AQuantive deal no silver bullet for Microsoft

Microsoft's planned acquisition of digital advertising and marketing services agency aQuantive will give the company the tools it needs to dig its heels in as a competitor in the rapidly evolving digital advertising market.

But Microsoft now is under pressure to leverage its pricey acquisition as a range of companies -- including technology competitors such as Google and traditional marketing and advertising players such as WPP Group -- jockey for position to sell ads for emerging channels such as digital and online entertainment, analysts say.

Selling advertising is one of many businesses the Internet has reshaped over the last 10 years, as traditional channels such as print and newspaper are rapidly losing share to the range of ways companies can advertise online.

Google Inc. showed everyone how to sell ads by leveraging search-engine result and has all but sewn up this segment of online advertising, analysts say. But now digital entertainment segments such as interactive games and on-demand television programming are emerging as new frontiers, and Microsoft is eyeing those channels -- where it already has investments such as Xbox 360 and an IPTV platform -- going forward as a way to make up for lost time.

"This is less about search than what comes after search, and they want to make sure they are more well positioned for that," said Forrester Research Inc. analyst Shar VanBoskirk.

"It's very challenging for Yahoo or Microsoft, Ask.com or AOL to really catch up to Google on the consumer side," agreed Greg Sterling, principal analyst for Sterling Market Intelligence in Oakland, California. "I think Microsoft sees itself as having an advantage in other areas, such as IPTV, mobile and games."

aQuantive should play nicely to those advantages, giving Microsoft media planning and buying capabilities, as well as ad network capabilities that can help the company match advertiser campaigns with publisher inventory through aQuantive's DRIVEpm service, said Joe Doran, general manger for Microsoft digital advertising solutions.

The acquisition also will give Microsoft something Google will not get with its intended purchase of DoubleClick - a full-service interactive advertising agency in the aQuantive property Avenue A Razorfish. Doran said Microsoft will keep the agency "at arm's length" so it can serve its customers independently.

AQuantive's Atlas set of products, which allow agencies and publishers to manage, develop and serve up ads directly to online properties, also allows Microsoft to sell advertising for sites other than its own, something it currently cannot do with its adCenter platform. Doran said Microsoft plans to integrate adCenter with Atlas to extend the reach of its own paid-search platform, and has no plans to abandon its efforts in this area.

Few would argue the aQuantive deal is a bad move for Microsoft, but it certainly came at a premium -- an 85.4% premium at the time it was announced, to be exact. Microsoft said it will pay $66.50 per share for aQuantive's stock, which closed Thursday at $35.87. However, by the end of Friday, aQuantive's stock had soared to nearly its proposed sale price, closing at $63.79.

The IDG News Service is a Network World affiliate.