Microsoft's Purchase of aQuantive Its Biggest Ever

As talks of a possible Microsoft purchase of Yahoo! swirled earlier this month, Microsoft CEO Steve Ballmer admitted that the company was considering making a big play. Although most people assumed Ballmer was referring to Microsoft's on-again, off-again talks with Yahoo!, it's now clear that Ballmer was referring to aQuantive. On Friday, Microsoft announced that it would purchase the online advertising company for a whopping $6 billion, making it the largest Microsoft acquisition ever.

"This deal expands upon [Microsoft's] previously outlined vision to provide the advertising industry with a world class, Internet-wide advertising platform, as well as a set of tools and services that help its constituents generate the highest possible return on their advertising investments," Microsoft noted in a statement issued on Friday. What the statement didn't mention was that Microsoft is paying far more for aQuantive than the online ad company is worth, and that the purchase is being made out of desperation.

You see, Microsoft is quickly losing ground to Internet search giant Google. After Microsoft lost its chance to purchase DoubleClick--Google snagged the company for a relatively paltry $3.1 billion in mid-April--the software giant realized it would have to come up with a Plan B. Clearly, aQuantive is Microsoft's Plan B. And as with its past failed corporate purchases--VMware anyone?--Microsoft will no doubt put its most positive spin on the aQuantive purchase. However, the reality is that Microsoft once again missed the chance to purchase a superior solution, and this time the company lost that solution to its increasingly powerful online rival.

How much did Microsoft overpay for aQuantive? The online ad company's stock closed in the mid-$30 range every day last week, but the $6 billion purchase price values the stock at more than $66 a share, almost twice its actual value. Although aQuantive's shareholders are no doubt basking in their sudden windfall, this purchase is a sign of weakness for Microsoft. Does anyone else find it telling that Microsoft's most expensive acquisition is a company that few people have ever heard of?

Microsoft said it will leverage aQuantive's online advertising expertise to improve the ad revenues generated by the software giant's various online services, including Windows Live, MSN, Office Live, and Xbox Live. Microsoft is going to have a lot of leveraging to do to justify the $6 billion purchase price. However, the purchase will go a long way to proving Microsoft's claim that Google's purchase of DoubleClick is anticompetitive. Microsoft wouldn't have spent so much money on aQuantive if it weren't truly scared of Google's ever-increasing market power.