Today, Microsoft’s made its biggest purchase in its history for six billion dollars in an effort to out-flank Google. They purchased aQuantive, a competitor in the online advertising industry that parallels – but doesn’t directly compete – with the pay-per-click model. The price is double what Google paid for DoubleClick. aQuantive is the largest online ad agency.
DoubleClick had a yearly revenue of $300 million versus the $442 million for aQuantive. The price for aQuantive was definitely not cheap, considering its net income from last year (“profit”) was $54 million. Ouch! What a deal for aQuantive!
aQuantive’s headquarters are in Seattle, making it a good buy in terms of geographic proximity. But was it a good buy overall? The answer isn’t clear.
Microsoft paid over double the total valuation of aQuantive ($2.8B). That’s a sizeable premium. In other words, the millions of investors across the world put the price tag of aQuantive at roughly $3B and Microsoft came in and bought them for over double. Microsoft must know something that nobody else in the world realizes — or they were getting really desperate to out maneuver Google.
But, if there’s one company in the world that recognizes the immeasurable value of being #1, it’s Microsoft. They bought their way into the top of the pay per action market, and they plan to abuse — er, excuse me — use it.
Still, I think it’s dumb that an operating system manufacturer is buying ad agencies. Just think of the parallel: Apple/Novell/IBM buying aQuantive. It makes no sense. It only makes sense because Microsoft is a monopoly trying to retain its power.
The largest purchase in Microsoft’s history is not a competing software company. It feels as if Microsoft has really strayed from its core vision ever since Billy-G left the helm. Ballmer, I hope you know what you’re doing…
But what do I know, right?
Update: here’s a history lesson.
Well, MS has been in the media business already (MSNBC, right?) – so advertising would kind of fall under it’s “core” business now.