The Battle for Clicks Rages

May 26, 2007 — -- The race is on to control the online advertising world.

In the past few weeks, the business world has been rocked by a series of major deals where Internet advertising firms are being gobbled up by larger, more traditional companies that want to get in on the action.

Microsoft Corp. just spent $6 billion to buy aQuantive Inc. at an 85 percent premium. The deal was the largest acquisition in Microsoft's history.

The buying spree started last month when Google bought DoubleClick Inc. for $3.1 billion and Yahoo bought out the rest of Right Media, a company in which it already owned a 20 percent stake, for $680 million.

Following those deals, WPP Group acquired online ad firm 24/7 Real Media Inc. for $649 million and then Microsoft announced its deal.

"I think everybody is really trying to cover their back," said Erwin Ephron, a partner in the Ephron Consultancy, which advises on advertising, research and media. "Some of it is competitive. You see your competitor do something."

Ephron said he doesn't believe the companies know exactly what they are buying, but they know they need to be in on the next thing in online ads, whatever that might be.

"It's a very unusual situation," he said. "It is such well-documented chaos. It's very much like the Internet itself."

"It is certainly creating great angst among everybody," Ephron added. "They don't know what to do really, so they're doing everything. Everybody is afraid they are going to miss something."

Bob Garfield, a columnist with Advertising Age, said that people in the advertising industry are "terrified" because the 30-second commercial is no longer the central fact of life and the only way to stay relevant is to figure out the online world.

"Unfortunately they're utterly incapable of doing that organically. They've tried to transition but there is no transition," Garfield said. "They are two entirely different ways of dealing with consumers and of doing business. So they're trying to buy their way in."

Garfield said that the purchases are not necessarily about buying the companies but obtaining the employees.

"Sometimes, the only way to get these people into your shop is to buy somebody else's shop," he said.

Ian Schafer, CEO and founder of Deep Focus, a marketing services and advertising agency, said there is plenty of thought going into these purchases.

"You'd like to think a $6 billion deal has a lot of thought process behind it," he said.

There's tremendous amount of pressure for these companies to innovate, Schafer said, and all of them face the challenge of making money off the Web.

It is "often easier to acquire companies that are innovating than do it themselves," he said. "They're buying access to innovation."

Consolidation is nothing new in the business world. But what is shocking here, Schafer said, is the speed at which it is happening because of the pace at which technology changes.

"It's kind of a domino effect. When one falls you have a couple more that fall right behind it," Schafer said. "These things either come in pairs or triples."