AQuantive exec leads Microsoft charge into Web ads

By Daisuke Wakabayashi and Michele Gershberg

SAN FRANCISCO, Oct 19 (Reuters) - Microsoft Corp (MSFT.O) said its $6 billion acquisition of aQuantive will fill out its Internet advertising technology and make it as competitive as Google Inc (GOOG.O) in that market.

The August purchase of the digital advertising firm positions Microsoft as one of the few companies with the money and technology know-how to be a major force in an industry expected to grow to $80 billion by 2010, said Brian McAndrews, former aQuantive CEO who is leading Microsoft's advertising efforts.

"Our goal is to have a significant amount of the revenue in the industry going through our technology, our platform," said McAndrews, who spoke to Reuters this week on the sidelines of the Web 2.0 Summit in San Francisco. "All parts of our business will be bigger and more profitable."

AQuantive's Atlas technology allows advertisers and publishers to buy and sell digital advertisements.

Microsoft still needs to be able to sell "contextual" advertising to target specific visitors of a Web site, but McAndrews expects that it can introduce that capability next year, providing a full suite of advertising tools.

McAndrews is at the vortex of Microsoft's major push into Web advertising technology. Threatened by Google, the company is working to build a major business to be a pillar of earnings alongside its main Windows and Office software.

Microsoft made its biggest-ever acquisition when it bought aQuantive and handed the keys to its advertising business to McAndrews. The executive ranked No. 11 in Business 2.0 magazine's "50 Who Matter Now," ahead of even his Microsoft bosses, who include CEO Steve Ballmer and Chairman Bill Gates.

'1 + 1 = 3'

McAndrews, who is senior vice president at Microsoft's advertiser and publisher services group, said the benefits of the acquisition would increase over time.

"Absolutely, one plus one equals three, but not on day one," he said. "I would say something like one plus one equals two and a quarter."

Microsoft's acquisition of aQuantive is part of a $10 billion consolidation spree in the online advertising market, centered mostly around deep-pocketed players. Google agreed to pay $3.1 billion for DoubleClick, while Yahoo Inc (YHOO.O) snatched up the rest of Right Media for $680 million.

"There just aren't going to be very many companies that can invest the kind of money it's going to take to build these platforms and have the technology expertise," said McAndrews.

For now, AQuantive's Avenue A/Razorfish interactive ad agency will remain in Microsoft. Wall Street analysts had earlier speculated the higher-margin unit, which accounts for nearly 60 percent of aQuantive's revenue, may be sold.

McAndrews explained that Avenue A had also been a key link between its advertiser clients and the part of aQuantive that specializes in ad-serving and tracking technologies. AQuantive has also profited from its technology ties with traditional ad agencies.

"Agencies are a critical part of the ecosystem," McAndrews said. "They aren't going away, they shouldn't go away and, frankly, if there is a technology company trying to disintermediate them, then I think that's a mistake."

Google has sought to extend its auction-based technology for efficiently selling Web search advertising to traditional media, from television to radio and print. While the company said it did not plan to replicate the ad agency model, many in the industry fear it might eventually offer a wider range of advertising services, including creating campaigns.

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((Editing by Lisa Von Ahn; Reuters Messaging: daisuke.wakabayashi.reuters.com@reuters.net; +1 206 652 2326)) Keywords: MICROSOFT MCANDREWS/

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