That's because the deal—the largest in Microsoft's history—is just one of many announced in recent months as top Internet players vie to snap up online advertising specialists. These buyers are determined to position themselves front and center to take advantage of the continued record-setting growth in Internet advertising.
"All this money is being spent in order to build large inventories and large positions on the belief many people have that ultimately there will only be a handful of major competitors," said Mark Stahlman, a technology strategist at Gartner Invest, a Gartner Inc. business unit that serves institutional investors.
Another executive agreed. "There's so much [advertising] money that will flow in the next few years that these companies want to be prepared and have the systems in place to take advantage of that," said Gal Trifon, CEO of Eyeblaster, a digital ad campaign management company. "The digital marketing spend continues to grow substantially."
Indeed. Internet advertising revenues in the U.S. totaled $16.90 billion in 2006, according to the Internet Ad Revenue Report by PricewaterhouseCoopers and the Interactive Advertising Bureau. That represented 35% growth over the prior year.
During the same week Microsoft made its announcement, advertising holding company WPP Group said it would buy 24/7 Real Media, and AOL announced it had acquired a controlling interest in Adtech AG, a Frankfurt, Germany-based ad serving company. That same week, AOL announced its acquisition of mobile ad network Third Screen Media.
"Adtech is already in the U.S. market," said Lynda Clarizio, president of Advertising.com, AOL's third-party display ad network. "Our intention is to accelerate their growth of the business in the U.S."
Clarizio said ad networks and ad exchanges are trying to do the same thing: find a way for Web sites to monetize their unsold inventory.
"The exchange business is trying to accomplish the same thing, but doing it in a different way," she said. "We have the optimization technology where we partner with Web sites and acquire their unsold ad inventory, and we take our tools and turn it into something valuable, whereas ad exchanges auction off ad space as a commodity."
Signaling its own keen interest in the ad serving and ad exchange market, Google in April announced a $3.10 billion deal to acquire DoubleClick, after rumors swirled that Microsoft was close to buying it. DoubleClick's core business has been ad serving, but it recently announced the launch of a NASDAQ-style selling exchange. That deal is currently being examined by the Federal Trade Commission.
Rounding out the recent deal activity, Yahoo announced in late April that it had agreed to buy Right Media for $680 million.
Commenting on the Microsoft deal, Forrester Research analyst Shar Van Boskirk wrote in her marketing blog: "The shift to online marketing has at last begun. We in the industry have been talking about the shift away from traditional media into online for the last 10 years. But the medium took time to establish its credibility. I think the intensity and price tags of these acquisitions indicate that some very big media and agency firms are staking their bets on online. They've watched the success of Google with search and want to be in front of the next huge shift of budget into online advertising."
Microsoft said the deal would give it an Internetwide ad platform beyond its current capability of serving ads on its own portal, MSN. Ten-year-old aQuantive is the digital marketing parent of Atlas, an ad serving platform, and Avenue A|Razorfish, an interactive ad agency.
Kevin Johnson, president of Microsoft's Platforms & Services, in a conference call described the acquisition as "a significant milestone in the build-out of our advertising tools and services."
He added: "It strengthens our relationships with advertisers, agencies and publishers by enhancing our current advertising platform with complementary technology. For the first time, we'll be offering display advertising solutions for all ad agencies and publishers on any Web site."
Johnson went on to say: "The combination of aQuantive and Microsoft products and services will help make buying and selling media simpler, smarter and more cost-effective. Advertisers and agencies will get a world-class media buying, planning and campaign management solution to drive strong ROI. Both of these groups have told us this is critical for them as they optimize their reach to audiences across the increasingly fragmented interactive media landscape."
Gartner's Stahlman said the recent deals go way beyond advertising.
"There's more to this than just advertising," he said. "I think what Microsoft, Google and Yahoo are trying to do is build a broader set of services relationships with the customer. Microsoft has historically not been a services business, they've been a products business. And Google has typically been arm's length from its customers."
Stahlman explained that "Advertising looks like a media issue, because it's handled that way by Madison Avenue, but it's also a commerce issue. So if you wind up with 100,000 advertisers as your customers, you have the potential to leverage that relationship into other businesses as well, something ad agencies couldn't do."
Microsoft in particular is moving towards offering a broad set of services to the SMB market, an area that offers the most opportunity for the software giant, Stahlman said.