Comments on: Did Microsoft go lose its head over aQuantive?

By: Phil

Phil — Sat, 03 Nov 2007 05:50:12 +0000

In regards to Kevin’s response to Glenn about not becoming a good value until 2010, you forgot to also factor in growth of the online advertising market. Online advertising is somewhere around an $18 billion market now, but by 2010, it is projected to grow to over $40 billion. Besides, think about how much aQuantive will be able to grow and advertise with an extra $6 billion to work with and household name like Microsoft to back it up. With a guaranteed chance of acquiring a good-sized fraction of this market by acquiring aQuantive, Microsoft will make a decent return from its investment and possibly be able to make up for its failure to properly develop its new operating systems.

By: Ab

Ab — Mon, 28 May 2007 21:32:14 +0000

For all those dissing Kevin, just read what mini-msft has to say about the aquantive deal. 6 billion. Absurd.

By: Cam

Cam — Thu, 24 May 2007 20:22:12 +0000

What AQNT offers MS or Yahoo or anyone with loads of traffic is deep wizardry for slicing and dicing their ad inventory to package it up at much higher rates. And contrary to this post, it is not something Microsoft or anyone can easily and certainly not quickly duplicate. That is why companies that have this magic (Doubleclick, AQNT) go for billions. Bulk undifferentiated ad inventory that might go fo $0.50-$1 CPMs can now be repackaged with deeper insights about who visits those pages and resold for $5, 6, or even $10+ CPMs and that is just hugely valuable if you have lots of inventory like Microsoft or Yahoo. What MSFT offers aqnt (beyond mega $) is a much better chance to get their widgetry distributed really widely so that they can continue to be the magicians at repackaging ad inventory for top dollar. AQNT alone would face a tougher and tougher job of doing that in the face of a world consolidating around the big guys.

On the valuation the real question is not the multiple of AQNT revenue and earnings that they paid, but what is the impact on value and uplift of Microsoft’s ad inventory that AQNT will give them. If AQNT can take $500M of Microsoft ad inventory and double it’s value in the first year (and I have no idea if they can do this — it is a what-if) that would represent tremendous value, and of course value that is not at all reflected in examining AQNT’s P&L as an independent company.

By: bigglasses

bigglasses — Tue, 22 May 2007 08:14:54 +0000

I think it makes a lot of sense.

But then, I happened to have bought a couple of hundred shares of aQuantive last Monday.

;)

By: smkr4

smkr4 — Tue, 22 May 2007 06:44:12 +0000

“For $6 billion in cash, Microsoft could have hired, in a single day, 60,000 engineers and salespeople (plus managers to make sure they earn their pay) - paying each one of them a $100,000 salary.”

Not a chance. Even with simplifying assumptions, this comparison is stupefying. Hiring 60,000 people outright — where do they work? You have to build offices. You can’t hire them all in one place, or their collective salaries will drive col through the roof and overwhelm local infrastructure. And those are just the easy factors to consider. Nevermind what they’d actually do, how you’d lead them, what the vision is …

Frankly, I think your “comparison” is the ultimate example of the “nine women having a baby in one month” mentality that often gets bandied about in these M&A discussions.

Microsoft’s alternative, in my view, was to spend $2 billion (conservatively) and have a 25% chance (optimistically) at penetrating the market, versus spending $6 billion and having a 100% chance. By that calculus, the deal seems much more reasonable.

By: jeremy liew

jeremy liew — Tue, 22 May 2007 01:27:14 +0000

This seems to me to be less a case of chasing Google’s acquisition of Doubleclick and more a case of chasing AOL’s acquisition of Advertising.com. More at (link)

By: Graeme Thickins

Graeme Thickins — Tue, 22 May 2007 00:03:09 +0000

kevin — kudos to you for an awesome post and for pulling such a great bunch of comments…..best read I’ve had all day

By: jason

jason — Mon, 21 May 2007 22:00:20 +0000

To see the next m&a transaction ahead of time.

By: todd sawicki

todd sawicki — Mon, 21 May 2007 18:52:20 +0000

I think folks are getting all lathered up about the price (not unfairly so - it’s expensive by any reasonable metric as I note in my blog: (link) ). However, having been involved in a fair amount of m&a activity in the online space the last ten years, there’s a rule of thumb which I talk about today that a deal if it works out, will always look cheap.(http://www.sawickipedia.com/blog/2007/05/21/microsoft-aquantive-followup/)

By: Nate

Nate — Mon, 21 May 2007 17:29:06 +0000

What value do you think the market places on Microsoft employees? $4.2 million? ($300 billion divided by 71,000 employees?)

By: kenobi

kenobi — Mon, 21 May 2007 13:49:52 +0000

Benefit: Microsoft now has a new - and global - sales network to help sell its online ad solutions to clients. aQuantive companies do this day in / day out and Microsoft is piggy backing this sales operation. Could there be preferential deals for clients who sign up to MS ad solutions as part of a marketing campaign? Go on to Microsoft’s site to see the array of ad opportunities that can be sold in. Xbox Live is a case in point. Who else can offer access to this network of gamers as part of a one stop shop ad / marketing solution. I’ll admit it - I’m excited by it…

By: john m

john m — Mon, 21 May 2007 11:18:49 +0000

This is even worse than it looks at first glance. Avenue A/Razorfish and the other agencies in the deal account for well over 50% of the revenue in the latest 10-k. There’s a huge conflict of interest here. You can’t be the world’s largest internet publisher and the largest agency at the same time. They’ll have to spin it off at a much lower valuation (unless someone out there is even more irrationally exuberant than MSFT).

That means that the degree they’ve overpaid for the other assets here is even more pronounced.

Maybe you should just focus on shipping Halo 4, Steve. Leave the internet to the professionals.

By: dan franc

dan franc — Mon, 21 May 2007 09:40:19 +0000

Well, hiring 60k engineers is a process that can cost SO MUCH money that you also have to put into equation. Then you have the process of getting them oriented, trained; you have to get them infrastructure, etc. etc. - the cost can be pretty major. Then you have to keep them busy developing further projects. Salary is one of the least expense. I’d buy a solution, rather than go crazy with 60k new staff ;)

By: Vishal

Vishal — Mon, 21 May 2007 08:04:50 +0000

How can you say that MS’s focus on Computers was short sightedness? They are still milking money from the monopoly they have built up over the years. MS has always been a follower.. even in the PC days.. I think it is only a matter of time before it catches up with the big G.

By: Alex

Alex — Mon, 21 May 2007 06:16:36 +0000

Kevin,

The facts you cite about Microsoft's own employment levels of 71,000 for a company with a market value of 294 billion dollars (4 million per employee) undermines your argument that there is somehow a one to one correlation between the absolute number of employees in a company and its value.

Whether Microsoft's purchase of aQuantive ultimately represents a wise decision or an act of desperation will be determined based on whether Microsoft is able to gain first mover advantage in certain critical categories of the growing on-line advertising market. Certainly the jury is out on that question.

By: Yong Su Kim

Yong Su Kim — Mon, 21 May 2007 06:05:19 +0000

I can only imagine the integration challenges with the rest of Microsoft. Given Microsoft’s unique culture and aQuantive’s diverse business lines, it’s going to be quite the challenge to absorb aQuantive.