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Microsoft's write-down and what ads are worth

SAN FRANCISCO (MarketWatch) -- In writing off its $6.3 billion purchase in 2007 of Internet-advertising company aQuantive, Microsoft Corp. is raising more worries about its place in the online-ad business and adding another cloud to its money-losing online services.

After the market closed on Monday, the software giant said it has determined that a noncash write-down of approximately $6.2 billion is required for goodwill in its online-services division, mostly related to its 2007 aQuantive acquisition. Microsoft (MSFT) noted that "goodwill arises in an acquisition when the fair value paid for a business exceeds the value of the identifiable net assets." Simply put, the company paid a lot more for aQuantive than it was worth. Read more on Microsoft's write-down.

Microsoft's online-services division has been a thorn in the sides of investors for years. While Redmond's losses in the most recent fiscal third quarter narrowed from the year-earlier period, this particular division consistently reports operating losses. (The business is also the unit that sought out Yahoo Inc. (YHOO) for a merger and now has a search partnership with the Web portal.) The Bing search engine may have grown in market share in the United States, and Microsoft says its revenue per search has been growing, but clearly these aren't enough to help in this competitive category.

What the write-down does say is that Microsoft still is not really able to effectively challenge the big kahuna of Internet advertising, Google Inc. (GOOG) It may also raise additional questions about the value of online ads in general.

But investors should be concerned that Microsoft spent such a huge sum on an Internet-ad network, akin to Google's buy of DoubleClick. The difference is that for Microsoft, at least on its balance sheet, the $6.3 billion deal never amounted to anything.