Microsoft has taken a $6.2bn hit by writing down the value of aQuantive - the mega acquisition Steve Ballmer boasted would transform his company into an online advertising biz.
The Windows software giant suffered the financial blow in its fourth fiscal quarter, which closed at the end of June and the results of which are due to be announced this month. Microsoft is now expected to report a loss for Q4, which had been expected to make a $5.3bn net profit
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aQuantive was, until Skype last year, Microsoft’s biggest single corporate purchase: it paid $6.3bn for the digital marketing group in August 2007 just before the economic bubble burst.
The acquisition was supposed to make Microsoft an online advertising powerhouse, serving ads through coordinated and interactive campaigns for clients that would span Xbox Live, Windows Live, Office Live and MSN.
It was supposed to be Microsoft's answer to the Google online ads juggernaut - specifically countering Google's purchase of advert-delivery network DoubleClick for $3.1bn in April 2007. Microsoft had called for a US government investigation of the DoubleClick purchase; when that failed, it seems, the software titan succumbed to growing pressure by making an ads deal of its own.
Microsoft chief executive Steve Ballmer promised to turn his company into an advertising biz, calling it the next evolution in Microsoft's online ads strategy. He answered skeptics by saying Microsoft had no choice but to make "big bets" and to execute its master plan "very well".
In announcing the deal, he said Microsoft was "intensely committed" to maximising the "digital advertising opportunity for all".
However, the Windows 8 giant said this Monday that the acquisition hadn’t accelerated growth to the degree anticipated. Also, worryingly, expectations for future growth and profitability for the Online Services Division – home to Bing – are lower than previous estimates. Online Services is one of the weakest performing parts of Microsoft’s business divisions, dipping in and out of the red.
The aQuantive deal had given Microsoft media planning and buying capabilities, interactive advertising agency Avenue A/Razorfish, and advertising tools. So committed was Microsoft that it passed control of all its advertising activities to aQuantive chief executive Brian McAndrews.
A year after the deal, though, McAndrews was gone and aQuantive staff complained they were being marginalised. In 2009 Microsoft sold Razorfish for $530m. ®