“Speculation Abounds on Microsoft’s Next Ad Acquisition” by Gavin O’Malley, MediaPost

Published by MediaPost’s Online Media Daily May 23, 2007

AS THE PROSPECT OF MICROSOFT selling off Avenue A|Razorfish looks less likely, industry watchers are speculating over which assets the software giant might add to bolster its new creative and media agency business.

Larger independent agencies on the radar screen include AKQA, Wieden+Kennedy and imc2–all privately held–along with the publicly traded Sapient. There are also a slew of smaller independent shops, including Glow Interactive, IQ Interactive, i33 Communications, Slingshot, and Greater Than One, to name just a few.

“Microsoft has the money, so the possibilities are endless,” explained Arthur Anderson, principal of Morgan Anderson Consulting. Still, Microsoft can’t simply order from an agency menu, according to Seth Alpert, managing director at AdMedia Partners, an investment bank specializing in marketing transactions. “AKQA is definitely not for sale at the moment.”

Microsoft may ultimately decide to sell Avenue A, which it is getting as part of last week’s agreement to acquire aQuantive for $6 billion. Microsoft CEO Steve Ballmer, however, says that won’t happen–and the experts seem to believe him.

“The agency business wasn’t what drove the deal, but I think they are going to hang onto Avenue A and even grow that side of the business,” said Alpert.

Indeed, a closer connection with marketers can only help Microsoft in an online ad universe increasingly concerned with seamless executions, according to Michael Gartenberg, vice president and research director of JupiterResearch.

“It’s extremely important in online advertising,” Gartenberg said. “I think Microsoft understands the value of connecting with marketers on the agency side.”

If and when Microsoft does go after additional agencies, aQuantive will be in the driver’s seat, Alpert added.

“[Microsoft’s] strategy will definitely follow the acquisition strategy that aQuantive was pursuing before they were acquired,” he said. “That makes the acquisition of a large agency less likely, and the acquisition of an international agency more likely because of aQuantive’s focus on going global.”

For sure, Microsoft’s entry into the agency business poses a huge threat to holding companies, many of which still lack adequate digital assets, according to Arthur Anderson.

“You never had holding companies competing with anyone but other holding companies,” he said. “And they don’t have a lot of money when compared to the Yahoos and Microsofts, which could make it very hard for them to compete.”

Gavin O’Malley can be reached at gavin@mediapost.com


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