• by Joe Mandese  @mp_joemandese, July 13, 2009

Microsoft gained a strategic foothold on Madison Avenue when it acquired Razorfish as part of its purchase of agency holding company aQuantive in 2007 for $6 billion, and it seems it doesn't want to lose that grip even as it begins the process of divesting the interactive ad shop to another of the major agency holding companies. Among the terms Microsoft is exploring is an enterprise deal that would include a long-term agreement to utilize Microsoft's technology, software and advertising assets.

A sale of Razorfish, one of the largest and best regarded free-standing digital advertising agencies, has been considered a fait accompli ever since it was acquired by Microsoft, mainly because of perceptions of conflict and the need for Microsoft to maintain a neutral position on Madison Avenue if it hopes to build strong relationships with other ad shops that might compete with Razorfish. And even as Microsoft raced to almost immediately integrate other elements of aQuantive, including online ad server Atlas DMT, it has maintained an arms-length relationship with Razorfish. Now that Microsoft has officially put Razorfish on the block, it appears that the software and technology giant would like to parlay that strategic connection into an even bigger advertising organization - most likely Publicis, or WPP - or one of the other Razorfish suitors it has begun negotiating terms with.

According to a weekend report by The Wall Street Journal, Microsoft has retained investment bank Morgan Stanley to negotiate a sale of Razorfish, and has already started talks with Publicis, WPP, Omnicom, and Japanese ad giant Dentsu, which currently operates a joint venture with Razorfish. A report by trade magazine Advertising Age this morning added General Atlantic, the private equity firm that has taken a strategic stake in AKQA, another big, free-standing digital shop not affiliated with a major agency holding company, to the list.

Other suitors are likely to emerge, but the logical short list will be Publicis and WPP, which have been in an almost feudal battle for digital advertising dominance. Both holding companies emphasize digital growth as the key to their future, and there has been something of a pissing match brewing in the public comments of Publicis chief Maurice Levy and WPP's Martin Sorrell over whose digital operations are bigger.

But Publicis' approach may be better suited for a deal with Microsoft. Part of the mandate of Publicis' VivaKi unit is to foster deeper strategic relationships with the major media vendors. It struck such an agreement with Google more than a year ago, and coincidentally came out of it as the successful bidder in Google's sale of Performics, a search specialty unit that was part of Google's acquisition of DoubleClick, but which needed to be spun off for the same kind of "neutrality" issues that is now prompting Microsoft to divest of Razorfish. So if you want a precedent in that kind of deal, you need look no further than Publicis and Google. The losing bidder on that deal, by the way, was WPP.

Of course, the fact that Razorfish is now officially in play should attract other suitors interested in stepping up their digital advertising assets at a time when most of Madison Avenue is proclaiming it to be its future. The real question is how many see it as the kind of strategic imperative that would lead to a long-term, enterprise-level deal with one of the industry's most powerful suppliers.