Software giant Microsoft is reeling from a $6.2 billion loss incurred from its inability to generate more revenue from aQuantive, an online ad service that it acquired in 2007. Five years after being caught up in a race with other companies like Google and Yahoo to gain the top slot in Internet display advertising, the charge announced this week showed just how wrong the predictions were. The once blooming business of internet ads is now proven to be almost suicidal. The report shows Microsoft agreeing to the fact that aQuantive was unable to increase the company’s online revenue up to their expectations.

What went wrong

The main reason of this downfall in the once blooming online advertising industry is the sudden availability of advertising space on social websites like Facebook, LinkedIn and other websites which is outgrowing steady demand. Also, features like automated online exchanges, better search advertising and a growing uncomfortable feeling about bothering users with unnecessary ads have led to further cut down in revenue and profits. With this deal gone sour, Microsoft has reported almost a $9 billion loss ever since the acquisition.

Microsoft

Microsoft’s huge capitulation is the most recent failure in the world of online advertising. Analysts now predict that the company may team up with Yahoo to re-invent its thinking and approach towards online advertising. As internet users today have become oblivious to online marketing, analysts are led to question the performance of these display ads. In fact, a study made by GazeHawk of Reddit users found out that social websites users focus only on the content that’s interesting to them, and block out everything else unconsciously.

Wine.com CEO Rich Bergsund says that the online ads don’t work because most of the times the impression of the ads do not convert into customer sales. Presently, it’s a very disheartening scenario. Display ad values have gone down almost to half of what they were worth since the first website boom. Companies like ValueClick which had a great display ad business have lost out on almost half of its value since 2007. Yahoo, too has suffered a similar fate.  Although it has tried hard to keep its losses minimal, online advertising has cost the firm a great deal of money. However, Google has been one of the few lucky ones, and its $3.1 billion acquisition of DoubleClick is among those online advertising deals to have succeeded.

Despite of bleeding billions of dollars every year, Microsoft, is sticking to the commitment of online advertising. However, a redefinition of strategies and approaches needs to be done as soon as possible. Gilad de Vries, vice president of brands and agencies at Outbrain, says “The value of ad serving has become completely commoditized and the marginal cost of serving a banner ad has gone down to zero.” He goes on to predict Microsoft may give away ads for free, following the aQuantive disaster. This may also prove handy to compete against Google’s DoubleClick.

Microsoft for now is keeping mum and has not made any public statement about its further plan of action.