July 3, 2012
Microsoft Fails To Out-Google The Google
John Neumann for redOrbit.com - Your Universe Online
Microsoft officially admitted this week to the failure of its push into digital advertising by announcing it would take a $6.2 billion accounting charge in its online services division for a failed acquisition of aQuantive, a digital advertising company that Microsoft bought in 2007, writes Quentin Hardy and Michael J. De Le Merced for New York Time's DealBook.
The write-down will effectively wipe out Microsoft´s fourth-quarter profit and the Redmond software giant acknowledged the loss due to, “expectations for future growth and profitability are lower than previous estimates.”
“It´s disappointing, but it is not a shock at this point,” said Brendan Barnicle, senior research analyst at Pacific Crest Securities. “The industry has evolved beyond where aQuantive was when Microsoft bought it.”
Purchasing aQuantive was a sound decision, on paper anyway, when technology and traditional advertising firms were desperately seeking footholds in the world of internet display advertising. aQuantive was a prime mover in the industry at the time and Microsoft at least considered the price as a good deal.
Even though the purchase failed to accelerate growth as much as anticipated at the company´s money-losing online division, Microsoft insists its online division has shown improvement in other areas, including revenue per search and marketshare gains for the Bing search engine.
The acquisition came about after a round of similar buyouts. Google purchased a similar firm, DoubleClick, for $3.1 billion. Online search was finding a foothold at the time with Yahoo paying $680 million for online ad exchange Right Media, and WPP Group´s purchase of 24/7 Real Media.
However, the company hasn´t boosted revenue per search as much as it had projected, reports Bass. The distribution deals in which Microsoft pays companies like Dell and Verizon Wireless have added customers, though at a high cost, said a person with knowledge of the matter, who´s not authorized to speak publicly.
“This is an accounting decision that the company made based on how the business is performing relative to the projections we had made during the past five years,” Microsoft Chief Executive Officer Steve Ballmer and online unit President Qi Lu, wrote in an e-mail to employees obtained by Bloomberg.
“We want to be very clear that we are strongly committed to a strong and financially successful” online division, according to the memo, whose authenticity was confirmed by Microsoft.
Microsoft still has some innovative ad technology products, Darren Herman, chief digital media officer at the Media Kitchen, a digital advertising agency, told the New York Times. It may be using some of its partnerships to learn more about the online ad business as a prelude to an actual purchase, he said.
“There are a lot of people that think that Microsoft and App Nexus are going to link up,” Mr. Herman said. “It´s just a matter of when, not if.” Nonetheless, the end of possible competitor to Google´s DoubleClick ad placement engine left some even outside Microsoft feeling the sting.