Intent on being a serious player in the digital advertising future, Microsoft took no chances with its $6 billion acquisition of aQuantive, at an 85% premium.
"The match makes sense to me. It solves half of Microsoft's problem. But it doesn't address Microsoft's need to increase its share of traffic to search," said Jordan Rohan, managing director and Internet analyst with RBC Capital Markets.
With Microsoft generating more than $6 billion in cash flow this quarter, it's but a 90-day investment, he notes.
"The premium is unbelievable, but as I said two weeks ago, this is a wacky world. I understand why they bought them, but I don't understand why it was $6 billion, and not $5 billion or $4 billion." (See a video of Jordan Rohan assessing the "wacky" state of digital M&A valuations at the Search Insider Summit.)
The deal was not about the $40 billion in interactive advertising Microsoft projects marketers will spend this year, said Kevin Johnson, president of Microsoft's platforms and services division, in a conference call Friday morning. Instead, it's a bet on the future of the total $600 billion advertising market as spending continues to shift to interactive channels, he said, adding that Microsoft now has a soup-to-nuts offering.
"As we look at how the market is evolving, we think there will only be two large-scale advertising platforms ... and we will be one of them," Joe Doran, general manager of Microsoft's digital advertising solutions unit, told OnlineMediaDaily. (The other being Google/DoubleClick.)
"The net of this is we believe Google/DoubleClick decreases competition, while our acquisition of aQuantive increases competition," he added. "Google and DoubleClick are delivering the same services. Between our assets and those of aQuantive, we just don't compete in the same markets. This allows us to enter into new markets."
AQuantive has three business units: Atlas, the ad-serving technology; DRIVEpm, the advertising network, and Avenue A|Razorfish, a leading digital advertising agency. The first two units will give Microsoft a bigger role in brokering ads outside its network and a way to better monetize its own pages within MSN.
As for Avenue A|Razorfish, Dolan said the agency will continue to operate as an independent entity at arms' length. (See related OnlineMediaDaily story on Microsoft entering the ad agency business.)
"I think this is great news for marketers," Dolan added. "Marketers have a clear choice to get the solutions they need. We believe we will make media buying and planning easier, cheaper and more efficient.
"The agencies and the marketers told us (two weeks ago) at our strategic account summit: You need to take a leadership position," Dolan continued. "You need to give us world-class media buying. You need to make tools to make ROI easier. This acquisition is a commitment that we want to be here for the long haul. We're not sure what the exact answer will be, but we will get it done."
Earlier this month, Microsoft acquired ScreenTonic, a European mobile marketing firm, with the intent of using it as the springboard to accelerate a global mobile ad business.
Rohan still sees Microsoft making a move for Yahoo, but not until the end of 2007. "My guess is that Yahoo was a very interested party in aQuantive, but didn't win," Rohan said.
"Yahoo has pressures in almost every direction," he added. "They're losing page views. Panama is a benign positive. The antes have been increased so significantly that suddenly they appear to be undercapitalized."
Last week, Yahoo announced it named M&A veteran Blake Jorgensen, the co-founder of San Francisco investment bank Thomas Weisel Partners, to succeed Susan Decker as CFO. He starts June 4.
Weekend speculation already had Yahoo working on a takeover offer for Bebo, the most popular social networking site in Britain. The Telegraph reported Yahoo is willing to pay up to $1 billion to seal the deal with Bebo, which has 25 million registered users.
As for Microsoft, the question is not if they will make more investments in the space, just when.
'07 Digital Advertising M&A Deals
24/7 Real Media