Microsoft Spends $6 Billion for Online Ad Firm aQuantive

[Sunite]

Microsoft Spends $6 Billion for Online Ad Firm aQuantive
By Richard Koman
August 13, 2007 11:46AM

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Microsoft's aQuantive buy is just the latest of a series of Microsoft deals in the online advertising space, but with Google in the process of acquiring DoubleClick, Microsoft's purchase of aQuantive puts Redmond in head-to-head competition with Google for "every piece of the advertising puzzle," said Directions on Microsoft analyst Matt Rosoff.

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   Microsoft Relevant Products/Services has completed its acquisition of online advertising firm aQuantive for $6 billion, the largest purchase in the Windows-maker's history. The deal was first announced in May, but closed on Friday.

"Today we take a significant step forward in our ability to capture share of the $40 billion online-ad opportunity and the larger $600 billion ad market, which is rapidly shifting to the world of online and IP-served platforms, including TV and gaming," Kevin Johnson, president of Microsoft's platforms and services division, said in a statement. He called the purchase a "core, strategic investment."

The move instantly gives Microsoft access to several online advertising businesses, including advertising campaigns and Web site development with Avenue A/Razorfish, tools for publishers and advertisers to track campaigns and demographics with Atlas Media Console, as well as an advertising network called Drive Performance Media.

Pieces of the Ad Puzzle

"They looked at the overall Internet advertising market and decided they needed many more pieces of a complete advertising business," said Matt Rosoff, an analyst with Directions on Microsoft. The acquisition allows Microsoft to offer tools and services to third-party publishers and advertisers, he said.

The aQuantive buy is just the latest of a series of deals in the online advertising space. Microsoft announced Monday it has closed on the acquisition of advertising exchange AdECN, announced last month. Earlier, it acquired game advertising agency Massive Inc. and mobile ad agency ScreenTonic.

"It's a huge expansion into a complicated set of businesses," Rosoff said. "It will take them a while to figure out how to integrate it all."

As part of the acquisition, several groups are shuffling around under Johnson's platforms division. Brian McAndrews, aQuantive's CEO, will become head of a newly formed advertiser and publisher solutions group at Microsoft. Along with Steve Berkowitz, head of online services, and Satya Nadella, head of search and advertising, McAndrews will report directly to Johnson.

'Change in Direction'

"For Microsoft, it's a little bit of a change in direction," Rosoff said. "This is another core business that is fundamentally different from their current core business. It's going to be a challenge."

Microsoft won't lock in customers to a range of tools and services. "They'll let these businesses run autonomously," Rosoff said. "They have to do that." For example, an advertiser might want to use aQuantive's Avenue A ad agency but place those ads with Google. "To get a bigger piece of the pie, they will have to give some business to their competitors," Rosoff explained. "For the time being, they will run all these businesses side by side," he added.

As is typical when software companies make several purchases in a new area, some of the businesses will succeed and some will fail, Rosoff said. "They'll promote the successful ones and kill off the ones that fail."

With Google in the process of acquiring DoubleClick, Microsoft's purchase of aQuantive puts Redmond in head-to-head competition with Google for "every piece of the advertising puzzle," Rosoff concluded.