Microsoft, Yahoo Deal Approved by Microsoft Beneficiary

Microsoft and Yahoo's search-and-advertising agreement received a thumbs up from the American Association of Advertising Agencies, which includes Publicis Groupe, which just finalized a deal to acquire Microsoft subsidiary Razorfish for $286.8 million and 6.5 million shares of stock. The U.S. Department of Justice is conducting an antitrust evaluation of the Microsoft-Yahoo deal, still on track to finalize in early 2010.

Microsoft and Yahoo's search-and-advertising agreement is still being evaluated by the U.S. Department of Justice, but the two companies have approval from at least one quarter: the American Association of Advertising Agencies, an ad-agency group that includes major firms such as Interpublic Group, Omnicom Group, WPP and Publicis Groupe.

"A healthy, competitive market for search and search advertising is crucial to the Internet's future." Nancy Hill, president and CEO of the AAAA, wrote in an Oct. 19 open letter to the DOJ. "We believe that Yahoo and Microsoft's proposal to combine their technologies and search platforms is good for advertisers, marketing services agencies, website publishers and consumers."

The letter does not explicitly mention that the combination of Microsoft and Yahoo potentially creates a more formidable competitor to Google, which currently dominates the lion's share of the U.S. search engine market and thus has substantial leverage to dictate advertising rates and rules. Nonetheless, Hill hints at the match-up in the letter's conclusion:

"As leading members of the advertising and marketing services industry, we urge the Department of Justice to bring its antitrust review to a speedy conclusion," Hill wrote. "This proposal enhances competition, and should be allowed to take effect as soon as possible."

Founded in 1917, the AAAA "produces approximately 80 percent of the total advertising volume placed by agencies nationwide."

One of the signers of Hill's letter is Maurice Levy, chairman and CEO of Publicis Groupe, which just finalized a deal with Microsoft to acquire Redmond's Razorfish digital-advertising subsidiary. Under the terms of that agreement, Publicis Groupe will pay Microsoft some $286.8 million and 6.5 million shares of stock.

Microsoft will gain a 3.3 percent stake in Publicis Groupe in return. In addition, Microsoft will have access to Publicis Groupe clients and offer them "favorable terms" on display and search advertising for a five-year period.

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

Microsoft originally acquired Razorfish in 2007 as part of a $6 billion takeover of aQuantive. However, seismic changes in the online advertising landscape and Microsoft's massive search advertising deal with Yahoo may have made the subsidiary more of a misfit within Redmond's changing corporate structure.