Microsoft Adds Web Broker to Online Ad Strategy - TheStreet

Microsoft Adds Web Broker to Online Ad Strategy

The company looks to complement its aQuantive purchase.
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WPP Group

,

Ogilvy & Mather

, and ...

Microsoft?

(MSFT) - Get Report

Among the biggest names in advertising, you may eventually be able to add the Redmond, Wash. software giant to the list.

At its annual analyst day, the company announced Thursday it had acquired tiny startup

AdECN

, yet another piece of the digital advertising empire that Microsoft is building.

AdECN, an ad exchange network founded in 2003, has 37 network members. Kevin Johnnson, president of Microsoft's Platforms and Services division, characterized AdECN as comparable to the

Nasdaq

in its neutrality as a locus for advertisers and publishers to agree on price.

Financial terms of the deal were not disclosed.

The deal is a key component of Microsoft's strategy to develop a comprehensive search and display advertising platform. Existing components of Microsoft's advertising strategy include the three segments of

aQuantive

(AQNT)

,

an acquisition that is expected to close in August: the Atlas online advertising software platform; DRIVEpm, which connects advertisers with publishers' inventory; and AvenueA/Razorfish, a full-service advertising agency.

The company has also launched its Ad Center as a way to get a start in online advertising, creating an auction capability where advertisers could bid on search terms. The company plans to further that effort by delivering content advertising for the same search terms, beginning in the first quarter of 2008, Johnson said.

Key to driving revenue in the online advertising business is the company's growth in the volume of registered, active Live ID users, who now number 380 million, Johnson said. Also important will be the ad placement capability brought by Microsoft's acquisition of Massive, which has over 40 publishers and will have over 100 game titles by the end of the year, he added.

The company is building on ad delivery technology, he said. aQuantive brings the ability to deliver video advertising on demand. "On the PC, we continue to enhance through solutions such as Silverlight" and its zoom capabilities, "something that advertisers are embracing."

Johnson suggested more acquisitions to fill out Microsoft's online services business are to come in 2008, saying it will be another year of investment for the division.

The company disclosed July 19 that its online services revenue grew 19%, to $688 million during the most recent quarter.

Shares of Microsoft slipped Wednesday 2.4% to $29.98 amid the market's broad-based selloff.

Addressing criticism of the $6 billion Microsoft is paying for aQuantive, Johnson said, other companies were bidding aggressively. "aQuantive was a prized asset."

Microsoft CEO Steve Ballmer said the company will go broader into markets outside its core competency of software: "We're investing today in two new core competencies: advertising and devices."

"We only have a small piece today" of the online advertising market, but that will change as it "becomes a mainstream thing," said Chairman Bill Gates. "We have a lot of our top people thinking" about how to match search with advertising, he added.

Johnson estimated the online advertising market will grow from $40 billion now to $80 billion over the next three to four years, "Now, we're putting those assets together to go after this advertising revenue in a big way," Johnson said.

As for its core operations, the company told investors it has sold 60 million copies of its Vista, released in January. The company said in April it had sold 40 million copies to date. That's about half the rate at which the operating system had sold before some PC makers, such as

Dell

(DELL) - Get Report

, began allowing consumers to

order new PCs loaded with the older OS , Windows XP, instead.