Friday, May 18, 2007

Microsoft's $6 billion Move into Online Advertising

I had blogged earlier today about WPP buying 24/7 Real Media. But, this announcement is a watershed event in the shift to a network-era in advertising. Microsoft today announced that is is buying aQuantive for about $6 billion (representing a premium of about 85% over yesterday's closing price). The $6 billion purchase price is about 2% of Microsoft's market capitalization and is the largest acquisition till date by Microsoft. Steve Ballmer said that:
"Today's announcement represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet."

If history is any indication, companies have more often not been successful in adapting their business models through acquisitions. While horizontal corporate combinations for scale-based advantage have been relatively successful (DaimlerChrysler notwithstanding), many firms have struggled to acquire and assimilate new competencies to get into new areas of operations or radically adapt their business models. Recall Time-Warner and AOL? It will be very interesting and illustrative to see how (and if) Microsoft becomes a dominant force in network-era advertising.

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