Microsoft Says AdECN Exchange Buy to Compete at Scale with Google

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It didn't take long for the ad exchange sector to come into its own, at least in the eyes of the Internet's giants. A third Web behemoth to join the exchange game is Microsoft, which has acquired AdECN and pits the company squarely against two of its rivals -- Yahoo, which purchased exchange tech outfit Right Media in April, and Google, whose DoubleClick subsidiary has started an exchange. In addition, it could create efficiencies within Microsoft's own properties.

Some will see the buy as a direct reaction to Yahoo's Right Media acquisition and DoubleClick's planned exchange, but Joe Doran, GM for Microsoft Digital Advertising Solutions, begged to differ. "Some of those people are probably mistaken," he said. "Most of those things they've called ad exchanges, they look to us more like a network than an exchange."

AdECN allows only ad networks to put up content for auction in its exchange, unlike others that include individual publisher sites. "This makes the publishers our allies, not our competitors," said AdECN CEO William Urschel.

Rather than comparing AdECN's capabilities to those of Right Media's or other exchanges, Microsoft considers the platform an alternative to Google's AdSense. Microsoft believes the buy will help it and AdECN network customers "compete effectively at scale against Google," said Doran.

Yesterday, Microsoft announced an agreement that amounts to a win over Google. Through an exclusive deal with social news aggregator Digg, Microsoft will manage text and banner ads on the site in a relationship similar to the one it has with Facebook.

Since purchasing ad firm aQuantive, which owns ad agency -- and ad buyer -- Avenue A / Razorfish, ad seller Microsoft has come under fire regarding potential conflicts of interest. The firm is taking pains to ensure conflicts don't arise as a result of the AdECN acquisition.

According to Urschel, all members of the ad exchange, which may include Microsoft properties such as Hotmail, AdCenter and aQuantive's DrivePM, will be required to sign the same membership agreement all networks in the exchange do. The contract stipulates members agree to certain rules of conduct and pay network publishers when charged.

"[Microsoft] understands that for this to be a platform that supports the industry," there can be no competing interests, said Urschel. "They get it."

Other ad agency and ad network suitors vying to buy the exchange might have "corrupted the model," he added.

Some believe the DoubleClick and RightMedia exchanges could alienate publishers and networks they rely on to allocate inventory to their exchanges. DoubleClick, for instance, could be taking individual site publisher inventory directly from the networks it needs to ad inventory to its exchange. And Right Media, because of its ties to longtime publisher rival Yahoo, could deter the very publishers it needs to fill its exchange from participating.

Networks submit ad inventory to the AdECN exchange, setting up parameters for ad units, ad content, placement, and other criteria. Ad buyers place bids on inventory, and include information on target audience, as well as ad content and formats they'd like to run. The system then seeks out the best inventory match for advertisers when an appropriate user generates traffic. The goal is to increase yield and efficiency for the networks in the exchange.

In announcing the acquisition, Microsoft stressed the AdECN platform would "bring both key technologies and significant domain expertise to the Microsoft team working to develop a comprehensive search and display marketplace." At this point, however, ads in the system are primarily of the display variety. "We're doing very little search right now," said Urschel. He did note however, that the system was designed to handle search, mobile, and e-mail ads as well as display units.

AdECN will remain a distinct subsidiary of Microsoft, including accounting and engineering operations. Terms of the deal were not made public. AdECN's staff, which is expected to double in the next few months, will remain in their current location in Carpinteria, CA.