Microsoft's Jellyfish Buy Is No Stinger

Acquiring the shopping-and-auction service is the giant's latest bid to grab a bigger share of online ad dollars. Google has little to fear

by Aaron Ricadela

Microsoft (MSFT), still bulking up to pry more of the online advertising market from Google (GOOG), has acquired a Web site called Jellyfish.com that has struck unconventional ad deals with big retailers such as Target (TGT) and Best Buy (BBY).

Using Jellyfish, consumers can compare prices of products culled from a number of online stores. Retailers pay Jellyfish fees to promote their products, and Jellyfish refunds part of that revenue to consumers who buy through its site. The site also hosts an unusual form of auctions in which the prices of products get progressively lower until the supply runs out. No purchase price was disclosed for the deal, which closed Sept. 27 but wasn't announced until Oct. 2.

The acquisition comes just after Microsoft launched a new version of its Internet search engine that is designed to boost traffic—and ad sales—by offering to help users simplify online shopping and Web searches. Microsoft, though still dominant in the market for computer operating systems and business software, has been struggling to extend that success to Web search and advertising. Underscoring the significance of that push at an Oct. 2 event in Paris, Microsoft Chief Executive Officer Steve Ballmer estimated that as much as 25% of the company's revenue could come from advertising in the next four to 10 years (BusinessWeek.com, 10/2/07).

Massive Competition

That's a tall order—and not merely because Microsoft's total online revenue, which encompasses more than just ads, accounted for less than 5% of the company's $51.1 billion revenue total in the fiscal year that ended in June. At present, Google accounts for more than half of all Internet searches and more than a quarter of U.S. Internet ad spending, making it the go-to company for distributing online ads. And with all that revenue coming in, Google has thrown tremendous resources into developing and pushing Web-based software that competes with Microsoft's desktop applications. The most notable move in Microsoft's counteroffensive has been the acquisition of the online advertising company aQuantive, a $6 billion deal announced in May. With its completion in August, Microsoft has given broader powers to aQuantive's former CEO, Brian McAndrews.

Microsoft may incorporate Jellyfish's rebates and auctions for consumer electronics and other products into its MSN online properties, Jellyfish founder Brian Wiegand says. "They are investing heavily in shopping and e-commerce," says Wiegand, who will become a group manager at Microsoft. Wiegand says Jellyfish, based in Madison, Wis., raised $6.2 million in early-stage capital from investors including Kegonsa Capital Partners of Wisconsin.

Jellyfish is Wiegand's third startup. In March, he says, he sold NameProtect, which combed the Web for trademark abuses on behalf of clients including Microsoft and Procter & Gamble (PG), for more than $20 million to Corporation Service. Wiegand also sold BizFilings, which helped startups incorporate, to Wolters Kluwer (WKL), a Dutch publisher of professional databases, for $14 million in 2002. This time he plans to stay on with his acquirer. "I'm going to give being an entrepreneur within a big company a shot. Microsoft is trying to become more entrepreneurial," he says.