Conceding that its giant acquisition of aQuantive Inc. hasn’t worked out as planned, Microsoft says it will write down the value of goodwill in its Online Services Division by a whopping $6.2 billion — almost as much as it paid for the Seattle-based online advertising company back in 2007, then the largest deal in Microsoft’s history.
The non-cash change to the company’s books doesn’t affect Microsoft’s day-to-day operations, but it’s a difficult concession for the company considering the impact that the aQuantive acquisition was supposed to have on its business. It will also be reflected in Microsoft’s profit-and-loss statement for the quarter ended June 30 — potentially causing the company overall to post a quarterly loss on paper.
“While the aQuantive acquisition continues to provide tools for Microsoft’s online advertising efforts, the acquisition did not accelerate growth to the degree anticipated, contributing to the write down,” says Microsoft in a news release announcing the change.
Goodwill is the accounting term for the amount by which an acquisition price exceeds the value of the actual assets being acquired — in other words, it’s the intangible stuff that a company like Microsoft believes will boost the value of its own business.
Microsoft said it decided to make the write-down as part of an annual goodwill impairment test that companies are required to conduct for each of their business units.
Microsoft said in today’s news release: “Bing search share in the U.S. has been increasing, revenue per search (RPS) has been growing, MSN is the No. 1 portal in 29 markets worldwide and the company’s partnership with Yahoo! has continued to expand geographically. While the Online Services Division business has been improving, the company’s expectations for future growth and profitability are lower than previous estimates.”
Seattle-based aQuantive had been a regional success story, employing thousands of people in digital advertising, marketing and technology. Microsoft sold Razorfish, the digital ad agency that had been part of aQuantive, for $530 million in 2009 to ad giant Publicis Groupe.
Microsoft made the aQuantive purchase as a defensive move after Google announced its acquisition of DoubleClick, seeking to keep up with its rival in the display advertising business.
However, attention in the Online Services Division quickly turned to Microsoft CEO Steve Ballmer’s ultimately unsuccessful bid to acquire Yahoo, part of an effort to beef up its offerings in Internet search and related advertising.
That lack of focus is part of the reason that the aQuantive integration didn’t go as planned. Many of aQuantive’s executives, including former aQuantive CEO Brian McAndrews, have long since left the Redmond company.
Microsoft’s $8.5 billion acquisition of Skype has since taken the crown as the company’s largest acquisition.