Google breaks into radio advertising with $1bn deal

Google agreed to pay up to $1.2bn (£700m) to break into radio advertising yesterday as part of the internet search giant's offensive on the traditional advertising world.

Google will initially pay $102m in cash for dMarc Broadcasting, a privately held American company which runs a digital platform for selling, scheduling, delivering and tracking radio advertising airtime.

Depending on the success of dMarc's integration into Google's existing advertising sales platform, called AdWords, Google might pay an additional $1.14bn over three years, potentially making the deal worth more than it paid last month for a stake in AOL.

The acquisition is the latest offensive by Google, the world's largest internet search engine, to diversify its business into other parts of the advertising market.

In September the company confirmed it was experimenting with the placement of advertisements in print media, by buying full pages in technology publications, then sub-dividing the space to sell off to its own advertisers. In November it began trials of "click-to-call" sales, where customers wanting to buy advertising space can click a box on the internet with their mouse, which will directly call a salesperson.

Tim Armstrong, vice-president of advertising sales at Google, said the company was "committed to exploring new ways to extend targeted, measurable advertising to other forms of media".

"We anticipate that this acquisition will bring new ad dollars and accountability to radio by combining Google's expansive network of advertisers with dMarc's talented team and innovative radio advertising technology," he said.

Google's use of its might as the most powerful player in the internet advertising world - the fastest- growing market segment - to make forays into other areas could threaten the predominance of existing ad-buying agencies.

Like Google, dMarc is based in California and was founded by Chad and Ryan Steelberg. The brothers previously founded a company called AdForce, one of the first internet advertising companies which was acquired in 1999 for $500m in stock by the technology company CMGI. They also set up Broadband Digital Group, a now defunct provider of free broadband access.

dMarc, which was founded in 2002, lets advertisers schedule radio adverts and keep track of when they air through an automated service. The proposition is also attractive for broadcasters because the dMarc technology automatically schedules and places advertising, helping stations minimise costs. The company claims it has more than 4,600 broadcast clients, reaching more than 40 per cent of US commercial stations.

Google said it would integrate its own company, AdWords, with dMarc. AdWords works by allowing advertisers to create ads which appear when someone uses the Google search facility. Google will offer radio advertising to its existing AdWords users. Analysts pointed out that dMarc's technology could also be applied to television advertising.

Scott Kessler, an analyst at Standard & Poor's, said: "They want to leverage the value of AdWords and apply it to other media." Mr Kessler added that the move underlined Google's need to diversify its business, which remains dependent on internet search for its profits.

The company has enjoyed exponential growth in recent years and its shares have soared to more than five times their listing price of $85 in mid-2004. Even those who were sceptical on Wall Street have been captivated by Google's extraordinary growth story and one analyst predicted recently that its shares could reach $2,000.

Mr Kessler pointed out that such sky-high valuations ignore the increasing competition Google faces in its core internet search market, and also challenges such as "click fraud" - clicks on to adverts made to boost fraudulently the number of people apparently viewing them.