Microsoft (MSFT) Search Ad Effort Fails on Whole New Level

July 3, 2012 10:02 AM EDT
Microsoft (Nasdaq: MSFT) shares are lower Tuesday on news its effort to break into the Internet-advertising business failed miserably. Some might say 98 percent miserably.

Late Monday, Microsoft said it would be taking a $6.2 billion non-cash charge on nearly the full amount paid for aQuantive, Inc. The $6.2 billion charge would be taken in the next quarter (Microsoft's fourth of 2012), not causing analysts to expect a GAAP loss for the software giant. Analysts on the Street were originally expecting a profit of $5.3 billion.

The charge would be a write-off of goodwill from the $6.3 billion all-cash deal in 2007. Microsoft was aiming to catch up with Google (Nasdaq: GOOG), which announced a deal to acquire DoubleClick for $3.1 billion just months before. Microsoft's search traffic wasn't anything close to that of Google's, however, meaning the justification of buying a company specifically designed to pummel Internet surfers with ads is like wearing polyester to a hippie convention: it doesn't make sense.

Microsoft paid double what Google paid, which should have been a red flag to executives.

Google's U.S. search market ad revenue share was 74 percent in 2011, and is expected to grow to 77.9 percent in 2012. By contrast, Microsoft's Bing garnered 13.7 percent in 2011 and is expected to fall to 11.5 percent in 2012. Bing also performs searches for Yahoo! (Nasdaq: YHOO).

Microsoft shares are about 0.6 percent lower in early trading.

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