Microsoft to buy aQuantive for $6B at high cost — to stay in game

aquantive.jpgMicrosoft Corp has purchased online advertising company aQuantive, for about $6 billion in cash, and is paying a significant premium to to do so.

The move comes amid a torrent of acquisitions in the advertising industry, now in the midst of profound change. Players are engaged in frantic land-grab, as traditional advertising dwindles and advertisers move online.

Microsoft, like Google, Yahoo and others, has realized economics on the Web are subject to “the network effect”: You have to be the biggest player on the block — the bigger the network of advertisers you have, the better you can serve publishers, the more business you will get.

Reflecting the high stakes at play, Microsoft said it will pay $66.50 per share for aQuantive, an 85 whopping percent premium to aQuantive’s Thursday price of $35.87. It comes after advertising giant WPP moved yesterday to buy 24/7 Real Media, and Google’s recent purchase of online advertising company DoubleClick, and Yahoo’s announced acquisition of Right Media Inc. for $680 million.

aQuantive, of Seattle, has about 2,600 employees, and reported 2006 profit of $54 million on sales of $442.2 million.

There are plenty of other potential prey left. According to Samir Patel, chief executive of SearchForce, a search engine marketing firm, they include:

–VendareNetBlue (Connexus) a network known for distributing promotional offers;
Tribal Fusion, which says 65 percent of Internet users are viewing a site in its network;
Blue Lithium and Burst Media, which are in the top 20 of comScore’s latest Ad Focus rankings are also good fits for Microsoft.

The aQuantive deal actually increases the odds of Microsoft buying Yahoo, Patel said. aQuantive brings Microsoft technology and services, but not the much needed half a million advertisers and traffic network to Microsoft.