Microsoft buys ad company for $6 billion

Microsoft must have been feeling left out after recent advertising-related acquisitions by Google and Yahoo, hence it finally went ahead and bought an agency for internet ads, aQuantive Inc, for the large sum of 6 billion dollars. The cost of the acquisition shows the current heated nature of the ad market, and also the feeling that it should not be left behind by Google in this market. There are not that many leading companies available now, and the remaining ones will carry an additional premium.
Refer this article:

Microsoft Corp., not wanting to get left behind rivals in an online advertising boom, agreed to pay $6 billion in cash to acquire aQuantive Inc. on Friday, a leading agency for Internet ads which also has powerful technology that serves display and banner ads to other Web sites.
The eye-popping premium of 85 percent Microsoft is paying for aQuantive reflects a heated race for the few remaining online advertising businesses, as media and technology companies jockey for position in the Internet advertising market.
The deal caps a month of furious activity in the sector which began in mid-April with Google Inc.'s $3.1 billion purchase of DoubleClick Inc., a company that provides technology used by Web site publishers to deliver advertisements to viewers.

One wonders about how much the premium paid by Microsoft was due to ensuring that they are not getting left behind by Google in the race for advertising. Google is the unquestioned world leader in the advertising and search markets, and Microsoft is making a determined effort to challenge this supremacy, although they have a long way to go.

For Microsoft, getting aQuantive could jump-start its online advertising business, which lags far behind Google and Yahoo Inc. due to the lower traffic on its own destination Web site, MSN. The deal "certainly keeps them in the competitive arena with Google," A.G. Edwards analyst Denise Garcia says.
aQuantive's technology will allow Microsoft to deliver ads to third-party Web sites, something that should mesh with Microsoft's existing plans for delivering ads onto other platforms such as video games on its XBox, which connects to the Internet. Microsoft currently delivers ads mostly to its own Web sites, such as MSN.

Google has a stranglehold on this market, with the capability to deliver ads easily to third party websites. And Google provides an easy way for third party publishers such as blogs to post Google ads on their sites, and make money out of that, effectively turning all these people into promoting the Google ad network. In fact, if you take a look at a lot of websites in the online world, you will mostly see 'Ads by Google' in them somewhere.
Analysts are not sure about the returns from this deal, given that it is an expensive deal, but maybe there were not too many options available with Microsoft, given that it was unable to push its own network too much.