One of the biggest tech deals of the year came over this past weekend—the $530 million acquisition of Seattle-based Razorfish by French marketing firm Publicis Groupe. Most people I’ve talked to seem to think the deal makes good sense for all parties. (Razorfish became an online advertising subsidiary of Microsoft in 2007 when Microsoft bought aQuantive for $6 billion-plus.)
For some deeper perspective on recent events, I asked Warren Gouk, managing director at Cascadia Capital in Seattle, about the implications of the deal for Razorfish, Microsoft, and the future of online advertising. Gouk specializes in mergers and Internet strategy, particularly in the realm of online marketing.
Gouk draws parallels between the Razorfish sale and Google’s sale of Performics, also to Publicis, last August. Google inherited Performics, another online ad agency, as part of its $3.1 billion acquisition of DoubleClick in 2007. “Both companies (Microsoft and Google) wanted to maintain their Switzerland/neutral status in selling search, display and other online marketing services to the agencies and therefore decided to divest their agency businesses,” Gouk writes in an e-mail. “Similar in both divestitures, commercial deals required the buyer (Publicis) to buy online marketing services from the sellers.”
Microsoft was “very motivated to find a buyer that would make a meaningful and long-term commitment to buy [Microsoft’s] online marketing services, in particular their search services,” Gouk adds. “Publicis is rumored to have agreed to a 5-year deal to purchase a minimum amount of display and search services from Microsoft worth several hundreds of millions of dollars each year.”
As for the future of Razorfish, Gouk says, “I believe Razorfish is much better situated for success under the ownership of Publicis. Publicis is very strong in international markets and can help Razorfish expand internationally. The internal conflict Microsoft faced with trying to sell online search services to competitors of Razorfish should be cleared up; as well, there may be more of an opportunity for Razorfish to go outside Microsoft for other alternative online marketing services.” He adds, “In the near-term it will be interesting to see how Publicis integrates Razorfish into VivaKi [its digital media division], deals with competitive client situations (Ford vs. GM), and handles the taxing effects of the 5-year commitment to the Microsoft search and display advertising agreement.”
More broadly, Gouk sees the deal as a “healthy valuation in the present market.” He says it paves the way for a “closer working relationship between specialized online marketing software/service vendors (e.g. Media Math, Covario, AdXpose/Mpire) and the big holding company agencies like WPP, Omnicom, IPG, Havas, etc.”
Gouk also thinks the deal is a “great outcome” for Microsoft if it helps drive the Redmond company’s search and display advertising business. “Microsoft was never really well situated to chase agency business from Fortune 1000 accounts—their historical strength comes from the [small to medium-size business] market, which was not a core focus for Razorfish. The big holding company agencies are likely to be the future gatekeepers of online marketing and advertising—much the same way Accenture and others help drive decisions in the world of [enterprise resource planning]. It’s a strong move for Microsoft to begin to shore [up] ‘special’ relationships with as many agencies as they can.”
