Microsoft Writing Off Nearly All of the $6.3 Billion it Paid For aQuantive

http://allthingsd.com/20120702/microsoft-writing-off-nearly-all-of-the-6-3-billion-it-paid-for-aquantive/

by iProject • 14 years ago

65 48 14 years ago

rudiger• 14 years ago

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

modarts• 14 years ago

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

xfax3• 14 years ago

This is why.

http://ycharts.com/companies/MSFT/revenues#series=type:compa...

Argorak2• 14 years ago

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...

Even more impressive:

http://ycharts.com/companies/MSFT/revenues#series=type:compa...

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

ThomPete4• 14 years ago

Ballmer like most other CEO's up there is playing a completely different game than the one startups play.

Microsoft is so far doing just fine with Ballmer.

Jabbles• 14 years ago

Now do it for Skype.

redslazer• 14 years ago

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• 14 years ago

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

mathattack2• 14 years ago

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.

xfax3• 14 years ago

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

heifetz• 14 years ago

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

tomasien• 14 years ago

"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• 14 years ago

#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.

calbear812• 14 years ago

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.

Useful_Idiot4• 14 years ago

Just for an interesting comparison:

Top 100 mining companies in the world:

You'll note that even BHP only hits ~$200bil.

http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=95...

These are companies that fundamentally provide the materials for our societies.

Shall we change into energy?

ExxonMobil is top, at roughly ~ $300bil

http://www.platts.com/Top250Home

This is a company that powers the modern world.

~ $6 bil for this, $8 bil for Skype, $100 bil for FB is nothing more than Peter-Pan land.

aQuant was MS attempting to get Google to move on some issues, and an attempt to monetise chewing the cud. Skype was MS attempting to control P-2-P interfacing - which will probably succeed (and wasn't ever designed to be monetised) FaceBook was attempting to give the proles the same inherent networking architecture that the elites always enjoyed, and the $100bil is a pay-off for reshaping the world

Hint: mining & energy deal in reality. Tech stocks deal in 'societal value' [where said value is not value to the consumer, it is value to the code controllers; "if you're not paying for it, you're the product"] and are largely to do with the cost of control.

$6 bil in this case means nothing, because MS made billions from nothing.

"It's worth a punt". Translation: if you spend $100 bil on liquidity per day, $6 bil is a joke. Remember: Gates has spent $18 billion on "African circumcision to prevent AIDS" already, and the US government spends that in a month on foreign military adventures (both aggressive and passive).

It was worth a punt. Google turned out to be aggressively competitive, however (and let's not mention the top three AI specialists who committed suicide in the year Google launched their algos... ok?)

Be seeing you.

cheez• 14 years ago

> and let's not mention the top three AI specialists who committed suicide in the year Google launched their algos... ok?

What?

fungi2• 14 years ago

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).

calbear812• 14 years ago

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).

sriramk• 14 years ago

But wasn't having you guys around at MSFT been a conflict of interest? Would have muddied the waters with other agencies, even if there was a Chinese wall between Razorfish and AdCenter.

paulsutter2• 14 years ago

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.

earl2• 14 years ago

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)

dos12• 14 years ago

Could you maybe explain some of those acronyms you used?

eli2• 14 years ago

dfp = DoubleClick for Publisher (helps publishers run the ads that advertisers buy)

dfa = DoubleClick for Advertisers (helps advertisers buy ads)

OpenX was an open source ad serving platform you could install on your own server, but AFAIK the company behind it has more-or-less killed the open source product and is instead pushing a closed-source hosted ad serving solution.

paulsutter2• 14 years ago

My view is that the ad server business itself isnt a great business. The strategic value in Google buying Doubleclick was the market share of publishers firmly locked into Doubleclick as a platform, with all their ads flowing through that platform, and the corresponding opportunity to lock all of that inventory into a big ad exchange.

The strategic value of market share is huge when establishing an exchange. Exchanges are the purest network effects businesses that exist.

I agree that DFP and DFA aren't well loved by anyone. Im not even sure if the folks at Doubleclick love the product. But switching ad servers is as difficult for a publisher as changing keyboard layouts would be for you and me. Your whole process, and training of all your ad ops people just gets locked into the system you're using. This lock in is probably what makes it so hard to improve the product. But this lock in is what made Doubleclick so valuable to Google.

Google isn't the only smart operator in this space. Brian O'Kelley at AppNexus simply out hustled all of them to build an platform as important as Google's by linking all the exchanges together. Funny since he was of course CTO at Right Media.

(hey Earl!)

wdr1• 14 years ago

> Microsoft bought aQuantive as a knee-jerk reaction to Google's acquisition of Doubleclick.

Sometimes blindly copying your competitor isn't the best idea.

veyron• 14 years ago

Beat you: http://news.ycombinator.com/item?id=4190965

SoftwareMaven• 14 years ago

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

mathattack2• 14 years ago

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)

Microsoft Writing Off Nearly All of the $6.3 Billion it Paid For aQuantive

Related Stories