Microsoft Buys aQuantive

NEW YORK Microsoft said it would buy aQuantive for $6 billion in cash, a deal disclosed less than 24 hours after WPP Group's $649 million acquisition of 24/7 Real Media.The transaction, which must clear regulatory approval, will wed Microsoft's technology firepower with aQuantive's ad serving and network businesses.It also means Microsoft will own the largest interactive ad agency in the U.S., Avenue A/Razorfish, putting it in the position of both buying and selling online ads. "There's significant value that can be unlocked in this industry," said Kevin Johnson, president of the company's platforms and services group. AQuantive would give Microsoft a "complete end-to-end solution for online advertising." The move underscores the dramatic shift under way in the digital space, as barriers among media companies, technology providers and agencies crumble. With 24/7 Real Media, WPP will have a foothold in selling ad space on publisher's sites, just as Microsoft will now buy ads from rivals like Google and Yahoo!, as well as itself. The aQuantive deal is the largest ever done by Microsoft by three fold. But executives said today on a conference call that the briskly growing digital advertising marketplace (which they estimate at $40 billion) provided enough opportunity for what Johnson called the company's "big bet." "This takes our online ad business to a new level," he said. "We are committed to get a bigger slice of that ... pie." Microsoft has badly trailed Google in the key Internet search market and Yahoo! in brand advertising. While Google made $1 billion last quarter, Microsoft's MSN unit lost $205 million. Google accounts for an estimated 33 percent of the online ad market compared to Microsoft's 7 percent. It has also sat on the sidelines during the recent Internet buying frenzy. It lost out to Google in the bidding for DoubleClick, which was acquired last month for $3.2 billion. AQuantive's Atlas ad server is the main rival to DoubleClick's DART technology. Google's growing domination led to talk that Microsoft would ally with Yahoo!, possibly even buying it out. Instead, Microsoft has gone in a different direction. The transaction will leave it in the position of owning a substantial agency business: two-thirds of aQuantive's revenue comes from Avenue A/Razorfish, which creates Web sites and ad campaigns for clients like Ford, Best Buy and Coors. It is one of the largest buyers of digital media, with $542 million in billings. Microsoft executives were resolute that they had no plans to spin off the agency operations, with Christopher Liddell, Microsoft's CFO, saying, "We bought the company in totality, and that's from a financial perspective how we're looking at it." AQuantive CEO Brian McAndrews will continue to lead the company, reporting to Johnson. The two, along with Microsoft chief advertising strategist Yusuf Mehdi, will work on the integration of the companies."We definitely recognize there will be a perception of a conflict," said Joe Doran, general manager of Microsoft's digital advertising solutions unit, in an interview with Adweek.com. "We want to make sure we draw that distinction for the rest of the ad community. We will be operating Avenue A/Razorfish as a stand-alone business as much as possible." McAndrews said the company was committed to retaining talent in the wake of the transaction, which he believes will give the company the scale to make a bigger impact. "People joined aQuantive because they identified this tremendous opportunity in digital advertising," he said. "They wanted to innovate and win. Our stand-alone plan was doing fine, but the opportunity to take it to the next level ... was too much."

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Microsoft Buys aQuantive

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