Microsoft New Move In SEM

For $6 billion, Microsoft buys huge slice of online-ad pie

Microsoft on Friday announced the biggest acquisition in company history in a bid to grab more of what Microsoft estimates is a $40 billion global digital-advertising market from arch-competitor Google. The Redmond company that made its fortune building software will pay a premium price of $6 billion for aQuantive, a Seattle-based pioneer in next-generation advertising.

The high-stakes deal, which will be reviewed by regulators, is the latest in a string of recent advertising acquisitions that promise to reshape how commercials are bought, sold and presented online -- and who profits.

The global technology giant has shied away from transactions of this size, spending $1 billion or more on acquisitions only four other times in its history. Its tendency has been to acquire smaller companies or just their technology, avoiding the potential pitfalls of combining large work forces.

If the combination with aQuantive goes well -- a process the companies will be planning in the next two months -- Microsoft executives could be emboldened to go after other major deals, said Mark Anderson, a technology analyst in Friday Harbor.

More high-profile acquisitions could also juice Microsoft's stock price, Anderson said, which has been largely stagnant over the past six years, much to investors' chagrin.
Microsoft shares dipped slightly on Friday to close at $30.83 each. Meanwhile, aQuantive stock skyrocketed almost $28, or 77.8 percent, to $63.79 a share. Microsoft is planning to pay $66.50 in cash for each aQuantive share.

No bargain buy

Microsoft is paying a premium price -- well above what several analysts thought aQuantive was worth -- likely because of a competitive bidding process and a frenzy of recent acquisitions in the industry.

In April, Google, which makes most of its money selling advertising next to results from its market-leading Internet search engine, announced a $3.1 billion purchase of DoubleClick, the biggest seller of online-display advertising, such as the banners that run along the top and sides of Web sites.

Microsoft was rumored to be a bidder for DoubleClick and has since complained to regulators that the deal puts too much control in the hands of one company -- the same charge that landed Microsoft in the protracted antitrust battle over its monopoly of computer operating-system software.

"Yahoo! was making moves, everybody was making moves, and Microsoft had visibly lost out on a couple of these battles at a time when they've got more money than God in the bank," Anderson said.

Asked whether the acquisition is in part to prevent a competitor from getting aQuantive -- one the last large independent digital-advertising houses -- Johnson talked only of the opportunity.
"We looked at how rapidly this industry is consolidating and unfolding, and we felt like now was the time to put a stake in the ground that says we are going to take our advertising platform to the next level and we are committed to this industry for the future growth of our company," Johnson said.