Anilrgowda

As part of an online advertising push designed to leapfrog Yahoo and present a serious challenge to Google, Microsoft has just closed a $6 billion deal with digital marketing company aQuantive. As the software industry begins a shift from traditional desktop programs to web-based applications, MS fears the disruption could affect all of its products in ways yet unknown; the purchase of aQuantive is designed to help the company stay profitable during the transition period.

"Our goal is to be No. 1 or No. 2," Kevin Johnson, president of Microsoft Corp.'s platforms and services division, said in an interview last week. Johnson added that units in the two companies (MS and aQuantive) are being combined and reorganized to provide an advertising platform to support new Web-based services. A new advertising and publishing solutions group is being formed, under a plan Johnson and aQuantive Chief Executive Brian McAndrews outlined last week with The Associated Press. The group, to be led by McAndrews, includes aQuantive's ad-serving technologies and tools for tracking the success of online ad campaigns, and DrivePM, which extends Microsoft's ability to sell Web ads to aQuantive's broad network of top sites. AQuantive's Avenue A/Razorfish, a well-regarded Web design and online advertising agency, will operate "at arm's length," McAndrews said.

Microsoft will have a tough fight in the following years if it wishes to overcome Yahoo and Google; MS currently lags far behind both companies in both search traffic and ad-revenue. On the other hand, some analysts believe that the recent spate of ad-company buyouts by Google and MS indicates a looming shift in the stagnating online-advertising market. "The so-called long-tail advertisers that have really propelled Google's growth for the past four years is starting to plateau," said Andrew Frank, an analyst at research group Gartner Inc. "The next wave of growth is going to be big brands shifting their advertising budgets, still largely invested in newspapers and TV, into the Internet in earnest."

In order tbe one of the top online advertising companies, analysts say Microsoft must both drive more customers to its websites and beef up technology that help marketers target advertising in a way that doesn't stir up Web surfers' squeamishness about giving up personal information. The software maker will also have to provide more sophisticated tools than even aQuantive currently offers to help marketers crunch the huge amount of information about how Web surfers interacted with the ads and see if their dollars were well-spent. Some question whether Microsoft can divert enough focus from the software and entertainment businesses to really succeed as an online advertising company.

View: Full Story on SiliconValley.com

------------------