The deal is Microsoft's largest ever, highlighting the importance ofacross areas including media planning, video on demand and Internet Protocol television. Aquantive produces the Atlas Media Console and Drive PM tools for advertisers and publishers, and owns interactive ad agency Avenue A Razorfish.
"The advertising industry is evolving and growing at an incredible pace, moving increasingly toward online and IP-served platforms, which dramatically increases the importance of software for this industry," Microsoft CEO Steve Ballmer said in a statement. "Today's announcement represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet."
Microsoft said it will pay $66.50 per share for Aquantive, an 85 percent premium over its Thursday closing price of $35.87.
Earlier this week, ad giant WPP Group said it will
"The shift to online marketing has at last begun. We in the industry have been talking about the shift away from traditional media into online for the last 10 years," Shar VanBoskirk, a Forrester Research analyst, said in a statement. "I think the intensity and price tag of these acquisitions indicates that some very big media and agency firms are staking their bets online."
Aquantive, which was founded in 1997, has about 2,600 employees and is based in Seattle.
One analyst said Microsoft may have had to act fast, before all players in the market were snapped up. But challenges still exist for Microsoft if it is to fully capitalize on the purchase.
"Like Google's acquisition, Microsoft is trying to expand out and they're aware they're behind," said Brendan Barnicle, a Pacific Crest Securities analyst. "Microsoft has been struggling with MSN and this category for a while."
Potentiallyis that it comes along as Microsoft grapples with the challenges of getting on track.
"This merger will be going on with a Windows Live overlay, and that's a concern," Barnicle said. "Microsoft has been going back and forth with Windows Live, and this deal will add more moving parts for them."
With the acquisition, Microsoft is aiming to offer advertisers, publishers and advertising agencies a soup-to-nuts approach in selecting digital advertising, services and technology tools that can be applied on Microsoft's network and, beyond that, to any Web site or distribution channel, such as Internet TV and video-on-demand.
Aquantive offers digital marketing services through its Avenue A Razorfish company, as well as digital marketing technologies through its Atlas operation. Aquantive also operates Drive Performance Media, which buys online ad inventory en masse and resells it to advertisers based on the groups they wish to target.
Aquantive's Atlas operations, which run a family of ad servers, compete directly with DoubleClick, while its Drive PM ranks No. 8 among ad network companies, Gartner analysts said.
The deal, which is expected to close in the second half of this year, will bring together two complimentary companies without a lot of overlap, Microsoft executives said during a conference call with analysts on Friday.
One aspect especially important about the acquisition is Aquantive's Avenue A Razorfish company. The deal will not only give Microsoft a new presence in the ad services business but will also help promote its new rich media and video plug-in Silverlight, the Gartner analysts noted.
The buyout is the largest Microsoft has done to date, with the next-largest transaction falling in the $2 billion range.
"We are willing to buy companies regardless of their size, if we can drive growth faster through an acquisition than internally. We have done this for smaller acquisitions and are willing to do it for larger ones too," Chris Liddell, Microsoft's chief financial officer, said during a conference call with analysts.
He added, however, that the acquisition must be strategically compelling.
"The market opportunities with this deal is in the tens of billions of dollars," Liddell said.