Microsoft Buys Online-Ad Company
Deal a Step Toward More Web Offerings

By Jessica Mintz
Associated Press
Tuesday, August 14, 2007

Microsoft completed its $6 billion buyout of digital marketing company aQuantive yesterday and now plans to challenge Yahoo and Google in the online advertising business.

"Our goal is to be No. 1 or No. 2," Kevin Johnson, president of Microsoft's platforms and services division, said in an interview last week.

Microsoft, which lags behind Yahoo and Google in search traffic and advertising revenue, is trying to shift toward offering software applications over the Internet. Microsoft hopes its acquisition of aQuantive will allay some worries about staying profitable as it makes the shift. Johnson said units in the two companies are being combined and reorganized to provide an advertising platform for new Web-based services.

An advertising and publishing group is being formed, to be led by aQuantive chief executive Brian P. McAndrews. The unit includes aQuantive's ad-serving technologies and tools and DrivePM, which extends Microsoft's ability to sell Web ads to aQuantive's broad network of top sites.

The unit also includes Microsoft's tools for selling search and display ads across its own sites, as well as Massive, a company Microsoft bought last year for inserting ads within video games, and ScreenTonic, a mobile advertising company Microsoft acquired in May.

Microsoft's online-services group, led by Steve Berkowitz, will continue to focus on expanding the company's audience on sites such as MSN and Live Search and on finding new advertising partnerships such as the one recently announced with the social news site

Johnson and McAndrews would not say how long it could take to integrate their technology or present a united set of tools and options to customers. They also declined to say which measures, besides the growth in online ad revenue, the company will share with investors who want to assess whether the deal is successful.

Google's dominance has come primarily from its prowess at earning revenue from ads placed next to Web search results. Google performed nearly half of all U.S. Web searches in June, Yahoo had about 25 percent, and Microsoft had 13 percent, according to the audience-measurement firm ComScore.

But some analysts see the search-ad market starting to stagnate and think Microsoft's bid for aQuantive, one of a slate of buyouts in the sector this spring, indicates a shift in online advertising.

"The next wave of growth is going to be big brands shifting their advertising budgets, still largely invested in newspapers and TV, into the Internet in earnest," said Andrew Frank, an analyst at the Gartner research group.

Those marketers will be looking for much more than text links. Microsoft, with aQuantive, and Google, with its proposed $3.1 billion buyout of online ad company DoubleClick, are jockeying to put together a broad range of offerings from multimedia and display ads to mobile, video, Internet television and video games.

Analysts and online advertising players say Microsoft must get more people to visit its Web sites and beef up technology that helps marketers target advertising while at the same time protecting Web surfers' personal information. The company will also have to provide tools that allow marketers to interpret a huge amount of information about how Web surfers interacted with the ads to see if their money was well-spent.

Some question whether Microsoft can divert enough focus from the software and entertainment businesses to succeed as an online advertising company.

Youssef Squali, an analyst at Jefferies & Co., recalls how Microsoft executives were talking about becoming an advertising powerhouse in 2004. "Three years later, they've not been able to move the needle," he said. "Search -- they have lost a fair amount of market share and they're not really getting much traction."

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