Microsoft Takes $6.2 Billion Accounting Charge On Digital Ad Company Acquisition (NASDAQ: MSFT)

Microsoft announced that it would take a $6.2 billion accounting charge in its online services division for the failed acquisition of aQuantive, a digital advertising company Microsoft purchased in 2007.  The accounting charge was essentially a write-off of the value of aQuantive.

A statement for the company said it took the write-down because “expectations for future growth and profitability are lower than previous estimates” for the online services unit and that the charge will not affect the division’s operations or financial performance.  The accounting charge will wipe out Microsoft’s profit for the fourth quarter.

This marks the collapse of Microsoft’s biggest push into digital advertising.  Brendan Barnicle, senior research analyst at Pacific Crest Securities, said, “It’s disappointing, but it is not a shock at this point.  The industry has evolved beyond where aQuantive was when Microsoft bought it.”  Microsoft has relied on a number of digital advertising partnerships and the company does make money in online advertising.

Microsoft purchased aQuantive during the time period when many of its rivals were also making purchases of internet display advertising companies.  The aQuantive deal came a month after Yahoo agreed to pay $680 million for online ad exchange Right Media.  The WPP Group bought 24/7 Real Media, another digital advertising company, for $649 million one day before Microsoft bought aQuantive.

In the month prior to the aQuantive acquisition, Google purchased  DoubleClick for $3.1 billion, a deal has been highly profitable for Google.  Google used DoubleClick’s personalization technology for the placement of banners and other display advertising and used DoubleClick’s inventory of Web ads with Google’s self-serve ad placement technology AdSense.

Todd Sawicki, chief revenue officer of Web site publisher Cheezburger, said, “It could have been another DoubleClick, but they would have had to know a business where publishers and advertisers meet, and then invest heavily.  Microsoft bought aQuantive in a reactionary move to Google buying DoubleClick, thinking that ad serving was its core strength.  Then they woke up the next morning and realized what they had.”