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IN THE JUNE ISSUE...
MICROSOFT PAYS $6 BILLION FOR AQUANTIVE: MASSIVE AD NETWORK CONSOLIDATION IS OCCURING
Michael Arrington, TechCrunch, 05/18/07
Microsoft is acquiring advertising network aQuantive, the parent company to Avenue A | Razorfish, Atlas and DRIVEpm, for roughly $6 billion in an all-cash transaction, the company said this morning.
aQuantive is a public company (AQNT) and had a market cap of just $2.8 billion as of yesterday. The acquisition price of $6 billion is a roughly 2x premium on yesterday’s closing price, which is a reflection of the fact that this were competing bidders (see notes below). The acquisition comes after recent big acquisitions by Google and Yahoo in this space. Google bought Doubleclick for $3.1 billion in April. Later that same month, Yahoo acquired competitor RightMedia for $680 million. Just yesterday, WPP Group acquired yet another company in this space, 24/7 Real Media, for $649 million.
2006 revenues for aQuantive were $442 million. Net income as about $54 million.
aQuantive’s operating companies include both tools and ad agencies. The company is located in Seattle.
Microsoft is held a media call this morning to discuss the transaction. My notes are below. At about 7 am PST a recording of the call will be available at 1-800-774-9248.
Notes From Media Call:
(see CenterNetworks as well, Allen Stern has taken very complete notes)
Deal brings lots of new relationships with publishers and advertisers
Microsoft is now able to sell display ads on any website
Good tools for rich media ads, including IPTV
aQuantive was founded in 1997.
Microsoft says they are showing they are willing to aggressively grow strategically. Ad market is predicted to grow dramatically over the next few years. Lots of synergies between companies. Will be able to better monetize microsoft inventory, and will now be able to sell display ads on third party sites. Financial implications to MS: deal will close in FY 2008. They do not think it will have a significant impact on MS operating income.
MS expects an antitrust review in the U.S. and maybe in other countries. Probably not EU, but perhaps in Germany.
MS talking about privacy: says aQuantive has high degree of respect for privacy and fits well with Microsoft’s privacy policies.
Bear Stearns question: does this affect MS’s opinion on Google/doubleclick transaction. MS: no, not at all. Says this will promote competition and Google/doubleclick will hurt competition. Microsoft is in none of the businesses that aQuantive is in, whereas Google was already in direct competition with doubleclick and will give Google 80% market share in those markets.
question on how difficult integration will be with MS’s Adcenter platform? MS says online ad market is $40 billion annually and growing 20% per year. Says MS is committed to getting their share of the market, and this deal gives them a more complete end to end solution (paid search, display ads, CPA). MS says the deal will make their time to market much quicker. They are looking to consolidate their inventory from MS sites to create more scale for ad network. Talking about MS’s new software + services model, phones, games, IPTV, etc. and that advertising will drive these businesses.
MS has a long relationship with aQuantive, has been a customer for many years.
question on the size of the premium v. yesterdays closing price for aQuantive. MS says if they can drive growth through acquisition better than through internal growth they will do it. “we have the economic fire power to do more if we wish to”. MS says this was a competitive bidding situation, and “we are delighted to have won”
MS is saying that there is very little overlap between the two companies, the products are highly complementary.
this is largest MS acquisition to date, but this is only 2% of MS market cap, and they have $35 b in cash on had.
MICROSOFT'S MEHDI DOWNPLAYS LIKELIHOOD OF YAHOO DEAL
Laurie Petersen, MediaPost, 05/24/07
MICROSOFT HAS MOST OF THE pieces it needs to fulfill its advertising ambitions with the $6 billion aQuantive acquisition, and remains "very committed" to its year-old adCenter platform, which now has 80,000 advertisers, a senior Microsoft ad executive told the Goldman Sachs Internet Conference yesterday.
The Webcast remarks by Yusuf Mehdi, Microsoft's senior vice president and chief advertising strategist, seemed to downplay any idea that Microsoft is looking for immediate scale through an acquisition of Yahoo.
At best, Mehdi said, Microsoft may fill in "some other small pieces, organically or otherwise," when directly questioned by Goldman Sachs Internet analyst Anthony Noto.
"We think we have the largest audience to monetize," Mehdi said, when looking across the entire Microsoft suite of products--from Office to Xbox. "I don't think it's the end of inning one."
With the aQuantive purchase, Mehdi said, Microsoft is poised to become a leader in what he called discretionary advertising--matching an ad buyer with an audience rather than specific pages.
To beat Google and basic consumer inertia, you have to do something big, bold and different, Mehdi said, suggesting there is plenty of room for improving the effectiveness of the search experience. (Microsoft search share dropped to 9% in April, from 10.1% in March.)
"When we ask who is the highest ROI search engine for you," Mehdi said, "clients say the return on dollars spent with [MSN] are the highest, but you need to get more volume."
The statistic to examine, Mehdi said, is not how quickly it produces 500,000 links, but that it takes 11 minutes on average to get an answer to questions such as what are the 10 companies that pay more than $2 in dividend, or where is the nearest restaurant in the neighborhood with a reservation available tonight.
"Just a 10% improvement answering people's questions and you change the game on search," Mehdi said. "This is the opportunity. We are 100% committed to next-generation search experiences. We're in catch-up mode, but we've closed the gap on relevancy. In blind taste tests we're indistinguishable from the competition."
Referring to the summit Microsoft hosted for the top 1,000 advertisers earlier this month, Mehdi said many companies that are just now coming online are willing to pony up $500,000 to $1 million for an MSN homepage roadblock.
A day-long Hotmail roadblock taking over all available display inventory, he says, has increased unaided awareness for advertisers by 10 to 20 points. The $20-$30 CPM is still increasing for display advertising on MSN's most popular destinations--the home page, MSN Video, Home and Auto.
Once the aQuantive deal closes (expected sometime after July), MSN will accelerate the inventory it puts through aQuantive's DRIVEpm ad network, Mehdi said.
"The ad market has converged," Mehdi said. "Anyone who thinks it's just online search is missing that. It's all just inventory."
GOOGLE BEGINS MOVE TO UNIVERSAL SEARCH
Google Press Center, 05/16/07
Google Inc. (NASDAQ: GOOG) today announced its critical first steps toward a universal search model that will offer users a more integrated and comprehensive way to search for and view information online. The company also introduced an updated homepage design and several new navigation features that make it faster and easier for users to find the information they are looking for.
"Our focus has always been making our users' search experience as simple and straightforward as possible," said Marissa Mayer, vice president of search products and user experience at Google. "The ultimate goal of universal search is to break down the silos of information that exist on the web and provide the very best answer every time a user enters a query. While we still have a long way to go, today's announcements are a big step in that direction."
Google's vision for universal search is to ultimately search across all its content sources, compare and rank all the information in real time, and deliver a single, integrated set of search results that offers users precisely what they are looking for. Beginning today, the company will incorporate information from a variety of previously separate sources – including videos, images, news, maps, books, and websites – into a single set of results. At first, universal search results may be subtle. Over time users will recognize additional types of content integrated into their search results as the company advances toward delivering a truly comprehensive search experience.
For example, a user searching for information on the Star Wars character Darth Vader is likely interested in all the information related to the character and the actor – not just web pages that mention the movie. Google will now deliver a single set of blended search results that include a humorous parody of the movie, images of the Darth Vader character, news reports on the latest Lucas film, as well as websites focused on the actor James Earl Jones – all ranked in order of relevance to the query. Users no longer have to visit several different Google search properties to find such a wide array of information on the topic.
The Power of Google
Technology
Google is also in the process of deploying a new technical infrastructure
that will enable the search engine to handle the computationally intensive
tasks required to produce universal search results. The company is also
releasing the first stage of an upgraded ranking mechanism that automatically
and objectively compares different types of information. As always, Google™
search results are ranked automatically by algorithms to deliver the best
results to users anywhere in the world.
"Google has continued to concentrate on improving the quality of search," said Udi Manber, vice president of engineering at Google. "The level and speed of search innovation at Google has increased. Most of this innovation addresses basic ranking algorithms and is often not obvious to users. Users just see more accurate results, more often, in more languages, which is our primary goal."
New Navigation Features
New dynamically generated navigation links have been added above the search
results to suggest additional information that is relevant to a user's
query. For example, a search for "python" will now generate
links to Google Blog Search™, Google Book Search™, Google
Groups™, and Google Code™, to let the user know there is additional
information on his or her query in each of those areas. As a result, users
can find a wider array of information on their topic, including data types
they might not have initially considered.
Google's homepage and a number of applications have also been updated with a new navigation bar to provide easier access to popular Google products. Now, instead of having links above the Google.com homepage search box, users will see a navigation bar on the top left side of the page with various Google search properties and popular products including Gmail™, Google Calendar™, Google Docs & Spreadsheets™, and Picasa Web Albums™.
GOOGLE, SALESFORCE.COM TO PARTNER ON WEB SITE
Dawn Kawamoto, News.com, 06/04/07
Salesforce.com and Google are expected to launch a combined Web site on Tuesday that is designed to allow the online customer relationship management software maker to act as a reseller for Google's AdWords.
For Salesforce.com, the alliance expands its efforts to tie its hosted CRM software with Google AdWords, following its acquisition of privately held Kieden last year. Salesforce.com will expand beyond allowing its customers to launch Google AdWords from a Salesforce.com application to one in which it will act as a reseller of the Google AdWords platform.
The two companies jointly developed Salesforce Group Edition featuring Google AdWords and plan to jointly market the offering, said Kendall Collins, senior vice president of marketing for Salesforce.com.
Salesforce Group Edition is designed to allow companies to connect to Google AdWords and have their advertisement displayed on Google.com when related search terms are entered on the site, as well as distribute their ads on Google AdSense.
When potential customers click on the advertisement, they are taken to the company's Web site. Potential customers are then encouraged to fill out a form that records their name, and this information is transmitted to a company's sales team, as a potential sales lead via Salesforce's technology.
"This alliance was a natural fit for us," said Collins, noting that the two companies are similar in the way they approach delivering services over the Internet, such as leveraging open application program interfaces (APIs).
The Salesforce Group Edition featuring Google AdWords will target mid-size to small companies and cost $1,200 per year for five users, after the 30-day promotional price of $600 for five users for the first year expires. That promotional price includes a $50 per year Google AdWords credit.
As part of the nonexclusive deal, Salesforce will receive all proceeds from the sale of its Salesforce Group Edition and share a nominal portion of any Google AdWords sales, Collins said. The remainder of the proceeds from Google AdWords will go to Google.
While the joint-development efforts between the companies has produced one product, Sean Whiteley, director of Salesforce's search marketing, said its customers will drive future development plans.
"We're hoping that as people use these products, it will become evident what we should do next," Whiteley said.