« RSS To HTML - How To Convert RSS Feeds into HTML

Microsoft upstages Google, joined online advertising

The company’s money-losing MSN online division has been stuck in third place
in Internet search for some time. And it was starting to look like it
was going to remain an also-ran for the foreseeable future.

Microsoft lost out to Google (GOOG) in the bidding war for
DoubleClick. Madison Avenue ad agency (WPPGY) wound up scooping up 24/7
Real Media (TFSM), another company that Microsoft was said to be
pursuing. And those merger talks with Yahoo (YHOO) don’t appear to be
going anywhere.

But fortunately for Mister Softee, all it had to do was venture out
in its own backyard to find a company that instantly catapults it into
a leadership position in the online ad business. Microsoft’s $6 billion offer for Seattle-based aQuantive (AQNT) is a brilliant move for the company.

aQuantive operates in three different
aspects of the online advertising world. Its digital marketing services
business includes Avenue A/Razorfish, an online ad agency. It competes
closely against Digitas, which was recently purchased by traditional ad
agency Publicis.

aQuantive also owns a digital marketing tech division. The company’s
Atlas product serves and places ads. So this business competes mainly
against DoubleClick. Finally, aQuantive’s digital performance media
business owns DrivePM, an online ad network that competes with the
likes of 24/7 and ValueClick, the last remaining publcly traded online ad firm that hasn’t been bought by a larger company.

So in one fell swoop, Microsoft is bulking up in several key aspects
of the online ad business. It probably won’t need to make any more
significant purchases. If Microsoft had been successful in its efforts
to acquire DoubleClick or 24/7, the company may have still had some
holes to fill.

This could be one reason why Microsoft is deciding to pay such a
gargantuan 85 percent premium for aQuantive. On the surface, the $6
billion price tag seems more than a tad frothy. But this is Microsoft
after all: $6 billion accounts for only about 2 percent of the
company’s $293 billion market value. Even its cash on hand is more than
$28 billion.

“It’s expensive but once you get an environment where people are
bidding up assets, you definitely will have to pay a premium for
things. In the grand scheme of things, it’s not that big a deal. What
will be more important is what Microsoft does with those assets. But
this is a further commitment to strengthen MSN,” said Richard Williams,
an analyst with Summit Analytic Partners, an independent research firm
focusing on the software business.

What’s more, Microsoft is paying for the purchase in cash and not
stock. So MSFT owners don’t have to worry about more shares flooding
the market, which could hurt earnings per share. To that end, Microsoft
chief financial officer Christopher Liddell told analysts during a
confernce call Friday morning that the company felt no need to change
its financial guidance for fiscal 2008, which is when the deal is
expected to close.

Liddell boasted about how
there were only a few companies in the online ad world that would give
Microsoft “critical mass.” And certainly, Microsoft needed critical
mass to be considered a more serious player in online advertising.