
Microsoft Writing Off Nearly All of the $6.3 Billion it Paid For aQuantive - iProject
http://allthingsd.com/20120702/microsoft-writing-off-nearly-all-of-the-6-3-billion-it-paid-for-aquantive/
======
paulsutter
Microsoft bought aQuantive as a knee-jerk reaction to Google's acquisition of
Doubleclick. It was comical at the time because

\- aQuantive's Atlas was a distant number 2 to Doubleclick's DART in terms of
ad server market share

\- aQuantive had no plans to create an ad exchange, nor did their market share
make that a credible possibility, and

\- Microsoft somehow paid twice as much for aQuantive as Google paid for
Doubleclick.

All told it was a bewildering acquisition. Either Microsoft didn't understand
why Google bought Doubleclick, or Google corpdev did a masterful behind the
scenes headfake with regards to the value of aQuantive.

Yahoo at least understood what the DCLK acquisition was about and bought Right
Media. Of course, an open ad exchange is basically at odds with Yahoo's
premium inventory direct sales strategy, so it has been difficult for Yahoo to
really make it successful.

In the end the whole episode was a giant win for Google, and an embarassment
for MSFT and YHOO.

~~~
earl
But, had msft executed, there definitely is room for competitors for both dfp
and dfa. Many pubs seem to want something, anything besides dfp. Plus the rise
of ssps is (maybe?) a reaction to the pub adservers not innovating. For god's
sake, _openx_ (written in php!) is being used by pubs.

also, hi (earl from qc)

~~~
dos1
Could you maybe explain some of those acronyms you used?

~~~
earl
Sorry dude.

When a publisher (pub) sells ad space to an advertiser, there are at least two
sets of servers involved. There is a publisher / sell side ad server (pub
adserver) which picks which ad to show in an inventory slot on a page view and
generally tries to optimize for the publishers income, plus does publisher
side reporting. There is a advertiser / buy side ad server which does cross
publisher reporting; allows the advertiser to control, change, and update
creative; tries to do frequency capping; tries to do cross channel reporting;
and tries to optimize on the advertisers' behalf. These are generally not the
same server. Google's ad server were basically purchased from doubleclick. DFA
is doubleclick for advertisers and DFP is doubleclick for publishers. Openx is
a competing publisher ad server. Atlas is microsofts advertiser ad server; it
competes with dfa.

An SSP is a supply side platform. It's a service that basically replaces a pub
ad server and attempts to get as much money for the pub as possible by
switching between ad networks and possibly trading off between guaranteed,
network, and rtb. It basically is a saas stack that replaces a publisher ad
server. An SSP will often also attempt to prevent first party data leakage.

a DSP is a similar beast for the demand side and can start to replace an
advertiser ad server.

From my perspective (and I think many pubs) there hasn't been much innovation
between dfp and openx. Hence the movement to SSPs.

First party data is, in a nutshell, the fact that a user visited a site or a
page. From this you can derive all sorts of things such as the purchasing
interests of the user.

guaranteed is presold ads, the most lucrative for a publisher

~~~
dos1
Thanks for the explanation! Having never dealt with internet advertisers I
didn't realize there was as much to it as there is :)

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calbear81
I was part of aQuantive on the Avenue A | Razorfish side and was there for
about 2 years leading up to the MSFT acquisition and was also part of another
MSFT acquisition (Farecast) so I want to provide some context/opinion on where
the business was at it when it was purchased.

\- The Atlas ad serving platform and related ad exchange platform was one of
the top ad systems alongside DART, Valueclick, and others. There was also a
steady stream of new leads to Atlas as the agency side acquired new clients. I
think the opportunity that was missed was to tie the MSN search business with
the banner/rich media ad serving business and create a single platform to
reach and remarket based on search intent. A lot of this is done today but
this deal was 5 years ago and would have been more groundbreaking.

\- The agency side of the business wasn't interesting to Microsoft but at that
time, Avenue A | Razorfish was the top digital agency in the US with clients
from Expedia to Nike to Best Buy. The team at AA|RF had a direct line to the
CMOs and worked in most cases as an extension of the marketing teams for these
Fortune 500 companies and MS could have leveraged this team as a focus group
and to enroll these clients to test innovative ways to market across a
publishing network like MSN (still a top portal property). I don't think this
was done and again another opportunity missed.

Overall, I just felt that there was the potential for aQuantive to help
Microsoft close the ad revenue/platform gap with Google and they missed the
boat.

~~~
fungi
Razorfish pitched to our marketing department (I was the token tec on the
panel).

Being a Microsoft appendage was a big negative from my point of view... as was
the giant Silverlight logo in their pitch docs.

> MS could have leveraged this team as a focus group and to enroll these
> clients to test innovative ways

Don't do that! If we hire you to do work for us and you sucker someone in our
org in to some shit like this, we will very quickly question your motives and
ultimately the value of our relationship.

In the end the the marketing wonks went with the agency with the best creative
(again).

~~~
calbear81
I didn't mean you get your clients to try things without telling them. I meant
get them into pilot programs to find more incremental places to acquire new
customers.

In regards to creative, Avenue A | Razorfish was a combination of two distinct
skillsets. Avenue A handled media buying which in most cases is more important
to the success of a campaign than the creative and the Razorfish part was the
"creative" side of the agency that worked on all of the campaign assets, etc.
Both sides worked together to ensure that the creative was right for the
audience (media).

~~~
fungi
> you sucker someone in our org in to some shit like this

Didn't think they would secretly do that.

Ulterior motives of corporate overlords, be they pushing Silverlight or
pulling us into a msn search strategy are a recipe for friction.

That said i'm not in marketing, not in the US, and we are a small org with
limited resources that is perpetually screwed around by agencies, so my views
are probably of limited value.

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rudiger
Interestingly, aQuantive (formerly Avenue A Media) was founded by Nick
Hanauer, one of the people profiled in GQ's recent article[1] on income
inequality. He was also one of the first investors in Jeff Bezos and Amazon.

[1] - <http://news.ycombinator.com/item?id=4181382>

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mathattack
Interesting. On the surface this seems like a colossal failure. It could also
be an accounting trick too. Write the whole thing off now, and people view it
as a non-recurring charge. Then when the unit does something/anything to be
profitable, it looks like positive earnings rather than a less-bad loss.

~~~
xfax
Yup. It also has the nice effect of inflating the P/E ratio for Microsoft, at
least temporarily.

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modarts
What truly amazes me is the fact that Ballmer is allowed to keep his job
despite one colossal blunder after another.

~~~
xfax
This is why.

[http://ycharts.com/companies/MSFT/revenues#series=type:compa...](http://ycharts.com/companies/MSFT/revenues#series=type:company,id:MSFT,calc:revenues&zoom=&startDate=1/1/2000&endDate=7/2/2012&format=real&recessions=false)

~~~
Argorak
So, he doubled revenue over the last 10 years. They were already high to begin
with, but lets see...

[http://ycharts.com/companies/MSFT/revenues#series=type:compa...](http://ycharts.com/companies/MSFT/revenues#series=type:company,id:MSFT,calc:revenues,,id:GOOG,type:company,calc:revenues,,id:IBM,type:company,calc:revenues,,id:AAPL,type:company,calc:revenues&zoom=&startDate=1/1/2000&endDate=7/2/2012&format=real&recessions=false)

Even more impressive:

[http://ycharts.com/companies/MSFT/revenues#series=type:compa...](http://ycharts.com/companies/MSFT/revenues#series=type:company,id:MSFT,calc:revenues,,id:GOOG,type:company,calc:revenues,,id:IBM,type:company,calc:revenues,,id:AAPL,type:company,calc:revenues&zoom=&startDate=1/1/2000&endDate=7/2/2012&format=indexed&recessions=false)

So, basically, Microsoft let its two main rivals close in at a tremendous
pace. If I had Microsoft stock, I'd be rather disappointed.

~~~
xfax
Shareholders and long term investors (aka those who care most about
management) look for long term stable growth in core businesses. Yes, you can
argue that their performance compared to competitors has been dismal but MSFT
is still a solid investment and has seen double digit growth rates for over 10
years - this is incredibly hard for a company this size. Most will argue that
this good management.

For example, look at their revenue growth quarter-over-quarter:

[http://ycharts.com/companies/MSFT/revenue_growth#series=type...](http://ycharts.com/companies/MSFT/revenue_growth#series=type:company,id:MSFT,calc:revenue_growth&zoom=&startDate=1/1/2000&endDate=3/31/2012&format=real&recessions=false)

Also, GOOG and AAPL don't pay dividends (yet), which is a very good proxy for
shareholder value:

[http://ycharts.com/companies/MSFT/dividend_yield#series=type...](http://ycharts.com/companies/MSFT/dividend_yield#series=type:company,id:MSFT,calc:dividend_yield,,id:AAPL,type:company,calc:dividend_yield,,id:GOOG,type:company,calc:dividend_yield&zoom=&startDate=1/1/2000&endDate=3/31/2012&format=real&recessions=false)

I'm not saying MSFT can't do better; OP asked why Ballmer is tolerated and I
wanted to point out that there are plenty of reasons why.

~~~
Argorak
Well, my point was that throwing in a revenue chart of one company only is
just not a way of explaining things. There are many reasons why you could want
Ballmer to stay - as you say, a replacement could even do worse - but that
chart alone is not one of them. Especially because in our growing industry,
the growth roughly matches the growth of the market. It is certainly not
"plenty of reasons". Hewlett Packard has similar revenue development with MSFT
and still they are firing CEOs left and right.

------
SoftwareMaven
Accounting question: Is this write off writing off the goodwill that was
created by the merger?

~~~
mathattack
Goodwill is the premium paid above the book value. It occurs because most
corporate purchases occur above the value the acquired company has on the
books. An example: My company has a book (accounting) value if $10 million. I
sell it to you for $30 million. $20 million of that becomes an asset on your
books of "Goodwill" - a catch-all for the brand value above and beyond my
tangible assets. If at some point you don't think you can generate earnings to
justify the premium, you write it down. This is what Microsoft did.

For a longer explanation: <http://en.wikipedia.org/wiki/Goodwill_(accounting)>

------
heifetz
now when is zynga going to writedown 180mm for OMGPOP.

~~~
tomasien
"Draw Something" is the #55 paid app on the app store STILL. So clearly it's
bringing in and has brought in a ton of revenue since the ac (acquisition was
in March). Sure not $180MM but it was also an acqui-hire. I think this could
have ended up being a great deal for them, despite the negativity. It's not
all about one game.

~~~
shock-value
#55 paid app is not at all impressive given how much they paid for it. For
that price Draw Something would have had to stick around the top ten, probably
the top five, for quite awhile to make it worthwhile.

------
Jabbles
Now do it for Skype.

~~~
redslazer
Ok I'll bite. Skype isn't and won't be a bad investment. It is installed on
most peoples computing devices(computer,mobile,tablet), it really doesn't have
any good competitors(maybe google voice), it's used heavily in business world
for conferencing, virtual numbers and internal comms, it has a nice technology
stack which a few companies were eyeing (fb,google).

Really it's amuch better investment then spending a billion on a revenue less
image sharing site or a corporate social network provider.

~~~
tomflack
I don't think that Google Voice is any kind of competitor to Skype because of
its incredibly limited global availability.

------
veyron
Beat you: <http://news.ycombinator.com/item?id=4190965>

