Microsoft to acquire aQuantive

Microsoft Corp. announced Friday it will acquire aQuantive Inc. for $66.50 per share in an all-cash transaction valued at about $6 billion in an effort to expand on the company’s goal to provide the advertising industry with an Internet-wide advertising platform.

This news comes shortly after Internet giant Google and competitor Yahoo each announced plans to acquire DoubleClick and RightMedia, respectively.

“Microsoft’s acquisition of aQuantive is a direct response to the Yahoo/RightMedia and Google/DoubleClick deals,” said Roy Shkedi, CEO of AlmondNet. “RightMedia and DoubleClick provide Yahoo and Google with access to the ad space of a large number of publishers, enabling them and others using their exchanges to better target that ad space using behavioral data, therefore making the market more efficient.”

After losing DoubleClick to Google, Microsoft’s aQuantive purchase follows the same growth strategy: increase market share and get access to more ad space. AQuantive is an advertiser-centric company – it generates the majority of its revenues from providing services and technologies to advertisers, Mr. Shkedi said.

“Microsoft had to step up big time to compete against the GoogleClick arsenal on both sides of the aisle with publishing sellers and advertising buyers of online ad inventory,” said Dana Ghavami, CEO, CheckM8 Inc. “After these recent acquisitions, advertisers and publishers must ask themselves a tough question: What kind of control do I have in the near-future with two to three major clearinghouses of my online ad inventory?”

Microsoft plans to strengthen relationships with advertisers, agencies and publishers through the purchase of aQuantive by enhancing the company’s advertising platforms and services beyond its current capabilities to serve MSN.

Shar VanBoskirk posted some initial thoughts on the Forrester Marketing Blog this morning.

“I think this spate of acquisitions means the definition of what a media company is changing,” she said. “Today, consumers are so bombarded with media, and online loyalty is so hard to secure that it is very difficult for advertisers to select media properties that uniquely capture their user. So, media companies have to develop different ways to differentiate from each other.”

“While Microsoft gains market share in terms of advertising budgets via the acquisition, representing both the ‘sell side’ as well as the ‘buy side’ is tricky to accomplish, raising for example questions in advertisers’ minds whether they could trust a company that sells ad space to be responsible of their own ad space buying,” Mr. Shkedi said. “Overcoming this challenge will be crucial for the acquisition success with impact on the vast amount of advertising budgets currently represented by the aQuantive advertisers.”

AQuantive Inc. is a global digital marketing company, founded in 1997. It is the parent company of Avenue A | Razorfish, an interactive agency, and five international agencies: DNA, Amnesia, Neue Digitale, e-Crusade and Duke.

“The advertising industry is evolving and growing at an incredible pace, moving increasingly toward online and IP-served platforms, which dramatically increases the importance of software for this industry,” said Steve Ballmer, CEO of Microsoft, in a statement. “Today’s announcement represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network.”

While Microsoft claims that the acquisition is a result of industry needs, some in the industry feel that Microsoft has ulterior motives.

“This move is essentially Microsoft’s left-hook in response to Yahoo’s and Google’s recent acquisitions,” said Samir Patel, CEO of SearchForce. “This acquisition makes Microsoft a stronger player in the tools and services side of the online advertising business, but they still need to strengthen their distribution partnerships for their MSN adCenter. Their next move could be the purchase of online advertising networks that can get MSN adCenter access to more advertisers, publishers and traffic.”

The acquisition will give Microsoft increased depth in next generation advertising solutions and environments like cross media planning, video-on-demand and IPTV.

“The shift to online marketing has at last begun,” Ms. VanBoskirk said. “We in the industry have been talking about the shift away from traditional media into online for the last 10 years. But the medium took time to establish its credibility. I think the intensity and price tags of these acquisitions indicates that some very big media and agency firms are staking their bets on online. They’ve watched the success of Google with search, and want to be in front of the next huge shift of budget into online advertising.”

Advertisers and ad agencies will be provided with media planning, buying and campaign management services. Media owners and publishers will have access to inventory optimization and monetization services across a suite of rich media, video and targeting capabilities.

The deal is expected to be complete in the first half of 2008. AQuantive has approximately 2600 employees. The company will continue to operate from its Seattle headquarters, only now it will serve as part of Microsoft’s online services business.

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