Microsoft Buys aQuantive, Sets Up Online Ad Group

Microsoft Monday said it completed its most expensive acquisition ever and is establishing a new online advertising group to battle Google and Yahoo head-to-head.

In May, the company paid US$6 billion for aQuantive, a digital marketing services agency, to help expand its Internet advertising business. The deal, Microsoft largest ever in terms of dollar amount, closed and Microsoft formed the Advertiser and Publisher Solutions (APS) Group that will be headed by former aQuantive CEO Brian McAndrews.

In July, CEO Steve Ballmer emphatically said that Microsoft was investing in new areas, including online advertising where the mindset is to win big.

"We are going to be an advertising company," Ballmer said during the company's annual meeting for financial analysts. "We need to embrace that. We need to be world class at that."

The acquisition of aQuantive is the centerpiece of an online advertising build out that also includes the July purchase of AdECN, which links buyers and sellers of Internet ad space. In May, the company bought ScreenTonic, which delivers location-based ads to mobile devices. And last year, Microsoft bought video game ad firm Massive, which will be used to inject ads into online gaming services such as Xbox Live and MSN games. Terms were not announced for any of those deals.

Last year, Microsoft went live with its adCenter platform, which lets companies by advertising space on Live Search.

The flurry of activity represents Microsoft race with Google and Yahoo to provide the top platform for delivering online advertising.

Google also has been busy, paying $3.1 billion in April to acquire DoubleClick from under Microsoft's nose in a deal that prompted Microsoft aQuantive purchase. Also in April, Yahoo paid $680 million to complete a deal to acquire Right Media.

According to a report by UBS Investment Research in March, Google continues to be No. 1 in worldwide online search revenue, taking $10.5 billion of the $24.5 billion online advertising market in 2006. UBS cited figures from ZenithOptimedia and company reports. Yahoo came in second with $5.6 billion in revenue, while Microsoft was a distant third with $1.6 billion online advertising revenue in 2006.

As part of the close on the aQuantive deal Microsoft also set up its new APS advertising group, which will be responsible for all ad platforms, including aQuantive, MSNDR, AdCenter, and in-game and mobile ads.

Group chief McAndrews will report to Kevin Johnson, president of president of Microsoft's platforms and services division.

As part of the transition, Steve Berkowitz, senior vice president of the online services group, and Satya Nadella, corporate vice president of the search and advertising platform group, will also report to Johnson.

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