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Microsoft: Agency, Publisher, and Network

  |  May 25, 2007   |  Comments

Microsoft's aQuantive purchase promises to change the rules about conflicts of interest in ways that will affect all online marketers.

With its acquisition of aQuantive, Microsoft will be in the agency business. That means marketers and agencies will need to get used to a new set of rules about publisher-agency boundaries, as well as what it means to be a third-party ad server.

AQuantive has three primary divisions: Avenue A | Razorfish, Atlas, and DRIVEpm. There are a lot of reasons Microsoft might have chosen to buy aQuantive, but let's focus on what makes the Microsoft acquisition so difficult for many to digest: the agency conflict issue.

Microsoft has indicated it plans to hold onto and operate the Avenue A | Razorfish agency business. This differs from the rumors regarding Google and DoubleClick's Performics, which will be a part of the merger targeted to close later this year. Google apparently recognizes the challenges with a publisher/ad network owning an agency whose duties include stewarding marketer budgets by spreading them efficiently across publishers and networks.

Of course, the Performics spinout of the deal hasn't been formally announced, and perhaps Microsoft's latest move will cause Google to rethink its plans. However, I think this is unlikely. I anticipate that before the close of the Google/DoubleClick transaction, it will be announced that Performics has been sold to another company (or otherwise disposed of).

With the Microsoft deal, there are signs the rules of the game about perceived or potential conflicts of interest may be changing. This includes a clear evolutionary signal by Microsoft and aQuantive that we're moving toward automated advertising pricing, purchasing, trafficking, and reconciliation.

Fiduciary Duty to Advertisers

The heart of the matter with regard to agency/publisher/broadcaster/network independence relates to the agency's duty to put each client's budget to use in an, if not the most, efficient manner. Marketers empower their agencies to make decisions on where media budgets should be deployed and with which creative assets those media placements will be maximized.

When a publisher, broadcaster, or ad network also owns an agency, marketers worry about whether the fox is guarding the henhouse. Will agency media planners and buyers (or even automated algorithmic media buying/bidding systems) favor the parent company? Even if policies are put in place and communicated to all staff, those staff may mistakenly believe they should help the parent company by pushing tie-breaking media opportunities (those where there's no clear winner as to the best option) to the parent company.

The reverse can also occur. By drilling conflict-of-interest concerns into media buyers during orientation and ongoing training, the parent company (publisher network or broadcaster) may scare them into favoring other media options in a tie-breaking situation.

Neither option is best for the marketer whose dollars should be allocated optimally. Even with mounds of data, some media buying decisions need intuition and experience. It's hard to imagine a human-run agency that could walk this tightrope and remain as impartial under ownership of a media property as it had been as an independent agency.

Marketers are, of course, aware of the inherent risks to both an overly cautious agency and one that breaches its fiduciary responsibility, even inadvertently. That's been the reason supporting full agency independence. The walls of independence have been eroding for some time, however. Advertising.com acts like both a publisher/network and an agency and is owned by AOL. AQuantive already has its DRIVEpm behavioral targeting network (although this network represents a small portion of the spending of Avenue A | Razorfish clients with whom I've spoken).

Secret APIs

Publishers and networks increasingly operate through APIs (define) as more media are priced, monitored, and reconciled through automated XML-linked systems. This trend will explode as media becomes more targetable and complex, and the ads become digital.

Most of the API licensing agreements have fairly stringent guidelines with respect to the data commingling and API specification sharing with third parties. Many top players believe their APIs contain some secret sauce. With Microsoft owning an agency and an ad-serving company (Atlas) and Google owning the competing ad-serving company (DoubleClick's DART), issues must be resolved.

No More Third-Party Ad Servers

The major third-party ad servers will no longer be third party at all. They'll be owned and controlled by a first party: the publisher. This issue must be resolved by the industry as a whole to retain the trust in interactive advertising metrics and measured effectiveness.

Why Microsoft Pushed the Envelope

With all the perceived conflict of interest issues, one would assume Microsoft would choose not to acquire aQuantive and instead build its business in other ways. But consider the following important factors that may have weighed in the decision to create a brave new advertising world:

  • Patents. AQuantive has several patents, and many others have been applied for. Microsoft loves having IP to leverage, given its legal team's expertise in this area.

  • Net. AQuantive built its ad-server systems on Microsoft platforms. This isn't the case with most other potential partners.

  • Geography. AQuantive's main offices are in Seattle.

  • Creative. With the introduction of the "Flash killer" Silverlight, Microsoft is already getting involved with more and new graphically rich media. Avenue A | Razorfish is both a creative and a media agency.

  • Search. Graphical media and content will extend into the other search tabs at some point, providing a new outlet for graphically enhanced search advertising.

Many marketers, including those who count Avenue A | Razorfish as their current agency, are awaiting details on how exactly Microsoft plans to address some of the issues raised by the acquisition. They're joined by the agencies that currently compete for business with Avenue A | Razorfish. I'll be watching the development of such details and report on them in future columns.

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Kevin Lee

Kevin Lee, Didit cofounder and executive chairman, has been an acknowledged search engine marketing expert since 1995. His years of SEM expertise provide the foundation for Didit's proprietary Maestro search campaign technology. The company's unparalleled results, custom strategies, and client growth have earned it recognition not only among marketers but also as part of the 2007 Inc 500 (No. 137) as well as three-time Deloitte's Fast 500 placement. Kevin's latest book, "Search Engine Advertising" has been widely praised.

Industry leadership includes being a founding board member of SEMPO and its first elected chairman. "The Wall St. Journal," "BusinessWeek," "The New York Times," Bloomberg, CNET, "USA Today," "San Jose Mercury News," and other press quote Kevin regularly. Kevin lectures at leading industry conferences, plus New York, Columbia, Fordham, and Pace universities. Kevin earned his MBA from the Yale School of Management in 1992 and lives in Manhattan with his wife, a New York psychologist and children.

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