Three Minds On Digital Marketing @ Organic

When Microsoft purchased aQuantive for $6B in cash in May 2007, the media, software, and Internet industries all took notice.  Microsoft gained ownership of interactive agency powerhouse Avenue A/Razorfish and, with that, the ability to buy and create interactive advertising.  Now, five months later, the interactive community is on notice again as Microsoft has made a $240M investment in Facebook.

 
The ordinary business story is clear… Microsoft is simply vertically integrating.  However, the $240M investment buys only a 1.6% stake in Facebook (the math indicates the whole company is valued at $15B - that's 2.5x more than aQuantive for those of you keeping score at home) so fears of Facebook only being functional on Internet Explorer can be put on hold – Microsoft didn't invest in Facebook to have that kind of control. However, Microsoft has now solidified its place along the entire online advertising value chain (buying, creating and selling).
 
Not known for backing down, Microsoft may have entered the speculative online advertising market in response to the new competition in their core business – software.   Google, which was coincidentally Microsoft's competition in this Facebook stake, has developed core strength in application creation having begun their growth through advertising.  Even though Google's applications don't, on their own, make money (they are free to users, but can be advertiser-sponsored), it seems that Google could be this close to creating free versions of the Microsoft software that people use everyday.  Now, with online applications eroding desktop applications, Microsoft has got to be worried about the relevance of operating systems on the whole.
 
Microsoft needs to learn.  It needs to learn how to leverage what they know, software, for what they want, to be an online advertising powerhouse.  For a company as cash-rich as Microsoft (an advantage it has over Google), $240M is a reasonable price tag to get a peek at the services and applications that Facebook is developing everyday (now funded by Microsoft) and have access to a whole new group of developers.  Microsoft's model may change and their past success in software design will simply be an input in the future Microsoft.
 
Betsy Morse