More Online Ad Acquisition Madness

Within a 24-hour span we've seen WPP, a British marketing services company, acquire 24/7 Real Media (search marketing, advertising management, and digital media), and then Microsoft spend $6 billion for aQuantive (digital ad agency, marketing technologies, and ad space wholesaler). What seems to be happening is the logical continuation of Google's acquisition of DoubleClick and the alleged merger talks between Microsoft and Yahoo. Everyone's trying to get into online advertising - because they know that companies will spend ad money somewhere and it's likely going to be increasingly for digital forms. It's one huge growth area, and companies want to get in line for the cash payouts, and to control important future directions of communications and business.

One good rule of thumb is that the more companies pay for acqusitions, the more they'll ultimately have to charge to recoup the price. Furthermore, the crossover between marketing services and underlying technologies that make digital marketing possible have been significant. That spells potential conflict of interest and growing costs, which, if taken to an extreme, could make digital advertising a lot less cost effective.

A New York Times article notes this:

“To effectively compete with the likes of Google and Yahoo, Microsoft needs to have a large base of advertisers,” said Anthony Noto, an analyst with Goldman Sachs. Mr. Noto said that Google had more than 500,000 advertisers and Yahoo about 300,000, while Microsoft has only a small fraction of that. “As long as that gap exists, they will have an inferior ability to monetize their own product,” Mr. Noto said.

Now aQuantive, which is based in Seattle, will bring many advertisers to Microsoft — and more.

I'd have to disagree a bit. What drives an online advertising business is not having a lot of advertisers, but having a lot of people who want to see those ads. It may be that Microsoft will get those people, but can they keep them? So far the company has done poorly in attracting audiences, so the question becomes whether they can maintain the viewers they will need for real success.