Last week Microsoft wrote down almost all of its $6.3 billion investment in aQuantive, an online advertising service and technology company it acquired in 2007. This financial adjustment represents a breakpoint, with commentary looking back at inflated expectations and forward to alternative online and television advertising futures.
Up until this latest adjustment in Microsoft’s ledger-book, it was still possible to include aQuantive in an impressive litany of overall industry investments in online advertising. Not that Microsoft was seen to have been getting an obvious bargain at the time. Microsoft signaled its plans to buy aQuantive in May 2007. One month earlier, Yahoo tapped online media exchange company Right Media for $750 million and Google announced its intention to buy DoubleClick, a robust survivor of the earlier dot-com meltdown, for $3.1 billion.
Nor did integration of aQuantive’s three digital marketing companies into the Miscosoft portfolio work out entirely well. In mid-2009, Microsoft sold one of the three units, interactive agency Razorfish, to the Publicis Groupe for $530 million. (The other aQuantive divisions were Atlas Solutions and Drive Performance Solutions.)
So what does Microsoft’s write-down say about the heady days of five years ago? “(It) shows how misguided those expectations were, and how brutal the once-thriving business of selling banner ads on websites has become,†write Alistair Barr and Poornima Gupta in this Reuters analysis.
Barr and Gupta share the numbers: In July 1998, Yahoo was paying $25 to reach one thousand people on the Internet; in late 2009, the cost per thousand (CPM) impressions had dropped to $13.35 and by the end of 2011, to $11.50. As for culprits in the decline, the Reuters team fingers the “explosion of advertising space offered by Facebook Inc and other websites†as well as smarter online exchanges and search advertising and growing doubts from marketers about the effectiveness of banner ads.
Fueling those doubts are continued concerns about the “wild west†nature of targeted advertising. Some of these practices are creating pushback from privacy watchdogs. On July 12, for instance, the U.S. Department of Commerce will hold a public meeting to discuss aspects of mobile privacy. A related article sourced to the Economist points to research from mobile security firm Lookout tagging ten companies with ad monetization strategies that it describes as distinctly “aggressive.â€
aQuantive’s demise notwithstanding, online advertising continues to grow, even setting revenue records. But its past was overvalued and future could be turbulent. By contrast, television looks relatively staid, and more profitable. Interviewed for the Reuters piece, Dave Morgan, who sold an online ad firm to AOL in 2007, is now CEO of SimulMedia, which is bringing data-driven targeting to television. “That’s where the big money and margins are,†he said.
