Newspaper article International Herald Tribune

Microsoft Acknowledges Failure in Digital Ad Sector ; Software Maker to Take $6.2 Billion Charge after aQuantive Effort Flops

Newspaper article International Herald Tribune

Microsoft Acknowledges Failure in Digital Ad Sector ; Software Maker to Take $6.2 Billion Charge after aQuantive Effort Flops

Article excerpt

The acquisition of the online advertising services company was Microsoft's biggest at the time, and is now one of its biggest failures.

Microsoft has owned up to the collapse of its biggest push into digital advertising, announcing that it would take a $6.2 billion accounting charge in its online services division for a failed acquisition.

The accounting charge, called a write-down of good will, was essentially a write-off of the value of aQuantive, a digital advertising company that Microsoft bought in 2007. It will effectively wipe out Microsoft's fourth-quarter profit.

The company said Monday that it took the write-down because "expectations for future growth and profitability are lower than previous estimates" for the online services unit.

The charge will not affect the online services division's operations or financial performance, Microsoft said.

"It's disappointing, but it is not a shock at this point," said Brendan Barnicle, senior research analyst at Pacific Crest Securities. "The industry has evolved beyond where aQuantive was when Microsoft bought it."

Microsoft does make money in online advertising, but has relied on a number of digital advertising partnerships.

The deal for aQuantive was struck when technology and traditional advertising firms were desperately seeking footholds in the world of Internet display advertising. At the time, aQuantive was the biggest company Microsoft had ever bought.

A month before the aQuantive acquisition, Google, Microsoft's big rival in online advertising, purchased a similar firm, DoubleClick, for $3.1 billion. That deal has been highly profitable for Google, analysts say.

The purchase of aQuantive may well have been driven by pressure Microsoft was feeling at the time, not only from the DoubleClick deal, but by similar acquisitions by other companies. Microsoft bought aQuantive one day after the WPP Group bought 24/7 Real Media, another digital advertising company, for $649 million, and a month after Yahoo agreed to pay $680 million for Right Media, an online ad exchange.

All of the acquisitions were in one or another part of the display advertising business across the Web. …

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