Microsoft on Tuesday announced it was taking a $6.2 billion write-down on the Online Services Division segment in its fourth-quarter earnings report. Most of that is attributed to its aQuantive acquisition.
Microsoft acquired aQuantive for $6.3 billion in cash in May 2007. Microsoft did the deal in response to Google's DoubleClick acquisition. At the time, Microsoft CEO Steve Ballmer said the acquisition represented the next step in the evolution of the company's ad network.
"While the aQuantive acquisition continues to provide tools for Microsoft's online advertising efforts, the acquisition did not accelerate growth to the degree anticipated, contributing to the write-down," Microsoft said in a statement.
Anatomy of aQuantive
With the aQuantive deal, Microsoft got Atlas, DRIVEpm, and Avenue A | Razorfish. Atlas competes with DoubleClick. Its claim to fame is the Atlas Media Console, a tool set that offers agencies and advertisers capabilities to maximize ROI, and the Atlas Publisher platform that enables publishers to maximize monetization opportunities for their content.
DRIVEpm, somewhat similar to Yahoo's Right Media, provides services to publishers and advertisers that match advertiser campaigns with publisher inventory. Finally, Avenue A | Razorfish is one of the largest interactive ad agencies in the world. The firm offers advertisers digital marketing consultation, media planning and buying, and creative services that help them use the online channel to build profitable relationships with their customers.
Microsoft did work to insert a positive story line into its Online Services Division business. Redmond said Bing search share in the U.S. has been increasing, revenue per search has been growing, MSN is the No. 1 portal in 29 markets worldwide and the company's partnership with Yahoo! has continued to expand geographically.
Under Resourced Division?
Rob Enderle, principal analyst at the Enderle Group, said the core of the issue is that Microsoft acquired a company beyond its area of expertise.
"The difficulty for Microsoft -- which I'd say is probably a difficulty for any firm that's being run by someone who focuses a lot on the cost and lacks vision -- is that you tend to under-resource," Enderle told us. "It's not just about throwing money at it, because it would be money poorly spent. It a case of fundamentally not understanding the business well enough to know how much to pay for something until you invariably either over or underpay."
Microsoft's Online Services Division still behaves like it's under resourced, Enderle said. Microsoft is competing with a larger and more powerful company in online advertising, namely Google. Typically, he said, the less-dominant player has to find a way to out-resource the dominant player.
"It's the same scenario for anyone who competes with Microsoft in one of Microsoft's core areas," Enderle said. "Historically the efforts have been under-resourced and they have failed, unless Microsoft stumbled badly, which is what allowed Google to come in on Android on phones."