Microsoft Makes Big Move in Online Advertising with aQuantive Buy

Published: May 23, 2007

by Alex Woodie

Microsoft will buy the online advertising firm aQuantive in an all-cash deal worth $6 billion, the software giant announced last week.

aQuantive is a digital marketing firm that provides a range of services for clients looking to generate leads on the Internet and boost their online presence. The company operates three divisions, including Avenue A | Razorfish, which provides digital marketing services; Atlas, which provides digital marketing technologies, and DRIVEpm, which provides digital marketing media, access to networks, and behavior analysis. The company is based in Seattle, Washington, and had sales of $442 million last year.

Microsoft sees in aQuantive the opportunity to boost its lagging online advertising business and compete more effectively against Google and Yahoo!, which dominate the space.

Steve Ballmer, Microsoft's chief executive officer, says the acquisition will help Microsoft keep pace with the rapidly changing online ad biz. "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 including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet," he says. "Microsoft is intensely committed to creating a thriving advertising business."

"Combining the talented people and deep technology and service expertise of these two companies will help make buying and selling media simpler, smarter, and more cost effective for advertisers, agencies, and publishers alike," says Kevin Johnson, president of the Platforms and Services Division at Microsoft, which just lost the Windows Server business to the Microsoft Business Division, but which still includes the Online Services business, in addition to the core Windows operating system development team.

In a conference call, Steve Berkowitz, senior vice president of the Online Services Group at Microsoft, explained the significance of the aQuantive buy. "We look at the aQuantive acquisition as one of revenue opportunity and relationship opportunity," he says. "We didn't have a strong publisher-facing relationship. . . . We have a very strong advertiser connection, but we didn't have the tools for the advertisers."

Berkowitz expects great things with aQuantive connecting Microsoft with advertisers and publishers. "This is a business of scale, and once you hit that scale, because there is no cost of goods, per se . . . you actually can start to create a tremendous amount of leverage in this business. We haven't yet hit that tipping point as a company. I believe we will, and once we will I think that you'll start to see the business grow dramatically fast."

The deal calls for Microsoft to acquire all outstanding shares of aQuantive's stock, which is traded on the Nasdaq National Market, for $66.50 per share. When completed, it will be Microsoft's biggest acquisition ever.

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