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AQuantive deal sets stage for Web video battle

Microsoft Corp.’s $6 billion deal to buy Internet marketing firm aQuantive Inc. puts the company in a position to play a bigger role in the nascent online video market and piles more pressure on competitors to make acquisitions of their own.
/ Source: Reuters

Microsoft Corp.’s $6 billion deal to buy Internet marketing firm aQuantive Inc. puts the company in a position to play a bigger role in the nascent online video market and piles more pressure on competitors to make acquisitions of their own.

AQuantive will likely have fetched the largest price in a wave of online ad consolidation, but as many as eight more deals could come down the pike for smaller, niche ad plays, with a range of $300 million to $500 million, industry executives and experts said on Friday.

The deal caps a frenzy of online advertising acquisitions sparked when Google Inc. agreed to buy DoubleClick Inc. for $3.1 billion last month, followed by smaller purchases by Yahoo Inc. and marketing services company WPP Group.

“It’s really easy to look at it and say this was musical chairs. I don’t think that’s the case,” said Dave Morgan, chairman and founder of interactive ad company Tacoda.

“Every single company is taking a step they have been looking at for years,” Morgan told Reuters. “It was time to get serious because the valuations were going up a lot. It was pay now or miss the game.”

At stake is a seat at the table in an advertising market dominated for decades by traditional broadcast television. Video entertainment will still be king, experts say, but they will be controlled by the Web for delivery to a set-top box, computer screen, iPod or mobile phone.

AQuantive helps advertisers serve up and track many varieties of online ads, and is home to the largest interactive agency, Avenue A/Razorfish, which also creates campaigns.

“The work aQuantive has done around things like (video-on-demand) will help complement things we are doing around MSN Video and IPTV (Internet television),” said Microsoft’s president of platforms and services division, Kevin Johnson, citing one rationale for the deal.

Johnson estimated the total online ad market to be worth $40 billion, with an annual growth potential of close to 20 percent over the next couple of years.

(MSNBC.com is a joint venture of Microsoft and NBC Universal.)

Looking for a dance partner
Agreement on the central role the Internet will play for video has been fueled by the explosive growth of video sharing site YouTube, owned by Google, and new Web platforms being created by traditional media players News Corp. and NBC Universal, or startups like Joost.

In this world, Microsoft not only competes with Web rivals Google, Yahoo and Time Warner Inc.’s AOL, but TV broadcasters like CBS Corp. and NBC Universal, cable operators like Comcast Corp. and phone companies like Verizon Communications Inc., which are all moving to digital video platforms.

“A company like NBC Universal is going to be much more focused on content. With Microsoft and Google, it’s a little bit of a different tactic toward the same end,” said Jeff Marshall, digital managing director at media buyer Starcom USA.

“They’re going to be more focused on leveraging technology and data ... and stringing together content partnerships to be able to do that,” he said.

As that market shakes out, some see four to six of those players capturing major market share, with the remainder reaping smaller benefits from the media shift.

“There is clearly a race going on,” AOL Chief Executive and former NBC television chief Randy Falco told the Reuters Global Technology, Media and Telecoms Summit this week.

“This business is more and more about ad serving technologies,” he said. “I felt that we have to be in every space we could possible be in.”

Companies likely to find a dance partner in the coming months include Quigo Technologies, which specializes in contextual ads, Tribal Fusion parent Exponential Interactive Inc., behavioral targeting company Revenue Science and BlueLithium, according to industry bankers and executives.

ValueClick Inc. has also drawn attention, though its disclosure on Friday that the U.S. Federal Trade Commission was investigating its marketing practices could overshadow a deal. Yet their shares surged 8 percent on Friday on the aQuantive news.

Tacoda has also been named as a potential target and Morgan acknowledged interest from industry players.

“You can’t be an online advertising company of scale now and not be considered a target for acquisition,” he said.