What Microsoft saw in aQuantive: tools, tech and top-tier ties

As one online-advertising agency after another got snapped up this year, speculation grew that Seattle-based aQuantive was being wooed.

But it was only Friday that aQuantive revealed just how ardent its suitors were. The company had multiple bidders, driving up the purchase price to the astonishing $6 billion in cash that Microsoft said it would pay.

In the past two months, advertising shops have been swept up by technology giants and the industry has gone through tumultuous change. AQuantive had been the biggest holdout — the largest independent online-advertising agency in the country.

Still, the acquisition news left some wondering why, exactly, Microsoft would pay so much for an advertising company. What is aQuantive all about, anyway?

The 10-year-old company has grown mainly by offering top-to-bottom services for advertisers. It helps them create advertising and branding campaigns. It serves, or electronically places, those ads on popular Web sites for maximum exposure. And it offers sophisticated tools for tracking when people clicked on those ads and what they did on the Web site that followed.

If you went to a banking site, for example, aQuantive's system would note that and could show you ads for that bank when you visited other Web pages. And it wouldn't be the same ad each time, either. The system could show you a sequence of ads targeted to your interests.

AQuantive also creates Web sites for companies. It built the Postopia.com gaming site for Kraft, for example, and a site about youth travel programs for Disney. It created a "Fanta-island" Web site to help the Fanta beverage company reach out to teenagers.

AQuantive went public in February 2000 at $24 a share, and it now has 2,400 employees worldwide, including 630 in Seattle.

Through quick growth and a series of acquisitions, the company today divides its business into three segments. Its Avenue A | Razorfish advertising agency unit develops Web sites and provides interactive marketing, and contributes nearly 60 percent of the company's sales. Its Atlas unit manages and tracks ads, and its DRIVEpm business buys Web space from publishers and sells it to advertisers.

The company's stock price has seen an impressive run-up lately — often a byproduct of expectations that a company will be acquired soon — going from $23 six months ago to Friday's close of $63.79. The share price soared almost $28 on Friday.

Some champagne corks might be popping at big mutual-fund houses. T. Rowe Price and Fidelity are aQuantive's biggest shareholders, owning about 18 percent of the company, according to a recent regulatory filing.

The person who likely stands to benefit most is Nick Hanauer, a Seattle venture capitalist who owns 5.6 percent of the company and is its chairman. Hanauer said he's taking about $300 million from the deal, and plans to donate an enormous amount of it to public education, the environment and other causes.

"It's an unprecedented and spectacular outcome for shareholders," Hanauer said. "And yet it makes me sad that [aQuantive] is not still an independent company."

Microsoft is buying aQuantive's tools and technology, and it's also getting key relationships with Fortune 500 clients that it didn't have before. AQuantive works with 30 percent of the Fortune 100 companies.

Forrester analyst Shar VanBoskirk said the agency could be valuable because it gives Microsoft control of the entire chain of business in online advertising, from planning to execution. That would give Microsoft a leg up on rival Google, because Google is not getting an agency business in its recently announced $3.1 billion acquisition of online-ad company DoubleClick.

"That's a pretty compelling piece for Microsoft and a differentiator with Google," she said. Company Chief Executive Brian McAndrews said aQuantive gains from the acquisition because it now has the resources to vastly expand its business. For example, when the company bought Accipiter Solutions, a small ad-technology shop, in December, it noticed that some publishers were worried about partnering with such a tiny company.

That concern is completely gone now, he said.

Hanauer said that as all media become digital, the boundaries between different types of marketing are disappearing. That's creating an enormous market with hundreds of billions of dollars in possible profit, he said.

"What's happening is that the biggest market in the history of the Earth is in the process of being formed," he said. "Being a big player in it is both likely to be highly lucrative and the only way to participate."

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com