Razorfish Deemed Poor Fit for Microsoft

Amid layoffs at the agency, Razorfish may be for sale. The news may come as little surprise to some who were concerned when Microsoft purchased aQuantive in 2007, that ownership of its agency subsidiary Razorfish could amount to a conflict of interest. After all, Microsoft would now represent both the ad selling and buying side.

The Financial Times reported that Microsoft is seeking a buyer for the digital ad shop. Microsoft did not comment on the report.

“Ultimately it’s a pretty straightforward situation: Razorfish doesn’t really fit into Microsoft’s business that well,” said Forrester Research Analyst Sean Corcoran.

So far, agency networks like Publicis and WPP have been named as potential buyers. “I think you can look at any of the major holding companies” as possible buyers, said Corcoran.

The agency appears to have fallen on hard times as the recession cuts ad budgets. Last week the firm said it laid off about 10 percent of its Manhattan-based staff earlier in June, and blamed the economy as the impetus. About 40 people were let go from the New York office in October 2008.

“Razorfish, like most companies in our industry has been reacting to the recession,” Razorfish Marketing Director David Deal told ClickZ News at the time. He also suggested staff reorganization was a factor, noting, “We’ve been aligning our skills with long-term client demand.”

Razorfish also fired around 70 people in Los Angeles, Portland, San Francisco, and Seattle in February.

Microsoft acquired Razorfish when it purchased aQuantive for a staggering $6 billion in 2007. Razorfish was sold to aQuantive in 2004 for $160 million. Today there is speculation Razorfish could go for as much as $700 million.

When Microsoft first purchased aQuantive, speculation arose regarding a potential conflict of interest. People wondered, might competing agencies worry that Razorfish would get preferential ad rates when buying ads in Microsoft properties?

Even then, observers questioned why Microsoft would want to keep Razorfish. However, holding onto the digital agency may have been attractive if only for the promise of Razorfish steering brand advertiser dollars to Microsoft. It’s unclear whether that’s occurred.

If indeed Microsoft plans to unload Razorfish, one question remains: why now and not two years ago? “Maybe it was a lack of suitors,” suggested Corcoran. There’s also the chance Microsoft has been unable to leverage the subsidiary to the fullest extent. Microsoft, for instance, recently announced an expanded relationship with Publicis, which will work with Microsoft on projects including online ad performance and a TV ad exchange.