Microsoft Throws Back Razorfish

Sale of digital ad unit to Publicis latest sign Redmond is returning to software roots.
In another indication it's ready to double down on core technology businesses while jettisoning underperforming assets, Microsoft said Sunday that it has agreed to sell its Razorfish digital advertising unit.

Microsoft said it reached a deal to sell Razorfish to French ad giant Publicis Groupe for $530 million in cash and shares. The pact calls for Razorfish to continue providing Microsoft with online marketing and advertising services as part of Publicis.

Microsoft acquired Razorfish in 2007 when it bought out its parent company, aQuantive, for $6 billion.

"We are grateful for the contributions Razorfish has made to our online advertising business," said Microsoft CEO Steve Ballmer, in a statement. "We look forward to continuing to work with Razorfish as one of our agencies, and we're confident that as part of Publicis Groupe, Razorfish will build on its success to date in the digital advertising industry," said Ballmer.

Publicis Groupe officials said the deal immediately gives it a bigger footprint in the digital side of the advertising market.

"When we complete this transaction, approximately a quarter of our annual revenues will come from digital communications," said Publicis chairman and CEO Maurice Levy, in a statement. "We are building on the strategic relationship with Microsoft that we announced in June to explore ways to work together to help deliver innovative online solutions to a broad spectrum of brand marketers," said Levy.

Razorfish is the second ad-related business to be abandoned by Microsoft in the past month. As part of its search deal with Yahoo, announced in July, Microsoft handed over broad responsibility for strategic account sales on MSN to its erstwhile Web rival.

Ballmer and company may be looking to restore focus on Microsoft's core operating system and applications businesses, which have been hit hard by the recession and the rise of new competitors—including Google.

Windows sales were off 29% year-over-year in the most recent quarter, while sales of Microsoft Office to consumers plunged 30%.

At the same time, Microsoft's digital ad business has contributed little to the company's top and bottom lines. Redmond's Online Services unit recorded a relatively paltry $731 million in sales in the most recent quarter, while posting an operating loss of $732 million.

Microsoft also is readying Windows 7 for launch later this year. A follow up to the highly unpopular Vista, Windows 7 needs to be a hit in order for the company to regain its momentum in the computer OS market.

Microsoft said Razorfish will continue to operate under its current brand name and that management, including CEO Bob Lord, would remain with the unit. The deal is expected to close in the fourth quarter.

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