Early this morning Microsoft announced it will buy online marketing company aQuantive — the holding parent of interactive agency Avenue A/Razorfish, display and paid search ad mangement platform Atlas and inventory management system DrivePM. The $6 billion deal cash deal represents an 85% premium to aQuantive’s closing price last night and will likely close during the first half of 2008.
I think there are two obvious calls to make based on this deal:
1. The acquisition certainly builds out Microsoft’s access to the entire online advertising supply chain. Prior to the acquisition Microsoft had the execution channel — sites where advertisers could buy ads. Now, they also have the upstream pieces of this chain: planning, strategy, creative. WPP is working toward a similar goal with its recent announcement to acquire 24/7 Real Media. But WPP had the planning, strategy, and creative pieces and bought 24/7 for access to the downstream channel.
2. aQuantive also pairs Microsoft more equally against Google. Of course there was a competitive influence in this purchase as well. With the deal, Microsoft now has the same ad serving capabilities and access to advertiser and publisher relationships that Google gained with DoubleClick. And Microsoft also picked up a global professional services agency.
But there seems to be something much more going on with these acquisitions than the benefits we see on the surface. I think this spate of acquisitions means:
*The definition of what a media company is is changing. Today, consumers are so bombarded with media, and online loyalty is so hard to secure that it is very difficult for advertisers to select media properties that uniquely capture their user. So, media companies have to develop different ways to differentiate from each other. Since they can’t really deliver a differentiated audience, they instead need to offer differentiated services: Easier transaction management, better reporting, strong customer analytics, access to multiple ad formats and properties to streamline the buying process, even media planning and buying services. I think Google, Yahoo and MSN all have a vision in mind to become "next generation media companies" that secure advertiser and publisher loyalty through these enhanced, integrated services.
*Advertisers ultimately won’t go for a one stop shop. There is definite appeal for advertisers to working with a single party for all their online advertising needs. And yet, I think the smart advertisers will need more than just an easier, more streamlined way to develop and execute online marketing. They will want to make sure that the media they buy is actually delivering optimal results. I expect advertisers will hang onto third party agencies to help them watchdog these new media/service provider conglomerates to ensure their objectivity.
*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 indicates 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.