grow to avoid Google the way they have previous search engine leaders who chose to tragically transform into graphical portals.
Don't take my word for it. Why do you think that Microsoft's
Google gets stylistic marks for how it graphically updates its logo based on certain dates, but that's where it should draw the line on art versus garish virtual billboards.
Blodget suggests that tacking on display advertising can result in as much as a 30% profit improvement at Google. I just don't buy into the math, because I don't think it can happen without cannibalizing the company's established high-margin paid search feast.
It wouldn't be incremental. It would be detrimental.
Microsoft has made the cut as an Inside Value stock pick. Yahoo! is a former Stock Advisor recommendation, while Time Warner is an active pick. So many newsletters, so little time? Don't worry. You can check them out for free for the next 30 days with trial subscription offers.
Longtime Fool contributor Rick Munarriz is a fan of all of the search engine stars but he does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.