Microsoft, AQuantive Close Deal

Computer Titan Splits Its Ad Business Into Three Groups After Acquisition

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NEW YORK (AdAge.com) -- The $6 billion Microsoft acquisition of aQuantive has closed, and the software giant has reorganized its ad-focused business into three groups.
AQuantive's three businesses will fall under the advertiser/publisher solutions group.
AQuantive's three businesses will fall under the advertiser/publisher solutions group.

Within the new advertising organization, aQuantive CEO Brian McAndrews leads the advertiser- and publisher-solutions group; Steve Berkowitz helms the online-services group responsible for audience; and Satya Nadella is responsible for the search and ad-platform group, which is focused on technology. All report to Kevin Johnson, president of Microsoft's online platform and services group.

Two ad-sales groups
The reorg will have two ad-sales groups, one under Mr. McAndrews, which will sell the ad platform and the ad network, and the Microsoft Digital Ad Sales group within Mr. Berkowitz's group, which will sell more of the high-end branded ads.

AQuantive has three businesses: an ad-serving technology, an ad network and an online-marketing firm, Avenue A/ Razorfish; all stay under Mr McAndrews' purview as part of the advertiser/publisher solutions group.

In an interview this morning, Messrs. Johnson and McAndrews emphasized the importance of owning the ad platform in both online and other emerging areas. Having a platform that improves the efficiency of the buying and selling process; uses sophisticated data and algorithms to improve ad serving; and offers tools for advertisers and publishers, such as campaign planning tools and optimization tools, "is a revenue and profit driver -- that's our view," Mr. Johnson said when asked whether ad serving is becoming a commodity.

The moves by Microsoft echo those made by Yahoo late last year, in which the web portal spawned three groups: one responsible for audience, one for publisher and advertiser relationships, and one for technology.

Microsoft, as it has in the past, touted a $40 billion online ad market this year and a $600 billion global ad market.
Kevin Johnson, president of Microsoft's online platform and services group
Kevin Johnson, president of Microsoft's online platform and services group

"We do intend to be a player as all media become digital, as has always been our vision," Mr. McAndrews said.

Investment in emerging media
He added that there will be investment to grow in other emerging media and said Microsoft and aQuantive have long shared that vision, citing Atlas' investment in ad serving for video on demand and online video and Microsoft's investment in IPTV. (Atlas is Avenue A's ad-serving unit.) When asked if Microsoft were still in an acquisitive mood, the execs didn't rule anything out but said they were happy with the assets they have.

"Our short-term focus is to continue the integration process that has begun," Mr. McAndrews said. "There are no gaping holes at all."

Yosef Mehdi, who had been Microsoft's chief advertising strategist, will move to a new role under Mr. Johnson that was described as "very large strategic partnerships" that span multiple Microsoft divisions, such as the online-service group and the entertainment and devices division, international partnerships and early-stage companies.

As the rules of the integration are laid out, all of Madison Avenue's eyes will be on Mr. McAndrews to see his approach to combining the largest buyer of online media with one of the largest sellers of it.

Hanging on to the agency
Despite speculation to the contrary, Microsoft has made no secret of its desire to hang on to the agency side of aQuantive's business. Avenue A/Razorfish will operate independently of Microsoft and recently upped Clark Kokich from president to CEO to help reinforce that.

Last month Mr. Kokich told Ad Age that Microsoft and MSN will "have to continue to earn our client's business, and at the same time, we don't expect to get any preference from Microsoft or MSN." Of course, it will take time for both sides to prove to clients -- Avenue A/Razorfish to marketers and MSN to other agencies -- that it won't offer preferential treatment.

Still, it begs the question: If the two will be completely separate, why would Microsoft keep the agency side of aQuantive's business? Mr. Kokich couched his comments by explaining that executives believe there are opportunities to work together. Both Microsoft and Avenue A/Razorfish believe in a future of ubiquitous digital experiences. He said Microsoft's Silverlight technology, which is the company's Flash competitor, is one example of an area where there could be collaboration.

"We've already been very aggressive in exploiting that new technology," Mr. Kokich said, adding that one of his top technologists was devoted full time to developing Silverlight's capability even before Microsoft announced it planned to acquire aQuantive. "There'll be more opportunities for us to demonstrate to the industry what's possible," he added.

The one thing they won't have to get over? Geographical differences. Both companies, incidentally, are headquartered in Seattle.
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