SAN FRAN­CIS­CO-Mi­crosoft Cor­po­ra­tion shelled out a record US$6.3 bil­lion for aQuan­tive in 2007 at the height of a race with Google Inc and Ya­hoo Inc to clinch the top spot in In­ter­net dis­play ad­ver­tis­ing, bet­ting on what many thought was a red-hot busi­ness. The write­down of al­most all of that deal's val­ue, an­nounced this week, shows how mis­guid­ed those ex­pec­ta­tions were, and how bru­tal the once-thriv­ing busi­ness of sell­ing ban­ner ads on Web sites has be­come.

The main cul­prit is an ex­plo­sion of ad­ver­tis­ing space of­fered by Face­book Inc and oth­er Web sites that is out­pac­ing steady de­mand. But au­to­mat­ed on­line ex­changes, smarter search ad­ver­tis­ing and a grow­ing skep­ti­cism about the ef­fec­tive­ness of jam­ming ads in peo­ple's faces have al­so con­spired to slash prices and suck prof­its out of the busi­ness.

"The in­ven­to­ry or amount of ad spots grew so fast, it out­grew de­mand," said Dave Mor­gan, an in­dus­try vet­er­an and en­tre­pre­neur. "That brought pric­ing down mas­sive­ly. So a lot of dis­play ad­ver­tis­ing re­al­ly be­came a ghet­to for bad di­rect-re­sponse ad­ver­tis­ing." Mor­gan found­ed Taco­da, an on­line ad­ver­tis­ing firm that AOL ac­quired in 2007 for US$275 mil­lion.

He is now in tele­vi­sion ad­ver­tis­ing as the chief ex­ec­u­tive of­fi­cer of Simul­Me­dia. "That's where the big mon­ey and mar­gins are," he said.

Reuters