FT, IHT : Microsoft’s Me-Too Move

Monday, May 21, 2007

Microsoft said Friday that it would buy the online advertising company aQuantive for about $6 billion, the latest in a flurry of deals for online advertising companies by big Internet and media companies.  The all-cash deal is Microsoft’s largest acquisition ever and comes with an unusually large premium, underscoring just how critical Microsoft believes the acquisition is to its troubled efforts to become a major force in the fast-growing Internet advertising business.  The price, $66.50 a share, is 85% more than aQuantive’s closing stock prince of $35.87 Thursday…..Microsoft has traditionally focused on small deals to acquire new technologies.  The most it had paid previously was $1.45bn for the Danish software company Navision five years ago…..The deal comes on the heels of Google’s recent agreement to buy DoubleClick for $3.1 billion, as well as the acquisitions of RightMedia by Yahoo and 24/7 RealMedia by the advertising company WPP Group.  Microsoft, which had tried unsuccessfully to buy DoubleClick, faced competition for aQuantive, but was determined not to be outbid this time, executives said during a conference call.

AdSpending TN
(click for larger image)

Microsoft has struggled to compete in the online advertising market, particularly against Google, which dominates the field.  Until now, Microsoft has sold ads on its MSN portal and used a technology called AdCenter to sell ads linked to Internet searches, a booming business, and the cornerstone of Google’s power.  But Microsoft’s share of the search business has steadily declined, limiting the effectiveness of AdCenter.  With aQuantive, Microsoft will be able to help sell and broker ads on sites across the Web, a business that is seen as increasingly important as advertising continues to shift online.  The acquisitions of DoubleClick and RightMedia by Google and Yahoo were also intended to bolster those companies’ efforts to sell and broker ads on myriad Web sites…..Forecasters at ZenithOptimedia, a media buying agency, predict that Internet ad spending will total $31 billion globally this year, a 28% increase from last year.  In terms of market share, the Internet has already passed outdoor advertising, and will pass radio next year, Zenith Optimedia says…..The boom in Internet advertising is also reshaping the advertising pipeline, with online media owners like Google, Yahoo and Microsoft’s MSN increasingly moving into areas that used to be dominated by advertising companies like Omnicom Group, WPP and Publicis Groupe.  In the offline world, there has generally been a clear distinction between media outlets and advertising agencies, which create the ads and buy time or space to run them.  On the Internet, that line has been blurred, with portals like Google increasingly pushing into “upstream” areas like media planning and buying…..There are signs of friction as online media owners like Google, with their deep pockets, expand…..”It raises issues about whether we are prepared to give Google data that’s very valuable,”…..”Clients will be concerned over the access Google may have to information that is owned by them.”….

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