Today Microsoft announced an alliance with OpenX, the vendor of an open source Web ad server and proprietor of a Web advertising market for smaller publishers. The objective is for
… the companies to cross-market and promote products to their respective publisher bases. Under terms of the multiyear agreement, OpenX becomes a preferred partner to publishers for enterprise ad serving solutions. In addition, OpenX will promote Microsoft’s Content Ads monetization products — as well as other products that may be developed in the future — to its existing base of Web publisher customers.
OpenX and Microsoft will each enjoy significant benefits from the partnership. Most notably, Microsoft will have a major distribution channel for its monetization products through OpenX’s community of more than 150,000 Web sites that serve more than 300 billion ads per month. OpenX will, in turn, gain access to a new base of potential customers — via referrals from Microsoft — for its enterprise advertising technology and services.
The Content Ads component of the agreement follows a successful trial Microsoft and OpenX began in August 2008, during which OpenX provided invitations to its publishers to test the product. Content Ads matches ads to relevant editorial content, allowing advertisers to increase campaign effectiveness, which can allow publishers to achieve a higher yield on certain types of inventory. As part of the agreement, OpenX will promote Content Ads in two ways. First, OpenX will integrate Content Ads so that it can be used by publishers who sign up for OpenX Market to better monetize their pages. The company will also build a plug-in to OpenX Ad Server so existing publisher customers can more easily sign up for Content Ads and implement it on their Web site(s). OpenX is the first reseller approved by Microsoft to build a plug-in for Content Ads.
Content Ads is Microsoft’s competitor for Google AdSense and this agreement is an easy way to add ad volume among third party publishers. It is a natural alliance, since big dog Google has their own free in-house competitor for (hosted) OpenX functionality in Google Ad Manager which naturally provides easy serving of Google’s own AdSense ads.
Bigger publishers would probably set their sights higher than either of the above solutions by using Microsoft’s aQuantive products or Google’s DoubleClick. Still the small publisher business is lucrative and not to be disdained – a view that Microsoft only slowly adopted.
The rumors of last June that Microsoft was shopping around its Razorfish interactive ad agency that they had acquired with aQuantive were apparently correct as today Microsoft and Publicis announced that the latter is acquiring Razorfish for $530 million:
Steve Ballmer, Microsoft’s Chief Executive Officer, said, "We are grateful for the contributions Razorfish has made to our online advertising business since joining the company as a part of the aQuantive acquisition in 2007, and are pleased that they have found a new long-term home with Publicis Groupe. We look forward to continuing to work with Razorfish as one of our agencies, and we’re confident that as a part of Publicis Groupe, Razorfish will build on its success to date in the digital advertising industry."
There are various theories as to why Microsoft wished to divest themselves of Razorfish, but the "continuing to work with Razorfish as one of our agencies" rings true to me. Microsoft did not want want its ability to sell online ads to all ad agencies to be hindered by owning one themselves. The deal is expected to close in the fourth quarter of 2009.
The Financial Times is reporting that Microsoft has retained Morgan Stanley to find a buyer for Razorfish, the online ad agency it picked up when it acquired aQuantive a bit more than 2 years ago. Microsoft is not commenting on the story, but it would make sense since an ad agency is not a great fit for Microsoft’s main Web advertising business which is in the uncomfortable position of courting rival ad agencies. A possible buyer is the French marketing company Publicis Groupe which just last Thursday announced a "broad strategic agreement" with Microsoft.
There had been rumors of an asset swap for Razorfish with ad giant WPP Group in August 2008, but that never panned out and now that two years have passed since the aQuantive acquisition, favorable tax treatment would make an outright sale more likely. It also does not hurt that Microsoft might get $600-$700 million back on the hefty US$6 billion they overpaid for aQuantive.
Almost six months after the companies started talking, WPP and Microsoft have reopened talks that could have the software company unloading Avenue A/Razorfish. But the question is whether Microsoft could ever get anyone to buy the digital ad agency for the price at which it needs to sell it.
What Microsoft paid for the agency and what any holding company would shell out are vastly different figures — although WPP holds an edge over other holding companies because it has assets Microsoft might be interested in, namely the ad-serving technology bit of 24/7 Real Media.
Here’s how a deal could unfold, according to people familiar with the discussions: Microsoft unloads the agency in exchange for a WPP package that includes 24/7′s Open AdStream publisher ad-serving tool plus cash. While Avenue A’s price would be higher than most agency deals, very few interactive agencies with that kind of scale are available for acquisition.
Avenue A|Razorfish is an ad agency specializing in interactive media and is an uncomfortable fit for Microsoft which wants to make money from all advertisers and publishers without questions of favoritism about a house agency. Similarly, WPP Group is a holding company for advertising agencies and the Open AdStream ad serving tool doesn’t fit either.
Klaassen’s thesis is that since Microsoft overpaid for aQuantitive, it is going to be hard to find someone to pay for Avenue A|Razorfish anywhere near what Microsoft paid. That’s why a swap with WPP Group is a good fit since it is similarly believed to have overpaid for 24/7 Real Media and they could obfuscate the real value with a swap. I’m dubious as to how important that reason really is since acquisitions often result in a grab bag of extra pieces that are sold off at "bargain sale" valuations. Of course, since Avenue A|Razorfish accounted for 60% of aQuantive’s revenues, it is a trifle hard to see which is the tail and which is the dog.
In any case, beyond face-saving reasons, it seems like a good match. WPP specializes in owning ad agencies and Microsoft needs an ad serving service in their eternal quest to keep up with Google which is busy widening the beta of their competing (and free) Ad Manager service.