Instead of Yahoo, Microsoft spotlights aQuantive

The prospect of a Microsoft-Yahoo combination, with all its questions on how to "integrate" the two companies, is again bubbling to the surface.

But Microsoft said zip about Yahoo at its conference for advertisers Tuesday, instead focusing on its efforts to integrate the business and technology of aQuantive, the Seattle digital-ads powerhouse it bought last year for $6 billion.

The aQuantive combination has gone well thus far, executives and analysts said. But there's more work to be done, particularly in uniting the advertising platforms that underpin the company's play in the $22 billion online advertising industry.

And compared with the daunting task of swallowing Yahoo, with its dramatically larger size, hostile management, incompatible back-end technology and different corporate culture, aQuantive is a relative snack.

aQuantive is locally based, much smaller than Yahoo — though still Microsoft's largest acquisition — and had a veteran management team eager to join Microsoft. In fact, many stayed on board to lead Microsoft's advertising efforts.

"We've been at this about 12 months as a combined entity and we feel like we've accomplished a lot in that time," said Brian McAndrews, chief executive of aQuantive and now senior vice president in charge of Microsoft's Advertiser and Publisher Solutions group.

He told a gathering at the Microsoft advance08 advertising conference that the company has improved its tools for publishers and its technology to help advertisers target messages to specific types of consumers.

Much to do

But Microsoft still has much to do to gain the big benefits that come with combining the companies.

Scott Howe, an aQuantive exec and now corporate vice president heading several Microsoft Advertising businesses, said the aim of the ongoing integration is to simplify how Microsoft does business with its advertising clients and do a better job listening to them.

The company is restructuring its sales force, adding account executives who are the main point of contact for advertisers. Previously, clients complained that too many individuals were calling on them.

They'd say, "I don't want eight invoices from Microsoft," Howe said.

Now, account execs are coordinating teams of subject-matter experts from the groups working on specific forms of advertising, such as in video games or on mobile devices.

Another major task — one that would help Microsoft and its clients get the most out of the aQuantive combination — is uniting the two companies' ad networks.

Advertisers who want to run campaigns across Microsoft's owned-and-operated network — which includes MSN and Windows Live sites — and the broad aQuantive DRIVEpm network, still have to make multiple advertising buys. They still get multiple bills.

Integrating ad platforms

"One of our priorities right now is converging our different ad platforms," Howe said. "... That's going to require some systems integration because legacy aQuantive and legacy Microsoft use different billing infrastructure, different financial accounting systems and the like."

The project inside Microsoft is called Convergence. It's important because having a larger network allows more effective targeted advertising.

"[Combining the networks] would give a critical mass of user information to allow the advertiser very easy targeting of campaigns," said Shar VanBoskirk, a Forrester Research analyst specializing in interactive marketing.

Howe described a test case in which a retailer presented ads to online consumers who used broadband Internet connections, lived near one of the retailer's stores and had visited the retailer's Web site previously — all information that digital-ad networks can gather.

Those targeted ads had a dramatically better return on investment than ads not targeted, Howe said. Advertisers can get more bang for their buck publishers can charge more.

But targeted ads, by definition, reach a smaller audience. Only 0.03 percent of the available advertising inventory in the test met the requirements of the retailer's campaign.

"That's a problem," Howe said. "If you want to do the really granular targeting schemes, it may not be worth your effort cause you can't get enough volume."

Uniting the networks would build the sort of scale to make highly targeted campaigns more effective. Microsoft would gain even more scale in a Yahoo purchase.

Managers are weighing the speed with which they can bring together the ad networks and still innovate a must in the fast-moving digital-ad business.

Howe said all the relevant teams have "detailed tactical execution plans," some of which include goals around integration. He did not say when the integration of the ad networks would be completed.

"Our focus has been on the things that are the highest priority of customers first," Howe said.

Microsoft's experience folding in aQuantive may have influenced its decision to drop its bid to buy Yahoo outright. Now, the company is pursuing a smaller alternative deal, reportedly including the purchase of Yahoo's search division and a minority stake in the company.

"If Microsoft had bought Yahoo, I think there would be some heavy technical challenges because Yahoo's systems are ... not Microsoft-friendly at all," Forrester analyst VanBoskirk said.

She said she doesn't see the same compatibility issues in the aQuantive-Microsoft technology. The bigger question executives face is which pieces of the aQuantive and Microsoft advertising platforms should be kept.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com