• by Joe Mandese  @mp_joemandese, June 29, 2009

Days after unveiling a major digital advertising alliance with Microsoft, Publicis reportedly is discussing an even bigger deal with the software and digital publishing giant that would make it the undisputed leader in the interactive advertising services industry. Microsoft has retained investment banker Morgan Stanley to find a buyer for interactive services shop Razorfish, and Publicis is a leading candidate, reports the Financial Times.

Microsoft acquired Razorfish (formerly Avenue A/Razorfish), as part of its $6 billion acquisition of digital agency holding company aQuantive in 2007. Microsoft has rapidly integrated most of the publisher-facing components of aQuantive's assets, including ad server Atlas, but has maintained an arms-length approach to Razorfish. While ownership of a major digital agency has helped inform Microsoft about the needs of advertisers and agencies, Microsoft executives have maintained that the agency has effectively operated autonomously since the acquisition, raising questions about its long-term fit within Microsoft.

Razorfish is one of the world's largest free-standing interactive advertising shops, and its acquisition by any of the major agency holding companies would alter their rankings in the digital services sector.

According to RECMA's most recent interactive agency report, Razorfish ranks as the fifth largest interactive agency in the world with a global workforce of 1,960 people, just behind Publicis' Modem/Dialog organization, with 2,100 employees.

With an organization of 3,800, WPP's Ogilvy Interactive unit currently is the industry's largest, and has helped give WPP bragging rights as the biggest digital advertising services holding company in the world.

WPP chief Martin Sorrell and Publicis chief Maurice Levy have been especially competitive in their claims of digital marketing services dominance, and Publicis' acquisition of Razorfish would clearly tip the balance sheet in Levy's favor.

Citing unnamed analysts, the Financial Times estimated that Razorfish could fetch as much as $700 million for Microsoft.

Some of Razorfish's top clients include Kraft, Nike and Audi.

For Microsoft, the timing of a divestiture of Razorfish may make sense. The company has accomplished much of what it set out to achieve with its acquisition of aQuantive, amassing a critical mass position in the digital advertising marketplace.

"Microsoft has now grown an advertising business in excess of $2 billion and that's a big number for our company, a big number, and we're very serious about it," Microsoft CEO Steve Ballmer said during a keynote at the Cannes advertising festival in France last week.

During the Cannes festival, Microsoft announced several advertising alliances with agencies, including a multi-tiered deal with Publicis that includes development of both digital content and a customized online ad exchange.

Under the arrangement, Microsoft will back a production pipeline from the Publicis-owned PBJS studio -- with the holding company's clients having the first opportunity to attach advertising to the content. Publicis' VivaKi Nerve Center will also be involved in production strategy.