Ballmer is trying to rewrite Microhoo history

Steve Ballmer is changing the script in the Microhoo saga.

During a speech Ballmer made Friday at a tech conference in Moscow, Reuters reported him as saying, "Yahoo was never the strategy we were pursuing, it was a way to accelerate our online advertising business...We will spend money on some acquisitions. You can do a whole lot of things with 50 billion dollars."

Steve Ballmer

(Credit: Dan Farber/CNET News.com)

The money must be burning a hole is his pocket, given how ready he was to hand it to Yahoo, when he now says that the combination was "never the strategy."

If Yahoo was never the strategy, what was the last three-and-a-half-month pursuit of Yahoo for nearly $50 billion? It makes Ballmer look like a flip-flopper, distancing himself from his previous hot pursuit of the Internet portal. In his initial letter to Yahoo's board on January 31, which was clearly not a love note but a business solicitation, Ballmer wrote:

While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

• Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.

• Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.

• Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.

• Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

From that letter, it would appear that Yahoo was a strategy, and it went beyond just search.

Perhaps Ballmer's remarks in Moscow could be construed as a way to avoid uttering the "Google" word. Yahoo may not be the grand ultimate strategy, but preventing Google from getting in bed with Jerry Yang and company is--hence, Ballmer's continued pursuit of Yahoo's search business.

In speaking with CNET News.com on February 20, Chairman Bill Gates laid bare the Yahoo bride, revealing Microsoft's real strategy (as opposed to "the" strategy) around Yahoo, which it is now pursuing:

We have a strategy for competing in the search space that Google dominates today, that we'll pursue that we had before we made the Yahoo offer, and that we can pursue without that. It involves breakthrough engineering. We think that the combination with Yahoo would accelerate things in a very exciting way, because they do have great engineers, they have done a lot of great work. So, if you combine their work and our work, the speed at which you can innovate and get things done is just dramatically more rapid. So, it's really about the people there that want to join in and create a better search, better portal for a very broad set of customers. That's the vision that's behind saying, hey, wouldn't this be a great combination.

When Yahoo played too hard to get, Ballmer came to realize that swallowing Yahoo whole perhaps wasn't as good a strategy for Microsoft as it was for Yahoo shareholders. Doing anything to stop the fast-growing Google, which will generate about half the revenue Microsoft does this year, is the strategy. Hence, pursuing Yahoo's search business on one end and Facebook on another front to create more inventory and ride the social-networking wave.

It all sounds a bit desperate. Perhaps it should be looked upon as an "evolving" strategy. What's clear is that Ballmer and Yang never had the kind of relationship that could lead to a marriage. In the end, emotion trumped "the" strategy.

[flhu]

Is it me, or when Ballmer wrote: "Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition," did it seem like he was talking about MS?

[manodud]

sounds like "sour grapes" to me...

[open-mind]

I think Balmer is missing his more "Microsoft-like" (and much less expensive) options. First, tweak Windows so that non-IE browsers work like crap. Then tweak IE to make Google's web site work like crap. Lastly, modify IE so that Windows Live is its one-and-only default search site.

BOOM ... instant search traffic ... problems solved.

[Mr. Dee]

The more I read about Microsoft and Yahoo! the more that strategy sounds like a dead end.

[BrianJStewart]

The more I read this site, the more I am convinced there is absolutely no reporting going on at CNET anymore. Everything is taking quotes out of context, spinning it this way or that way (i.e. Pro Microsoft-Yahoo Merger, Anti-Merger, Pro-Google, Anti-Google, Anti-Microsoft), whatever direction the wind is blowing on the day of the article. Is it just me?

I hate to defend Ballmer, but I think Ballmer has been rather consistent on the Yahoo acquisition. It was always an accelerator for Microsoft's strugglnig search and online advertisement business. It was never about anything else. They wanted scalability and advertisement consolidation to accelerate their search and advertisement business and have a strong #2 rather than a weak #2 and weak #3..

Microsoft has a strong portal and several strong online services that are suprisingly donig well. Sure they can always expand those and add sites (organically or through acquisitions), but the Yahoo acquisition was always and only about search and advertisement scale and consolidation. They know how to build software and frameworks, services, etc and have been doing rather well in that area. But in order to monetize those services and portals more effectively and quickly, the Yahoo acquisition was strategic in that sense only. It was never strategic in terms of Microsoft's overall online market where Microsoft has done rather well (i.e. MSN Portal, Live Messenger, Hotmail, Live Spaces) and will undoubtedly make acquisitions to acquire more sites. Sure they can do better, and need to do better.

This very much explains Ballmer's reluctance to over pay for Yahoo, if they needed a web presense or were "desperate", they'd probably be willing to acquire Yahoo for the 50-55 billion that Yahoo wants but will never get. Ballmer and company have been very clear on what a Yahoo acquisition would bring to Microsoft and what it was worth to them.

[dfarber]

It's hard to imagine that Yahoo's search business was worth close to $50 billion....so the notion that Ballmer only wanted search is a bit revisionist....search has been the most important aspect of the failed transaction, but the other parts of Yahoo have to be worth something and were alluded to in Ballmer's first note about the Yahoo deal. I don't doubt that Ballmer would have phrase his latest remark differently to avoid this kind of parsing, but this is a case of Microsoft trying to compete with Google via acquisition and having a hard time accomplishing that goal...
DF

[BrianJStewart]

I am not saying there isn't more to Yahoo than Advertising and Search. Microsoft would certainly have gotten more than just that, but it was always centrally about the money maker (online advertisement) from the beginning. Steve Ballmer, Bill Gates, Kevin Johnson, Ray Ozzie (among other top Microsoft Executives) have repeatedly stated their interest and objectives and the need for a strong #2 rather than a distant #2 and #3.


The facts speak for themselves (here are a few of the many press releases):


http://www.microsoft.com/presspass/download/press/2008/02-01Yahoo.ppt.
Just look at the first two slides (slide 3 and 4) of the presentation. Their motivations and interest are quite clear.


Also go look at Kevin Johnson's email to the company on February 22.
http://www.microsoft.com/presspass/misc/02-22KJohnsonEmail.mspx

There are countless other references in public speeches, press releases, interviews, etc.