Microsoft loss reflects Web display ad woes

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