Microsoft's Razorfish Deal Shows Strategic Shift

Microsoft's sale of Razorfish, its digital marketing agency, to Publicis Groupe is yet another sign that Redmond is seeking to refocus its mission around its core properties, such as Windows 7 and Office 2010. Microsoft originally purchased Razorfish as part of a $6 billion acquisition of aQuantive in 2007, when it was seeking to expand its online advertising platform.

Microsoft's sale of Razorfish, its digital marketing agency, to French advertising agency Publicis Groupe is yet another sign of the Redmond, Wash., company's strategic refocusing on its core businesses. With the $530 million deal, announced Aug. 9, Razorfish joins other Microsoft properties that have been sold or eliminated over the course of the summer.

"We are grateful for the contributions that Razorfish has made to our online advertising business since joining the company as part of the aQuantive acquisition in 2007," Microsoft CEO Steve Ballmer said in a statement. "We look forward to continuing to work with Razorfish as one of our agencies."

Razorfish will continue to operate under its brand name, with its management team left intact. Under a Strategic Alliance Agreement, clients of Publicis Groupe will be able to purchase "display and search advertising from Microsoft over the five-year term of the agreement on favorable terms," according to a joint statement released by both companies.

Rumors of a pending Razorfish deal first surfaced in a June 29 report by the Financial Times, which said that Microsoft was using Morgan Stanley to find a suitable buyer. The report quoted an analyst as estimating Razorfish's value between $600 million and $700 million "based on sales of about $400 [million] last year."

Publicis Groupe was mentioned at the time as a potential purchaser.

Microsoft had originally purchased Razorfish as part of a $6 billion acquisition of aQuantive in 2007, at a time in which Redmond was looking to expand its online advertising platform. Other properties in aQuantive's stable included Atlas, which offered advertising and publishing tools, and DrivePM, which matched ad campaigns to publisher inventory. Microsoft's hope was to create an Internet-wide advertising platform that could compete head-to-head against offerings by Google and other competitors.

But Microsoft has taken some economic hits since that time. The company's most recent financial results saw a 17 percent decline in year-over-year revenue for the fourth quarter of 2009, with earnings of $13.10 billion-undershooting Wall Street estimates by more than $1 billion. The continuing economic recession has driven down PC sales, in turn reducing the demand for Microsoft's core products.

Over the course of the summer, Microsoft has shed several programs and applications viewed as extraneous as it seeks to bolster its key businesses. On June 11, it announced that Money Plus, its personal finance software, would no longer be sold; this followed an earlier announcement that Encarta, its encyclopedia application, would be shut down in the face of increased competition from Wikipedia and other free, collaborative reference sites.

When Popfly, Microsoft's 2-year-old programming tool for nonprogrammers, was likewise placed on the executioner's block in July 2009, the company wrote in a statement, "Like many companies, the economic situation has caused us [to] refocus and to reevaluate our priorities; while successful and popular, Popfly is not part of our refocused strategy."

Instead, Microsoft has devoted itself to the rollout of Windows 7, its new operating system, on Oct. 22. It is also focusing on core consumer platforms such as Office 2010, which, in a bid to make it more competitive against cloud-based offerings such as Google Apps, will be offered in a free online version.

Razorfish, evidently, did not seem to fit within Microsoft's refocused strategy.