PALO ALTO, Calif.--Bill Gates is willing to pay a lot for engineering talent.
Asked what makes Yahoo worth more than $40 billion, Gates pointed not to the company's products, its huge base of advertisers, or its market share, but rather to Yahoo's engineers. Those people, he said, are what Microsoft needs to go after Google.
In an interview after his speech at Stanford University, Gates said that it turns out it takes a lot of manpower to build tools for advertisers, mobile, and video products as well as improving its core search algorithm and building an infrastructure for cloud computing. "The amount of computer science it is taking to do that is phenomenal," he said. "As you get more scale of engineering you can just pursue that agenda more rapidly. Yes, the advertisers and the number of end users is good, but we'd put the people and the engineering as the key thing."
Of course, that's also what makes the Yahoo deal so risky. A nightmare scenario for the company would be if it succeeds in its bid to acquire Yahoo, only to see its top talent move to new ventures. Gates played down the notion of cultural differences between the two companies.
"Yahoo wants to do breakthrough software," Gates told CNET News.com. "The engineers there want to compete very effectively against Google or any other thing that comes along, so I don't think there is really a different culture."
But, he hinted that the company might have made itself less attractive had it continued down the path championed by former CEO Terry Semel.
"If Yahoo had gone the direction of just being a media company and not said that software innovation was important to them then no, there wouldn't be that intersection because we're about breakthrough software," Gates said. "Jerry Yang to his credit has kept a lot of very top engineers that have been just doing their work and improving those things. That's why we see the combination as so powerful."
Gates was quoted in the last 24 hours as saying Microsoft wasn't looking to hike its bid for Yahoo, but he sounded very much like a man committed to the deal in his comments Tuesday. He didn't say whether Microsoft would move ahead with a plan to wage a proxy battle, but that appears to be a real possibility if Yahoo does not come to the table.
The Microsoft chairman also indicated that Microsoft has a plan for taking on Google with or without Yahoo, but acknowledged Microsoft's plans can move faster if it succeeds in the acquisition than if it has to go it alone.
"It involves breakthrough engineering," he said. "We think the combination with Yahoo would accelerate things in a very exciting way because they do have great engineers and they have done a lot of great work."
Gates had plenty more to say about other things besides Yahoo. In a little bit, I'll post another blog on some interesting things Gates said about Windows 7 and a more complete transcript of my interview should be ready tomorrow. Click here to see the video part of the interview.