Online Marketing: The new gold rush

Microsoft Corp.’s (Nasdaq: MSFT) willingness to pay a whopping 85% premium for Seattle-based aQuantive, the largest interactive marketing company, is indicative of the tectonic transformation in marketing services as they move online. The acquisition came in quick succession to similar deals by Google Inc. (Nasdaq: GOOG), which acquired advertising company DoubleClick for more than 20 times estimates revenues of $150 million, and WPP Group plc (Nasdaq: WPPGY), which bought online advertising company 24/7 Real Media Inc. (Nasdaq: TFSM) for $649 million, or $11.75 per share, a 30% premium over the average closing price for the prior two months. An earlier acquisition by AOL of German ad network AdTech AG, both prominent interactive marketing companies, went largely unnoticed. Investors will now be challenged to find online marketing stocks at reasonable valuations.

Growth in interactive marketing (a buzzword for marketing services companies that conduct marketing campaigns on the Internet) has been rapid in recent times.  According to Advertising Age, the growth of revenue in U.S. interactive agencies was a robust 23.1% in 2006; the leader aQuantive Inc. (Nasdaq: AQNT) grew 30%, while traditional agencies grew much slower at 4.2%.

Interactive ad and marketing companies fulfill the long-felt need in the profession for measurable performance from investments in marketing. The frustration with existing methods is widely described by the wry apothegm, “one-half of advertising money is wasted, and it is hard to tell which half.” The waste and uncertainty have grown as media consumers use devices like TiVO to bypass commercials altogether.

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