Microsoft: Avenue A/Razorfish Is Complementary to Us

Joe Doran Discusses Morning's $6 Billion aQuantive Acquisition

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Microsoft Nabs aQuantive for $6 Billion in Cash

NEW YORK ( -- Early this morning Microsoft announced it would spend $6 billion to acquire aQuantive, the ninth-largest marketing services company as ranked by Ad Age recently. That marks the largest acquisition Microsoft has ever made -- and at a hefty premium, paying $60 a share for a company whose stock price had risen to $35.87 at yesterday's close.

Joe Doran, general manager of Microsoft Digital Advertising Solutions, spoke with Ad Age to explain the deal and what Microsoft will do with aQuantive, whose assets include creative and media agency in Avenue A/ Razorfish, an ad-serving technology in Atlas and an ad network in DrivePM.
Joe Doran
Joe Doran

Ad Age: I'll start with the question on virtually every advertising person's mind: What to do with Avenue A/Razorfish?

Joe Doran: We think that is a vertical asset that aQuantive has. And when we think about them being the leading provider of interactive services, we look at that asset much like aQuantive did. Having that as part of our portfolio will help us embed the voice of the marketer ... and make sure we're driving the innovation that meets the needs of the marketer.

Ad Age: But the potential conflict of interest?

Joe Doran: We do know people could say there's a conflict of interest between us. We want to make sure all ad agencies understand we don't want that to become a reality. We'll operate Avenue A/Razorfish at arms length, make sure they have ability to drive the value for marketers and advertisers and remain independent. We look at aQuantive and we see the strategy they were looking at and see this as an asset that'll ad tremendous value.

Ad Age: While aQuantive's holdings included an ad network and an ad agency, which has always been cited as potential conflict of interest, the truth is DrivePM is small. Microsoft is huge. Doesn't size factor into this?

Joe Doran: We can use those assets because they're complementary to help us expand. ... Right now we're now in the ad-network business. We believe with the volume we have as a publisher and by committing that volume to DrivePM we can build one of the largest, most efficient, highest-yielding ad networks in the world. ... We think very highly of Ave A and the assets and capabilities they have. We think very highly of the ad management capabilities that Atlas has.

Ad Age: Speaking of an ad network, it's well known that Microsoft has been interested in getting in that game. Talk to me about your plans.

Joe Doran: About four years ago we created a program on MSN sites that we can manage direct response. It's powered by atlas ... it's very similar to a program DrivePM is running for their customers. We believe there's a place for auction-based direct-response inventory that sits on our network and on other networks. When we talk to publishers they come to us and ask for ad solutions to take care of unsold inventory. This is an area people are asking for from us. It's what Facebook asked from us.

Ad Age: How do you plan to integrate aQuantive into Microsoft?

Joe Doran: It's a very big company with a lot of really smart and talented people. We're very interested in building the right integration plan. [AQuantive CEO] Brian McAndrews reports directly to Kevin Johnson [Microsoft's president-platforms and services]. [Microsoft advertising strategist] Yusef Mehdi will be working with Brian to make sure we're capturing the value.

Ad Age: Don't the valuations seem a bit wild in this interactive space?

Joe Doran: When we look at this we're looking at the marketplace -- not only the interactive marketplace and saying there's a $40 billion market and lots of ways within the ecosystem that we can add value. We see a $600 billion total advertising market and when we think about convergence of IP-based media consumption and where that's going we see a tremendous ability for us to build the next generation ad platform. It's a big strategic move for our company, from looking at our marketplace as a proprietary ad-management system to us as a web publisher; we're looking at extending our platform and services to delivery those same types of ad management delivery systems for other publishers and advertisers and agencies. Those are the assets that aQuantive has and operates in today. They have leading systems for third-party ad serving. ...

That's the market opportunity we see and if we find the right asset we're gong to go and pay what we need to get the asset. It'll help us not only unlock what we see on the internet but as media converges based on IP delivery ... that's where we want to go. We're a long-term player. ... This is a significant commitment on behalf of Microsoft to the advertising business. We're doubling down, going all in on the ad business. We're not doing this as a side bet.

Ad Age: Kevin Johnson mentioned this plays into your online software and services plans. How so?

Joe Doran: [Online] software and services has been a clear direction we've stated we're going to go as a company. [Microsoft CEO] Steve Balmer and [Chairman] Bill Gates have talked about this for two years. [Chief software architect] Ray Ozzie ... has been leading the soft charge. How do you make money from software services? More and more people will look to those being free and the one primary way of funding those is advertising. We're very committed to building the software and a monetization platform that allows us and others to monetize software services. That'll be critical to us.

Ad Age: Microsoft has raised the red flag over the Google-DoubleClick acquisition. Does this change that sentiment?

Joe Doran: This is very different. Google is really combining competitive assets and consolidating market share in that area. We're looking at complementary assets in markets we don't compete in today. ... People should review our transaction and look at it and ask us the right questions to make sure we're doing the right thing for consumers, advertisers and publishers. And we welcome that scrutiny.
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