| SAN FRANCISCO: 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 firms 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 percent more than aQuantive’s closing stock prince of $35.87 Thursday.
“It puts us in the game, if you like,” said Chris Dobson, head of global advertising sales at Microsoft. “If you ever had any doubt that Microsoft was going to be big in the online advertising space, this should make it clear that it will.”
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 in a conference call.
Based in Seattle, aQuantive has several major businesses. Its Atlas unit competes with DoubleClick and is used by advertisers and publishers to deliver ads online when users visit a Web page. The company also owns AvenueA/Razorfish, a leading interactive ad agency, and other digital businesses.
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.
Microsoft has asked regulators to scrutinize the Google-DoubleClick deal, which it said would reduce competition. But Brad Smith, Microsoft’s senior vice president and general counsel, contended that Microsoft’s acquisition of aQuantive would promote competition.
Forecasters at ZenithOptimedia, a media buying agency, predict that Internet ad spending will total $31 billion globally this year, a 28 percent 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.
“We’re going to see people taking tens of millions of dollars out of television advertising and putting it into online, and that’s what all these guys are betting on,” said Shar VanBoskirk, an analyst at Forrester Research.
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.
“We’ve suddenly got two different sides that are competing in the same area, in the advertising companies and the media owners,” VanBoskirk said.
There are signs of friction as online media owners like Google, with their deep pockets, expand. Google’s agreement to buy DoubleClick was criticized by Sir Martin Sorrell, chief executive of WPP Group who said it could trouble marketers.
“It raises issues about whether we are prepared to give Google data that’s very valuable,” he said last month as WPP gave a quarterly financial update. “Clients will be concerned over the access Google may have to information that is owned by them.”
While companies like 24/7 and DoubleClick focus primarily on distributing Internet advertising to online media owners, aQuantive gives Microsoft some broader capabilities. In addition to the Atlas ad serving platform, it also creates ads and plans media strategy, among other things, moving Microsoft into areas in which Google has not yet staked out a claim.
“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,” Microsoft’s chief executive, Steven Ballmer, said in a statement.
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