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Microsoft Advertising Businesses The Almighty Buck

Microsoft Writes Off $6.2 Billion From aQuantive Acquisition 115

Posted by Soulskill
from the money-for-nothin' dept.
An anonymous reader writes "Microsoft had high hopes for aQuantive when it paid $6.3 billion to acquire the combo online marketing services vendor/advertising agency in 2007, evidently in response to Google's acquisition of DoubleClick. 'Microsoft is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity for all,' declared CEO Steve Ballmer. Yesterday Microsoft wrote off $6.2 billion of its investment in aQuantive, as its online division continues to struggle. MS-watcher Mary Jo Foley points out this is one in a list of bad purchases from Microsoft. On the bright side, Microsoft managed to recover an estimated $500 million three years ago from the deal when it sold off the Razorfish ad agency (not sure why this amount wasn't subtracted from today's writedown)."
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Microsoft Writes Off $6.2 Billion From aQuantive Acquisition

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  • by Compaqt (1758360) on Tuesday July 03, 2012 @03:07PM (#40532073) Homepage

    Any accountant want to explain exactly what "wrote off" means?

    Granted a unit might not be making as much profit as desired, but does this mean they gutted the whole thing, sold the desks, and gave the chairs to Steve Ballmer?

    • by Baloroth (2370816) on Tuesday July 03, 2012 @03:16PM (#40532189)

      As I understand it, it means that MS effectively says they now have $6.2 billion less in assets. When they bought aQuantive, they spent $6.3 billion, but got an asset that they valued at the same level, meaning their assets stayed more or less the same. Now they recognize that it isn't worth that, so they "write it off" (most of it anyways) in recognition of that fact.

    • I'm not an accountant but from the wikipedia page [wikipedia.org]:

      In income tax statements, it refers to a reduction of taxable income as recognition of certain expenses required to produce the income.

      I'm guessing that on Microsoft's assets and liabilities balance sheets, they have finally realized (meaning evaluated currently) that the "investment" of $6.3 billion dollars is no longer worth more than a hundred thousand. So perhaps they knew this for a while but have now finally acknowledged it as an opportune time. Say they expect to bring in huge revenue this year and now this loss will counteract that. When you hear "it's a tax write off" it is usua

    • by MikeMo (521697)
      It means it moves to the bottom line as a loss, and is no longer an asset.
      • by hairyfeet (841228)

        Bingo, they lost 6.2 BILLION on the deal. So can we ALL agree now that Forbes had it nailed when it called out Ballmer as being the worst CEO? i mean how many billions has he blown now on shit deals since he took over? 15 billion? 20? More? He makes the Pepsi guy at Apple look like Jobs for the love of pete!

        Hopefully the abortion that is Win 8 will be the final nail in Ballmer's coffin and the board will force him to "pursue other interests" and bring back someone like Ozzie or Allchin to right the ship bec

        • by drkstr1 (2072368)
          That was almost identicall to my mums experience. I'm no MSFT hater, but bad design is bad design. Had one of my designers presented something this unintuitive, I would have sent them out on their ass.
          • by hairyfeet (841228)

            That is what just blows my damned mind, if I didn't know better I would SWEAR it was somebody at MSFT trolling. I mean didn't they do ANY focus groups? Hell even take it to an average mall and let some of the people there try it?

            I'd say I have to be at over 400 people now that have tried it at the shop, everything from little old ladies to kids, small business owners to working stiff and NOBODY has liked it or even been able to figure out WTF to do with the damned thing. It is the most unintuitive design

    • by alexander_686 (957440) on Tuesday July 03, 2012 @03:22PM (#40532265)

      I have not read the article but

      If you look at the annual reports you will find “book value of assets” which is the cost of the asset minus any depreciation.

      Then take a look at MSFT’s “Goodwill”, which will be a subcatagory of book value. This is the difference between the book value of a company (ifor example aQuantive) being bought vs. the purchase price.

      However, sometimes the asset you have purchased is not worth anything, It’s been burnt to the ground or some such thing. You can’t hold onto this defunct asset at book cost if there is a “permanent material” event . So one makes a accounting judgment and write down the asset to correct level.

      Book and Goodwill are are “hard” numbers – in the sense that there is little accounting judgment involved. You can only write these down - Unlike financial institutions you can’t “mark to mark” these assets to a higher level during a bubble to generate fathom profits.

      Which answers the OP question about Razorfish. An accountant had made an accounting judgment that Razorfish was dead. It affects the balance sheet (assets / debits), is reported to the shareholders but does not trigger any tax questions. This year they were able to find a little value. It affects the Income (Revenue / Expenses) and triggers taxes.

    • It is an accounting term. It means to essentially zero the value of an investment or debt; a credit to assets (reducing the company's worth) and a debit to some sort of expense account (thus reducing the company's net income). A good example is customer debts you may be carrying (Accounts Receivable). At some point, particularly if the debts are small, or attempts at collection have failed, you're not going to want to keep that asset on the books (seeing as you never actually were able to convert the custom

      • by mattack2 (1165421)

        So, is it analogous to writing $6.2B purchase price, $100K sale price on your Schedule D?

        (That would take a long time at $3K/year maximum writeoff!)

    • by Fnkmaster (89084) on Tuesday July 03, 2012 @03:27PM (#40532311)

      When a company acquires another company, that acquisition becomes a part of the balance sheet of the acquirer. Essentially, the value of the assets they purchased are recorded as if they are worth what they paid for them.

      Much of this value, especially with software companies, is carried in the form of "goodwill" on the balance sheet. This is the excess payment over and above the book value of the acquired company (i.e. the value of its assets). If a company gets bought out for $6.3 billion dollars and had $100M in book value assets recorded on their own balance sheet (computers, chairs, buildings, machinery, etc.), then the acquirer records $6.2B in goodwill on their balance sheet,

      If the assets that were acquired generate fewer profits than expected, the company may have to record what's called a "goodwill impairment" - the stuff they bought has been demonstrated to be worth less than $6.2B, so they have to record a paper loss in their annual profit and loss statement, which comes out of the goodwill asset on their balance sheet. In theory, the accountants are supposed to look at the business unit every year to see if there is any impairment of value that would require the reporting of a loss associated with the goodwill impairment of that unit. In practice, these things often seem to just sit around for a few years then get pulled out of a hat when the CFO decides fuck it, we're losing money this year anyway, time to write off all that dumb shit we've been carrying on our books that we bought before the economy went kerplop.

      Even worse the a goodwill impairment, the entirety of that goodwill can be written off, creating a paper loss equal to almost the amount they originally spent on the company. Which is apparently what happened here.

      It's like Microsoft took $6.2B and lit it on fire. They just didn't realize it had all burned up until now, even though the actual cash was gone several years ago.

      • It's like Microsoft took $6.2B and lit it on fire. They just didn't realize it had all burned up until now, even though the actual cash was gone several years ago.

        Of course they realized it. But it is always in the Microsoft nature to cheat, even to the extent of breaking the law, which they may well have done in this case. (Yes, GAAP is law in the sense that not following it is fraud.) Now it is fair to ask, what game are they playing by loading the entire loss into a single quarter?

        • by Kalriath (849904)

          What the hell are you talking about? It's expected to write the loss from a single event into a single quarter - hell I don't even think you can legally spread losses. The reality is exactly as they claim - they bought something with hope of making it successful, and it failed so they wrote the loss down. I don't see how you can see that as some sort of conspiracy (unless you're a tinfoil-hat wearing schizophrenic) since it makes them look bad. Very bad.

          • It wasn't a single event. Microsoft knew years ago that the value of Aquantative was seriously declining. But did Microsoft's shareholders?

            • by Kalriath (849904)

              Yeah, it was a single event. They bought it. That's the value of the company, and they only just realised that purchase was a gigantic unrecoverable fuckup (as opposed to a recoverable one, where you might refrain from writing it down because you think it might actually gain the value you attributed to it eventually).

              Of course, this is a complete waste of time - you will refuse to believe anything about Microsoft that doesn't involve them being evil (as opposed to fiscally irresponsible, which is this cas

              • I love the way you Microsofties do your creative accounting. Too bad it isn't GAAP. Looking forward to seeing at least a few of you in jail when the reckoning finally comes.

      • Well, it's more like a wealth shift. There's always at least two sides to a transaction (exception being destruction of currency which can be a one side transaction). The other side got the $6.3 billion, and hopefully ran away with it and never looked back.

    • Any accountant want to explain exactly what "wrote off" means?

      I'm not an accountant and I don't need to be to know that it means "recognized a loss".

    • by vlm (69642)

      Any accountant want to explain exactly what "wrote off" means?

      As an experienced investor dude, not a licensed CPA, heres how writeoffs for purchased companies work. I'm taking a step back from the "what" answers to attempt to answer "why". As in why does it happen and why is it being posted today, as opposed to last week or next year.

      The traditional way to do R+D was to pay cash up front in salaries and parts, and maybe something cool and profitable fell out, or maybe not. See Bell Labs, HP in the glory days, etc.

      The modern way to do R+D is to let a startup do the

    • In addition to what everyone else has said, a company will sometimes take an opportunity like this to write off a lot of other unproductive junk that's been sitting around on its balance sheets, along with the (former) asset that dominates the writeoff. I've seen this referred to as "taking the big bath."

      When a company writes off several billion dollars' worth of assets and their stock doesn't go straight to hell, that's because the market understands that it's just a periodic house-cleaning event, and tha

      • When a company writes off several billion dollars' worth of assets and their stock doesn't go straight to hell, that's because the market understands that it's just a periodic house-cleaning event, and that future quarters will look stronger as a result.

        Or it is because investors are asleep at the wheel. Of course that never happens so we must reject it as a possibility.

        Next question: how long before Ballmer drives Skype to zero?

        • When a company writes off several billion dollars' worth of assets and their stock doesn't go straight to hell, that's because the market understands that it's just a periodic house-cleaning event, and that future quarters will look stronger as a result.

          Or it is because investors are asleep at the wheel. Of course that never happens so we must reject it as a possibility.

          Next question: how long before Ballmer drives Skype to zero?

          What, some driveby Microsoft astromod found that question uncomfortable? Face it, as long as you people are like you are, you will get criticism like this. Why don't you just do the right thing and slit your wrists.

      • I don't think MSFT is doing a "Big Bath" - just a normal sized one.

        Taking a "big bath” happens when new management is installed or some other type of structural change

        When new management is installed they will look for every dubious investment and declare it worthless. They want the biggest write offs and ascribe all of the loss & blame to the prior management. If any of junk comes back to life it is because of current management’s brilliance and they grab the credit.

        One could make the argu

      • by breeze95 (880714)

        In addition to what everyone else has said, a company will sometimes take an opportunity like this to write off a lot of other unproductive junk that's been sitting around on its balance sheets, along with the (former) asset that dominates the writeoff. I've seen this referred to as "taking the big bath."

        When a company writes off several billion dollars' worth of assets and their stock doesn't go straight to hell, that's because the market understands that it's just a periodic house-cleaning event, and that future quarters will look stronger as a result.

        Or the market expected it and the stock price is already reflecting that fact.

    • Slashdot: News for accountants, stuff that doesn't matter.
    • by ackthpt (218170)

      Any accountant want to explain exactly what "wrote off" means?

      Granted a unit might not be making as much profit as desired, but does this mean they gutted the whole thing, sold the desks, and gave the chairs to Steve Ballmer?

      They're devaluing their initial investment .. as a result of, once again, not having a clue what they are doing.

      If Microsoft hadn't a near monopoly (at one time) their repeated failures would harbinge writing down their core business and eventually failing.

    • In double-entry accounting (which is the only proper way to do accounting), one entry reduces assets, and the other increases expenses. So they simultaneously "write off" the asset, and "take a hit" to earnings.
    • They spent $6.3 billion, but claim that what they got was only worth $100 million (which is probably the book value of the desks and chairs and such). So when tax day rolls around, they'll pay taxes on $100 million instead of the full $6.3 billion.
    • by ryzvonusef (1151717) on Wednesday July 04, 2012 @08:22AM (#40540449) Journal

      I am an ACCA student, and I will try to explain this in simple, ELI5 terms.

      *Disclaimer*; I am merely an ACCA *student*, NOT a professional qualified accountant, and especially not yours. Do NOT use my explanation as a basis for anything.

      First to answer your question:

      1-"Write off" means decreasing the value of an asset, and charging that decrease as an expense/loss to your profit.

      2-The reason why aQuantive was worth more than number of the chairs it had for Steve to throw, is down to a magical term called "Goodwill"

      ----
      Now the explanation (Warning, explanations maybe exceedingly simple and *not* strictly following accounting principles) :

      1-To explain it, an asset is simply anything that helps you to earn revenue. ANYTHING. Not only the widget that your factory churns out by the millions, but also the chair you are sitting on at work, and the swipe to unlock patent your company has.

      Assets often suffer a decrease in value, often due to things like wear and tear, but also, such accounting concepts as impairment (which is account-ese for "come down to earth"). So if its value decreases, you "write it off" and take "written-off" part away from your hard-earned profit as yet another darn expense.

      2- How much do you think a company is worth? How do measure it anyway?

      There are two-fold problems when valuing a company: How much each *individual* asset is worth, and how much are they worth, when put *together*.

      For the first, it slightly simpler; call in the Valuer! He goes around valuing stuff, like how much would this creaky chair with a crack in the back left leg cost, if I were to tell the buyer it's an authentic "Thrown by Steve".

      Problem comes for intangible stuff, like Google's search engine setup; now obviously it worth A LOT, since it earns them all the revenue they can fill up their caskets with, but...just how much, exactly?

      If you can get a market value (Steve would buy it for *this* much, even if just to burn it up in spite) that's okay, other wise you get in a bit of a fix. But never despair, valuers are professionals, they can guesstimate pretty good.

      But let's get to the other problem: How much is a company worth, *all* together? Basically, a company's worth is greater than the sum of its individual parts (you may have heard of this phrase before; ever heard of the word synergy?)

      Basically, Microsoft's worth is not just the sum of Windows, Office, Hotmail, Xbox and Steve's authentic thrown chairs put together. Together, they earn A LOT more revenue, than if the code and the chairs were auctioned off. This extra bit is called Goodwill.

      And since this "Goodwill" helps to earn that previously unexplainable extra revenue, it can now be categorised as an asset.

      How do you measure this goodwill? Well, we call in the Valuer's big brother; Company Valuer. Again, using science and magic (everything from share price movement to dividend growth history to reading chicken entrails), he comes up with a value for this goodwill.

      And all was well.

      Or was it?
      -----

      So now back to our scenario:

      Microsoft wanted to buy aQuantive and called in the valuers. They did their magic and came up with a value: This much for the chairs, this much for the uber-secret advertisement formula, this much for the goodwill that makes aQuantive tick. Total: around 6 billion.

      Steve wrote a check for 6 billion and that was that.

      Note however the the last two items in the list were most likely heavily guesstimated. And now it turns out, the valuers were BAD guessers. Very bad guesser. 6 billion worth of bad guessing.

      aQuantive is not worth the 6 billion that was spent on it, since it's not earning revenue like it would have, were that 6 billion had been spent to buy more chairs for steve to thrown and sell off.

      So it's value has decreased. And when an asset's value decreases, we write off that decrease as a expense/loss against our profit.

      And now you know.

      ----

      If there is anything I could explain further, or any misconception, please let me know.

      • by Compaqt (1758360)

        Thanks for sharing. You're the bookeeping version of that guy with the sig that says "Ask me about biology."

  • by Anonymous Coward

    I really wish these software companies would focus on making software products, and forget about advertising. Advertising is killing privacy. A company that focuses on enterprise applications should do just that, and kill the advertising business.

    • With all the free software around, advertising is one of the few remaining ways to make money.

    • by camperslo (704715)

      How would the potential customers know about those enterprise apps?

      An advertising model that is effective sticks around, even if offensive in various ways. Part of the measure of effectiveness is the cost. Traditional non-net advertising is generally expensive to distribute.

      You can avoid looking at ads and filter them, but using search engines to find things you'll buy is also part of the picture. Although largely free services like craigslist have eaten into classified ads, there doesn't seem to be any

    • You would be surprised what a good marketing and advertising campaign can do to your business.

      We all hate them as they take money away from IT or salespeople make unreasonable expectations and gets bonuses for screwing you over and having you work overtime for free, but you would not be there without them. Psychological manipulation to have people remember your product or company is the only thing that helps a startup. The sales team bring in a shitload of money to pay for your salary.

      Economic wise I agree

      • Damn, this is a complicated world.

        Thing about Metro is, I'm sure they *did* do research. The question is, "what kind?"

        Rumbles are emerging that the old school MS crowd using desktops are going to be in for a ride. MS is apparently betting the farm on some kind of ethereal Mobile-esque strategy.

        What I don't get is that the tablets won't run the desktop versions of Apps, so what "Windows" value lies there?

        • Lets look at Apple in comparison? Their applets are more research driven for UI. On the IPAD I can use tabs on safari, the icons are pretty, everything is polished and detailed to the very way the icons move when I turn the device. Metro is very raw and not market research driven. Sure the R&D said tablets are the future, but Metro was not tested like IOS was.

          Apple did the opposite approach with its applets running in MacOSX. It is just implemented terrible as a rush similiar to Vista .. just get the da

  • Salute to Steve (Score:4, Insightful)

    by MikeMo (521697) on Tuesday July 03, 2012 @03:17PM (#40532195)
    :Hoist: "May Steve Ballmer be the CEO for as long as it takes!" /drinks hearty ale
  • I would gladly sell my services to Microsoft for a mere million. Even if I fail badly they'd only be out a small fraction of the losses they keep racking up buying large failures. Most likely I'd fail a lot less and get them a much better return on their investment.
    • Indeed. The numbers that these companies deal with are mind-boggling, and the valuations so seldom seem justifiable. Maybe part of it boils down to strategic panic, but the egos of everyone involved play a part, too, I think. None of these executives want to be messing around with smaller deals than their peers, even if they're on the paying end.

      • Re: (Score:3, Insightful)

        It's arrogance as well. There guys continuously see themselves as the "smartest people in the room" and wanking each other off as Randian "productive people" and even a multi-million or billion dollar mistake can't budge that delusional behavior.

    • I would gladly sell my services to Microsoft for a mere million. Even if I fail badly they'd only be out a small fraction of the losses they keep racking up buying large failures. Most likely I'd fail a lot less and get them a much better return on their investment.

      Dear Quirkz, Thank you for your interest in joining the Microsoft family. We have decided that there is a position in Redmond that will be perfect for you and we feel that your monetary requirements meet our needs. We offer excellent benefits, including medical and long term disability. Please report first thing Monday for the "Sr. Moving Target" position in the Chair Toss division. Sincerely, S. Ballmer.

      • Heh you're too far down and no one will see this, but thanks for the funny reply.

        What we're struggling with in this article is that for something like an ad agency, not a military hardware division, how can you possibly lose that much money? That's like saying that you have 100,000 people working for 60k each and you got zilch from it. It's like saying how can you possibly have 100,000 people working on something and have nothing at all (write off) to show for it?

        That's why these stories are a mess.

    • You need to golf with MS executives, then your bad business will be worth billions not millions.
  • Sure, they invented a mass production method that brought automobiles to the masses, but they eventually spent most of their time doing the opposite of General Motors. Microsoft is playing the same game, countering everyone else in the tech field for no good reason.
  • $Six billion here, $six billion there, soon you'll be talking real money.

    • For comparison, $6B is roughly [yahoo.com] what Microsoft makes in one quarter.

      • Re: (Score:2, Funny)

        by Tough Love (215404)

        And tell me what stockholder in their right mind would be happy with losing a quarter's profit? Oh right, a Microsoft shareholder because by definition they are lobotomized and don't care about anything.

        • Well, as a Microsoft shareholder, I'm not happy about it in the slightest. Hopefully this gets brought up in the annual shareholder meeting (but then of course everyone will already forget by November).

  • "Microsoft Writes Off ${amount} From {businessVenture}."
  • I doubt it. MS seems to have decided that they should be a failure incubator.

  • Too lazy to do any research on it right now, but if this was an online advertiser whose ads I blocked with Adblock Plus and said ad blocking hurt them.... Good! Glad I could help.

    • by Kalriath (849904)

      Ad companies are paid CPM. Content publishers are paid CPC. You had statistically zero impact on this company.

  • I wish I could f**k up $6.2 billion worth, and still keep my job.
    • Re: (Score:2, Flamebait)

      by Swampash (1131503)

      Hell,that's nothing. Ballmer has sat twiddling his thumbs and ignored online search, online advertising, social networking, the digitisation of the music industry, portable music players, mobile telephony, and the tablet market. Now I ain't no computar genious, but I hear some companies have filled those gaps and are making good money.

      • by Swampash (1131503)

        Not to mention Xbox, which by my calculations has cost Microsoft's shareholders a round THIRTY BILLION for no return.

  • Wow, 6.2 Billion... (Score:5, Interesting)

    by NalosLayor (958307) on Tuesday July 03, 2012 @04:29PM (#40533321)
    Wow, 6.2 Billion. That's a damn big chunk of change to spend and get nothing to show for it. I'm pretty sure Elon Musk could build a permanent manned moon base for 6.2 billion, and Microsoft, apparently can't even sell an ad. Of course, this is emblematic of Microsoft's lost decade (the years since Bill became a philanthropist): Microsoft decides a field is going to be hot, buys a reasonable player, mangles it, and then six months later shuts it down as a "failure". They have become like a child with ADHD -- abandoning things as soon as the next shiny object passes into view. It's sad, because they seem to be unable to learn from their experiences.
  • the bill would have counted one more digit...
  • Balmer instituted a stack review process which is better suited for a sales organization rather than a software development company. That process is killing morale and innovation. Everyone there is afraid to work on side projects for fear of being reviewed as mediocre or at the bottom.

    See:

    http://www.businessinsider.com/microsoft-was-destroyed-by-its-stack-review-process-according-to-new-vanity-fair-expose-2012-7 [businessinsider.com]

  • Strange no one has mentioned the fabled IPO in any of these comments. Strikes me as a very similar analogy.

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