Microsoft Buys Internet Ad House aQuantive

Microsoft has a lot of cash lying around. That’s pretty much common knowledge at present. It can’t just sit on that money, though. That wouldn’t be a smart thing to do. So it’s gotta move it somewhere. Where to? Well, let’s see. The company is #3 in the world of Web portals. The company probably wants a better seat, and both silver and gold are better the bronze. And, to the best of my knowledge, it is #3 in online ad revenue. My guess is they want to improve their standing in that field as well.

So what does Microsoft want more? Popularity or money? Hmm. It’s got a monopoly on the operating system market; it’s safely “popular” there by default. But online it’s kind of lagging a bit, yes? A quick fix would be great, especially one that has the potential of bringing in many more dollars. So that’s what the company has chosen to go with. For $6bn in cash, Microsoft purchased the advertising network aQuantive. (Don’t feel bad if you’re not familiar with the name. A hunch tells me few are.) A very, very big fix.

$6 billion is a lot of dough, considering that aQuantive’s revenues for 2006 totaled $442 million; the company’s “net income” rang in at $54 mil. Why Microsoft went with aQuantive, we really couldn’t tell you. Maybe because Gates & Co didn’t have to drive too far to do the deal. (aQuantive is based in Seattle.)

No, really, $6 billion is a significant sum. If you take Google’s recent acquisition of the online ad company DoubleClick for $3.1bn, Yahoo!’s purchase of RightMedia for $680 million, and WPP Group’s (global advertising agency) bagging of 24/7 Real Media for $649 million, and add all ‘em all up, the three deals combined fall short of the Microsoft-aQuantive deal. Again, significant sum.

Are each of these buyouts - particularly the last one to come about - all grand signals that the online advertising business is shrinking (consolidating) at the same time it’s expanding? I wouldn’t go so far as to say that, despite TechCrunch editor Michael Arrington’s assertion to that effect. (Apart from WPP’s purchase of 24/7 Real Media.)

Microsoft’s acquisition of aQuantive or Google's purchase of DoubleClick do not necessarily constitute consolidation. Logically, an ad agency would have to purchase another. While Google has built its empire on the backbone that is Adwords, Google’s lifeblood and DoubleClick aren’t likely to become one and the same.

Sure, one could argue that more power in fewer hands is a form of consolidation, but we won’t see a purging of the corporate ladders at DoubleClick, aQuantive, RightMedia, etc., at least not yet. So even with that in mind, the online advertising world appears pretty much the same. Only, now some of it’s biggest [formerly] independent players will be used as leverage in the battle for more eyes and ears by Google, Yahoo!, Microsoft, etc.

The number of players in industry is hardly shrinking. It probably won’t be too long before someone takes the places of the abovementioned. Considering the fact that Internet ads are only starting to really become serious money making machines, we’ve years to go before we see real consolidation in the business sense of the term.