Microsoft Corp. sought to quell Google Inc.'s growing dominance in the lucrative Internet advertising business Friday by orchestrating its biggest acquisition yet, a $6-billion (U.S.) purchase of an online marketing firm.
Microsoft's offer for Seattle-based aQuantive Inc. represents almost twice what Google paid just last month for privately held DoubleClick Inc. Both technology giants are moving to strengthen their hands in the hot, emerging sector of brokering and managing Internet advertisements.
Microsoft is widely believed to have lost out in a bidding war for DoubleClick, and its all-cash offer for aQuantive, representing an 85-per-cent premium above the firm's market value, is designed to leave little room for a competitor to muscle in.
"We believe it's exactly the right company to buy, and hence we're willing to pay," Microsoft chief financial officer Chris Liddell said on a conference call outlining the Friday.
The move is a huge shift in the Redmond, Wash.-based company's traditional strategy of developing its own businesses from the ground up. Microsoft has built its own search engine and Internet ad brokering system called adCenter, but the efforts have been insufficient to keep pace with Google and, to a lesser extent, Yahoo Inc.
Analysts say Microsoft lost out on acquiring at least two online advertising firms, DoubleClick and 24/7 Real Media Inc., leaving it little choice but to pay a steep premium for aQuantive.
"They were getting very desperate. For all practical purposes, aQuantive was the last property in the market that they could have acquired," said Sameet Sinha, an analyst at Kaufman Bros. LP, an investment banking firm in New York.
"There weren't too many other properties in the market and I think aQuantive is a premium property.
"Obviously, Microsoft thought it was more premium than I thought, but beauty is in the eye of the beholder," Mr. Sinha said.
Founded in 1997, aQuantive's assets include the ad agency AvenueA/Razorfish, a platform for delivering ads online, and a new online advertising network for connecting buyers and sellers.
Services include online media buying, ad campaign management, and search engine optimization.
This is the year when advertisers will spend nearly as much online as they do on radio, according to eMarketer. The market research firm forecasts that the Internet ad market will be worth about $20-billion in 2007 and that market leader Google will command almost one-third of that windfall.
In contrast, Microsoft's online division continues to lose money, posting a loss of $200-million for the three months ended March 31.
Online ad revenue increased 23 per cent, but amounted to a relatively small $456-million.
Marketers are moving their ad dollars online, looking to target well-defined segments of the population.
In response, tech and media companies are scrambling to lay in place the best systems for brokering and managing these advertisements.
Players in the sector have seen demand for their technology and services skyrocket.
Last year, aQuantive posted a 53-per-cent jump in profit to $54-million as sales increased 43 per cent to $442.2-million.
DoubleClick didn't publicly disclose its financials, but some analysts estimated its annual sales at $300-million.
Yahoo, Time Warner Inc. and WPP Group PLC have all recently announced deals to buy an online marketing firm.
