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Microsoft Acquires PromoteIQ in an attempt to compete with Amazon
Advertising generates the majority of revenue in the social media and searching sections of the internet market. The main players in the technology sector rely heavily on the profits they receive from ads. Facebook and Twitter have become common areas for companies to advertise because it attracts a lot of foot traffic. On Monday, August 5, 2019, Microsoft announced it had acquired PromoteIQ, a small company that has focused on aiding retailers in including ads into their online stores. They have selected retail as a key industry to focus on, attempting to increase its market share in the public cloud sector. This acquisition was made with the hope of competing better with Amazon.
A Win for the Underdog. The creators of PromoteIQ have done an excellent job in building the infrastructure of their company, proving to the market that they can create value. The technology they created complements Microsoft’s current advertising offerings within the retail sector. Microsoft feels that the combined technologies could modernize e-commerce platforms and maximize advertising opportunities. PromoteIQ was created by Spotfront, who sold it to Microsoft for an undisclosed amount. They were able to construct an entity with enough worth to get the attention of a massive company, obtaining the end goal of a successful startup.
Profitable Market. According to a recent study, advertising spending in the United States was $223.7 billion in 2018 and is expected to grow to $289.5 by 2022. It is one of the largest spending categories for the retail industry and is only expected to get bigger. The newest suggestion is that data is the new oil. The basic concept of it is that in this new digital economy, data is similar to oil a century ago. It is an untapped, enormous asset that depending on how you extract and use it, can have colossal benefits. According to a recent study, businesses make an average of $2 in revenue for every $1 spent on Google Ads. This data can be used to determine what type of pop-up ad you will see when logging into your social media, which is a big factor in determining which store consumers choose to shop at.
Too Big. The ultimate end goal for the majority of startups is to inevitably be bought out by a bigger player. This transaction is good for both sides, but it always carries the risk of a company becoming too big. If this occurs, there are many different effects it could have not only on the company itself but also all the other participants in the industry. When monopolies occur, the company’s revenue would be easier to predict, causing the individual stock to not fluctuate as much, meaning traders have less of a reason to transact. Also, to acquire PromoteIQ, Microsoft would have had to acquire a significant amount of debt, which could limit the number of funds they have available to fund their future growth.
Decreased Competition. Acquiring a smaller entity is very common for larger corporations, as it is the most cost-effective way to get into a new sector. These buyouts are beneficial in some ways, but also come with a downside. When a smaller company is acquired, the competition within the sector is reduced as the number of players has been lowered. This allows the remaining competitors to increase prices as the options are dwindling. Decreased competition hurts the consumers the most, as the option to go with a smaller, less expensive company is no longer available.
Beneficial For All. Corporate buy-outs are always going to be a big part of the business. The acquisition is normally beneficial and wanted by both parties, and can be great for the market, as long as the entity does not become too large. It is an excellent exit opportunity for the smaller firm but can inevitably hurt the consumers.