It's becoming a familiar sight: Microsoft (NASDAQ:MSFT), rumored to be making a play for an online company, gets outbid by someone else. It happened again this morning, when WPP Group (NASDAQ:WPPGY) agreed to acquire online-advertising specialist 24/7 Real Media (NASDAQ:TFSM) for $11.75 a share in cash.
The $649 million deal comes two weeks after a New York Post story had Microsoft bidding as much as $1 billion for 24/7 Real Media's hand. Rumors can sure be fun -- as long as it's not your money riding on the eventual outcome.
Did Microsoft really set its sights on 24/7? Was the buyout gossip 24/7's way to pressure advertising giant WPP, the reported suitor a week before Microsoft's name surfaced, to seal the deal? Don't wait up for the answers -- they don't really matter at this point.
WPP needed 24/7, perhaps more than Microsoft. WPP is a global advertising giant, but what old-school promoter doesn't crave a meatier presence in the faster-growing playground of interactive marketing?
Whether or not it was involved in the bidding, the news thrusts Microsoft back into the loser limelight. Attempting to increase its reach, it's reportedly gone after Web-widening properties such as DoubleClick and AOL, only to find Google (NASDAQ:GOOG) walking away with both prizes. Unresolved battles remain for companies like Facebook.
Microsoft doesn't always walk away empty-handed. It did land in-game advertiser Massive last year. However, save for rare instances, it seems that the adage (with some slight adjustment) is true: Mr. Softy is always the best man, never the groom.
Maybe it's for the best
It's easy to agree that Microsoft needs to grow its online advertising presence through acquisitions. Organically speaking, it's years behind market leaders Google and Yahoo! (NASDAQ:YHOO). Stocking the pond with interactive marketing players like aQuantive (NASDAQ:AQNT), 24/7, and ValueClick (NASDAQ:VCLK), and handing Microsoft a fishing rod, makes for a great photo op. Unfortunately, there is always something fishy with the "catch of the day" rumor-mill fodder.
In Microsoft's case, 24/7 wouldn't have been a perfect fit. Its fastest-growing segment is its Search Solutions business, which helps prospective advertisers devise cost-effective paid-search campaigns via all the leading search engines. Search Solutions accounted for 43% of 24/7's revenues last year.
Microsoft would love to play a bigger role in the swaying process, but do you think that advertisers are that stupid? If any of the three paid-search behemoths took the reins at 24/7, advertisers would smell the conflict of interest and bail quickly. Marketing mercenary WPP is a better fit; it will likely grow 24/7's Search Solutions business with its fat Rolodex, rather than watching it shrink.
Don't panic, but don't go organic
Not every interactive marketer would present a conflict of interest. A company like ValueClick -- with its wide network of affiliate marketing and comparison-shopping sites -- would create less friction, but still pose some challenges.
Microsoft's acquisitive emphasis at this point should be on content sites, rather than marketing enablers. Google's success has come largely from its network of third-party sites, which rebroadcast Big G's ads. Indeed, Google's AdSense program contributed 37% of the company's revenue this past quarter.
AdSense itself is practically untouchable. Because Google has the largest base of advertisers, it's able to provide independent publishers with the best assortment of well-paying, highly targeted sponsored spots. Yahoo! has come to realize this as it struggles with its Yahoo! Publisher Network product. Microsoft will no doubt bump against the same publisher resistance once its AdCenter evolves to that point.
So the key is to own more virtual real estate in the dot-com land grab. If the site happens to be a big Google AdSense partner -- like AOL or MySpace -- well, that would be a bonus.
It'll be fine, Microsoft shareholders. There are other fish in the sea. Mr. Softy just needs to realize that it's been casting its line in the wrong pond.
Yahoo! has been recommended to Stock Advisor subscribers. aQuantive is a Rule Breakers stock pick. Microsoft is an active value-priced selection in the Inside Value newsletter service. Ready to go fishing? Throw your line into any of the three research services with a free 30-day trial subscription.
Longtime Fool contributor Rick Munarriz sees the irony in search specialists searching for smaller search stars. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.
