In Major Search And Ads Deal, AOL To Absorb Microsoft’s Display Business And 1,200 Of Its Employees

microsoft-displayIn a new 10-year search-and-advertising alliance, Microsoft will transfer the lion’s share of its display ad business to Verizon-owned AOL. Under the deal, approximately 1,200 Microsoft employees will get offer letters from AOL, most of them in ad sales.

Additionally, AOL will end its search distribution relationship with Google in order to accept Bing search and ads on all its mobile and desktop properties – giving Microsoft an additional 1-2% of search market share carved directly from Google’s lunch. That part of the partnership kicks off in January.

The deal gives AOL responsibility for both hand-sold and programmatic ads in nine of Microsoft’s largest markets, and across its entire media portfolio including display, mobile and video ads on MSN, Windows,, Skype and Xbox. The nine markets are the US, the UK, Canada, France, Germany, Spain, Japan, Italy and Brazil, which easily represent more than 60% of Microsoft’s ad revenue.

For the next 10 largest markets, many of them in Western Europe, Microsoft says it will go “all in” on programmatic through its key ad tech partner, AppNexus. Nearly all media supply Microsoft controls in those countries will become traded programmatically, not merely the remnant portions.

Additional terms were not disclosed but a source with knowledge of Microsoft’s deal-making process estimated AOL could receive between 20% and 30% of ad revenues generated by sales of Microsoft inventory.

From AOL’s point of view, the deal represents an opportunity to increase its digital advertising clout at a time when considerable power is accruing to Google and Facebook.

“We believe this is a scale play to become another alternative to our competitors,” said AOL President Bob Lord. “A lot of this deal is frankly getting to the younger demo, and not just programmatic platform offerings but also programmatic content offerings. That’s what they’re asking for: not just a campaign platform but a content platform.”

It’s not clear what the long-term impact will be for AppNexus, Microsoft’s key ad tech partner until now and a company in which it holds significant equity via a 2010 investment. AOL offers a sell-side platform of its own, but it’s unclear whether AOL has the technology chops to process the high volume of bid activity that Microsoft’s inventory brings in.

For now, AppNexus remains the technology platform in the top nine markets where AOL has taken the rein, and its position appears secure for the time being. As if to reassure the world of their continuing ties, AppNexus and Microsoft issued a press release today announcing a “multiyear” extension of their technology agreement. AppNexus traffics Microsoft inventory in 39 markets today.

From Microsoft’s standpoint, the deal is a reflection of a longstanding dissatisfaction on the part of management with the sky-high overhead required to run its global ad sales organization. Earlier this year, sources told AdExchanger, the company’s ad sales and platforms team kicked off a tour of potential display sales partners, including eBay, to whom it could outsource part or all of its display ad business. It settled on AOL before AOL’s acquisition of Verizon went through, but that merger evidently did not dampen Microsoft’s enthusiasm.

Rik van der Kooi, corporate VP at Microsoft and the most senior executive in charge of Microsoft’s ad platforms business, disagreed with this characterization.

“From our side we don’t think we have an unprofitable sales force. We’ve run our business pretty efficiently,” said van der Kooi. “Irrespective of any deal, the move towards programmatic allows us to re-examine [how we structure our media sales]. It’s a focus on the opportunity we have.”

Given the timing, one week after Verizon and AOL consummated their $4.4 billion merger, the deal also suggests Verizon is dedicated to supporting its new subsidiary’s manual sales processes along with its ad platforms (read: automated selling) business.

Corrected: An earlier version of the story wrongly pegged the number of Microsoft employees receiving offer letters at 500.

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