Microsoft Corp. has inked a deal with AT&T Inc. to acquire the carrier’s Xandr Inc. advertising technology unit, the companies announced today.

Separately, Axios reported this morning that Microsoft is teaming up with publicly traded content recommendation company Taboola Inc. on a new advertising service. The service is said to be aimed at enabling brands to purchase ad space across a large number of websites.

Microsoft is best known as a provider of software and cloud services, but the company also competes in the digital advertising market. Microsoft has long enabled brands to deliver ads to users of its Bing search engine. In 2019, the company expanded into the e-commerce advertising market by acquiring a startup called PromoteIQ for an undisclosed sum. Now a Microsoft subsidiary, PromoteIQ offers a platform that enables online retailers to place product ads from suppliers on their websites.

The acquisition of Xandr extends Microsoft’s advertising business to another area: TV ads. Xandr provides cloud services that enable companies to buy TV advertising spots from broadcasters and measure ad campaign performance.

For broadcasters, the AT&T unit offers software that helps optimize revenue generated from the sale of advertising spots. Xandr also provides ad tools for other marketing channels.

Reports that Microsoft could purchase Xandr first emerged in July. At the time, it was reported that the AT&T unit is generating annual revenue of between $300 million and $380 million. Following the acquisition, Microsoft could potentially grow Xandr’s revenues by promoting the software tools developed by the AT&T unit to its large enterprise customer base.

“Microsoft’s shared vision of empowering a free and open web and championing an open industry alternative via a global advertising marketplace makes it a great fit for Xandr,” said Mike Welch, executive vice president and general manager of Xandr. “We look forward to using our innovative platform to help accelerate Microsoft’s digital advertising and retail media capabilities.”

Microsoft’s growing advertising business is creating more competition for Google LLC and Meta Platforms Inc., formerly Facebook Inc., the two largest players in the digital advertising market. Last quarter, Microsoft reported that search and news advertising revenue increased 40% on a year-over-year basis  when excluding traffic acquisition costs.

Amazon.com Inc. is also emerging as an increasingly important player in the digital advertising market. The online retail and cloud computing giant’s revenue from its “other” segment, which is mostly ad sales, jumped 50% last quarter on a year-over-year basis to $8.09 billion.

Microsoft doesn’t disclose ad revenue. The company likewise didn’t share how much it’s paying to acquire Xandr, but it was reported earlier this year that AT&T was hoping to receive $1 billion for the business unit.

AT&T formed Xandr in 2018 from several existing divisions, including the AppNexus digital ad marketplace it acquired a few months prior. The newly announced agreement to sell the unit to Microsoft follows a similar move by rival Verizon Communications Inc. earlier this year. In May, Verizon offloaded key parts of its advertising technology business as part of the $5 billion sale of Yahoo to private equity firm Apollo Global Management.

The partnership between Microsoft and Taboola reported today by Axios could further boost the former company’s presence in the ad market. The firms are developing a service that “allows advertisers to bid for ad inventory across many places on the open web.” That’s an area where Microsoft already competes with its Microsoft Audience Network platform, which allows brands to buy ads across both Microsoft-operated services such as Bing and third party websites.

Microsoft’s partnership with Taboola will reportedly run through 2024. Taboola has already been using services from technology giant’s Azure public cloud to support parts of its business operations.

Image: Xandr