aQuantive Math Adds Up for Microsoft

It's billed as a response to Google(GOOG Quote). But Microsoft's(MSFT Quote) latest acquisition has as much to do with its own aging software business as it does with its rival.

On Friday, Microsoft said it would acquire aQuantive(AQNT Quote) for $6 billion -- a massive 85% premium to where shares of the interactive ad agency had traded the day before. Many commentators scoffed at the price tag, seeing it as an admission by the software giant that it had failed to crack the Internet.

But if it succeeds, the bet will do more than just give Microsoft another shot at the Web. It will also help Microsoft evade the inevitable slowing in its bread-and-butter businesses.

aQuantive gets most of its revenue -- 60%, by investment bank Goldman Sachs' estimates -- by selling services to advertisers who want to reach customers through digital forums. That sets aQuantive apart from other online ad companies like DoubleClick, which was recently acquired by Google, or ValueClick(VCLK Quote), which has seen its stock soar amid takeover speculation. Those companies are known for selling technologies to Web publishers who want to place ads on their own sites, not advertisers.

And while aQuantive is often mentioned in the same breath as DoubleClick or ValueClick, it's unique in having the ear of so many top notch online advertisers. And that's why aQuantive is so valuable to Microsoft. The traditional method of selling software in shrink-wrapped packages and through expensive annual licenses is being displaced by a more nimble way in which software is delivered over the Internet. Some of this so called Software-as-a-Service, or SaaS, model will rely on having ads placed next to it, which Microsoft knows.

"We are investing in this concept of software plus services," Microsoft platforms and services division president Kevin Johnson said in a conference call for investors to explain the deal. "Whether it is Windows Live, Office Live, or Xbox Live, we will have a set of online services -- many of which will be monetized using online advertising."