Microsoft's Navic Acquisition Targets TV Ad Market

Not long after closing the door on the pursuit of Yahoo! Inc. (YHOO), an acquisition that would have boosted its online advertising business, Microsoft Corp. (MSFT) is making another purchase -- albeit much smaller -- that could enhance its ad presence in an entirely different way. The software giant is acquiring Navic Networks Inc., a venture-backed company that makes software to enable the placement of targeted ads for television.

While the deal has largely gone under the radar, probably due to its undisclosed purchase price, it is an intriguing move for Microsoft, which over the course of the Yahoo! saga pretty much came clean with its desire to improve its home-grown advertising business.

The software giant, however, to date has largely expressed an interest in Internet advertising. The lines between television and Internet are indeed blurring these days, with more cable and network content being made available online and more original content being created for Internet protocol television.

Nonetheless, in its statement announcing the Navic purchase, Microsoft seemed mostly interested in the traditional television market, noting that "television media represents the largest percentage of advertisers and agencies' media budget today." The company said it now plans to work more closely with the advertising industry to help advertisers better attain their objectives.

In many ways, today's television advertising looks like a business that time and technology forgot. Advertisers trying to track audience sizes use the same tool they used decades ago: Nielson Media Research. Nielson surveys a representative sample of TV viewers to produce reports estimating the total audience size, but uses few of the bells and whistles online advertisers have at their disposal to get not only a more accurate view of the audience size, but also to see how engaged that audience was, in the form of click-throughs and other measures.

Back in 2001, The Deal profiled Navic as a technology that could let your television watch you as you were watching it. Since then, Navic has raised $43 million over three rounds from backers including Pilot House Ventures Group, Pequot Private Equity, Highland Capital Partners and Himalaya Capital. A number of other startups on the market are working on similar technologies.

And though Microsoft hasn't said exactly how this focus on television advertising will fit with its larger Internet strategy, a good clue can be found in the "expert discussion" following the collapse of talks with Yahoo! last week, which suggested Microsoft would be better off focusing on next-generation Internet advertising, rather than chasing Google Inc.'s (GOOG) current lead in the largely text-based advertising business.