Thursday, May 24, 2007

Microsoft buys aQuantive

A version of this piece was published in Marketing in 2007

Microsoft buys aQuantive
Who own AvenueA/Razorfish
Who have Microsoft/MSN as a client
Whose Performance Plus system is driven by Arbiter
Which belongs to aQuantive
And they all live happily in Seattle

Adserving is the technical bedrock for both publishers and agencies.  For publishers it acts like a carousel projector, placing banner ads into web pages and managing their rotation and display so that the publisher’s revenue is maximised.  For agencies, it allows the performance of hundreds of different ads on many different sites all to be tracked in one place, and for copy to be targeted based on behavioural or other audience information. 

For both sides, adserving is about two things.  Data, and control.  The ability to make advertising accountable, and to act on that information quickly and efficiently.  So fundamental to the business are these technologies, that the online media business simply couldn’t exist without them.

So as the last few weeks have seen a flurry of significant deals in the adserving space, agencies and publishers alike have been staying close to the game.

Like the small tremors felt before a big quake, early signs started last year when Doubleclick bought German-based Falk, an adserving company with strength at home and in Benelux. 

But the ramp up started just a few weeks ago, with Doubleclick going on to acquire the UK’s Tangozebra for £15m, and really warmed up when in turn Doubleclick was snapped up by Google for $3.1bn following a bitter battle with Yahoo and Microsoft.

Microsoft had for years unsuccessfully tried to develop an adserver, and as operator of one of the world’s biggest media websites was loath to put its data in the hands of a bitter rival in the search space.

Having lost out, irony fans were pleased to see the software giant calling for competition investigations into the deal.  But the ink was hardly dry on the letter of intent when Yahoo sucked up the remaining stake in Rightmedia.  Two weeks later, AOL bought Adtech in Germany, and on the same day WPP announced their acquisition of 24/7 Realmedia, an adserving and media sales network.

It wasn’t WPP’s first foray into media sales, but the absorption of an adserver underlined just how concerned Sir Martin Sorrell must have become about the power that the Doubleclick deal might give his frienemy.  Whether it’s to the benefit of WPP’s clients to have an in-house solution is for another article, but it started to look like Microsoft were always the bridesmaid, never the bride – and they were feeling the pressure.

Which brought them to the acquisition of aQuantive, owners of the Atlas adserving business.  If observers had thought the Google/Doubleclick deal expensive at just over ten times the previous year’s revenue according to some estimates, this was even saltier at nearly fourteen times 2006 revenues - $6bn.  Given that Microsoft has been rumoured to have made an offer for Doubleclick at just under seven times revenue, they had to dig deep to play catchup.

And it’s deeper still than it looks.  aQuantive generated more than half of their revenues (58% last quarter) from their ownership of AvenueA/Razorfish – a digital agency business, and got just one-quarter (27%) of their revenues from Atlas, their adserving business.

It’s a bit like buying the house because you like the garage.  Microsoft have ended up with a whole raft of other businesses that they’ll probably dispose of, just to make sure they got the adserver they wanted.

So the music’s stopped and everyone’s sat down.  Is this it?

The truth is, nobody knows how big the online economy is going to be, but by the scale of some of these investments relative to their current income, some people are really betting big.  Adserving is just one service business in the internet economy – there are going to be many more rounds of musical chairs before this year’s out.