Beyond Binary

NEW YORK--Whereas the Manhattan launch of Windows Vista was largely about the glitz, Thursday's event here was more hands-on tech demo than Hollywood premiere.

Most of the focus at the Windows 7 event was on showing off new PC models and showing how they connect with one another and with other devices, such as high-definition televisions, cameras, and photo frames.

Also on display were a large number of touch-screen models, both laptop and all-in-one desktop varieties, with many running Microsoft's Touch Pack, which includes Surface applications such as Virtual Earth and Lagoon.

But the device that attendees most wanted to get their hands-on--Dell's Adamo XPS--was quickly whisked away after being shown off by Microsoft's Mike Angiulo during the keynote.

Photos: Windows 7 launches in New York

* * * Another touchy subject
If any Windows Vista Ultimate owners were still holding their breath that Microsoft might yet rescue them with a free or ultralow-cost upgrade to Windows 7 Ultimate, they might as well exhale.

Vice President Brad Brooks told CNET News that the answer was a straightforward "no," though it is a decision he said he understands is disappointing. Brooks, as did Tami Reller in an interview earlier this month, pointed to the fact that some Ultimate owners were among those that held house parties and thus did get a free copy of Ultimate.

* * * On the plus side, there's no need to check a bag
In keeping with the event's more low-key nature, even the swag bag was a bit, shall we say, skimpy.

Inside was a T-shirt, a puzzle, a poster, a deck of cards, and the Steve Ballmer edition of Windows 7 Ultimate--essentially some of the same goodies given to those that hosted Windows 7 house parties. With Vista, by contrast, launch attendees got a copy of Office, a Windows game, an Xbox controller, and, of course Vista.

The Windows 7 bag itself was one of those reusable shopping bags, rather than the shoulder bag needed to hold all of the Vista goodies. That said, I'm sure that the Windows 7 launch had a much smaller carbon footprint.

* * * The other Steve
While Steve Ballmer was in new York, the other Steve--Windows unit President Steven Sinofsky--was across the globe, presiding over the Japanese launch of the product.

Although some of us in the domestic press core thought that perhaps Sinofsky was just trying to avoid us, Sinofsky said in his remarks in Japan that he was there because of the importance of that market.

"In fact, many people have been asking me, 'Why are you here working on the launch of Windows 7 in Japan and not with your boss in New York?'" Sinofsky said in his speech there. "We are very passionate and excited about the support that we're receiving from the Japanese market. And particularly because of the Japanese attention to the product quality and the development of Windows 7, which makes it so important for us to make sure that we're in touch with the Japanese customers."

Sinofsky also noted the fact that Japan is home to a number of PC makers and a leader in consumer electronics, such as the many televisions with which Windows 7 aims to connect.

Really, being in Japan is about being part of the Windows ecosystem that really starts here in Japan," Sinofsky said. "And it's great to be here to recognize the great contribution that everybody here in Japan makes to the development of Windows 7 for all of our customers around the world."

And here it is (on right), your Hallmark moment:

Attention those with leftover Windows 7 house party kits: don't try to sell them on eBay.

Readers report that several auctions of the house party kits have been canceled. Among other things, the kits provided to those hosting Windows 7 house parties include a Steve Ballmer "signature edition" of Windows 7 Ultimate.

It appears partygoers may just have to hang on to their Steve Ballmer-signed copies of Windows 7. Several eBay auctions of the "party packs" have been canceled.

(Credit: M3 Sweatt)

The auctions may have been canceled at Redmond's request, although several other auctions appear to be ongoing.

"While we cannot confirm why eBay has removed these specific auctions, Microsoft routinely works with online auction sites such as eBay to remove infringing auctions," the company said in a statement. "The Signature Edition of Ultimate that was included in the Party Packs is clearly marked on the outer wrap Not For Resale," Microsoft said in a statement.

Microsoft hasn't said where, if anywhere, it plans to sell a Ballmer-signed version of the operating system. With Windows Vista, Microsoft sold a Bill Gates-signed version at Amazon.com.

Unsigned copies of the operating system, though, should be easy to spot come October 22, when Windows 7 gets its formal launch.

In the meantime, partygoers will just have to hang on to their Ballmer-signed copies of Windows 7.

REDMOND, Wash.--Steve Ballmer is never at a loss for words, but that doesn't mean he always spills the beans.

Such was the case with the top-secret Courier dual-screen tablet that Microsoft is said to be working on.

As part of an interview for our new CNET Conversations program, Microsoft's chief executive said he had nothing to say about the product. "I really don't," he told me and CNET TV colleague Molly Wood. (My sources tell me the project is real and that Courier is one of many prototypes, though that's about all I've managed to learn so far.)

The video of our interview is embedded here. For the full interview in text form, check out the transcript on the CNET Conversations Web page.

Ballmer was not similarly tongue-tied when it came to talking about his optimism for technology, his thoughts on the economy, or his company's competition with Apple and Google.

As for the economy, Ballmer said that things aren't getting worse, but didn't want to go as far as Google CEO Eric Schmidt who recently declared the economy is improving.

"Well, I think any sort of forecast at this stage is probably a little bit premature," Ballmer said. "Thank goodness we haven't fallen off a second cliff, which certainly in some economic times we have, but unemployment rates are still high and growing, so it's a little hard for me to say the worst of the recession is behind us when there's still a lot of families both out of work and more families out of work every day."

... Read more

In case you were worried there weren't enough versions of Windows 7, there's one more to add to the collection.

It's the Steve Ballmer "signature edition." Under the hood it's Windows 7 Ultimate, but on the outside it's got a snazzy look plus the autograph of Microsoft's chief executive. It's not unlike what Microsoft did with Vista, though in that case it was Bill Gates adding his John Hancock to the packaging.

Microsoft is giving those who host a Windows 7 house party a Steve Ballmer edition of Windows 7, not unlike this Bill Gates version of Windows Vista Ultimate.

(Credit: Amazon.com)

For now, the Ballmer edition is going to those who host one of the Windows 7 house parties.

Microsoft won't say where else, if anywhere, it plans to offer the Ballmer-autographed version. The Gates version of Vista was sold on Amazon, although I later spotted one at CompUSA when it was going out of business.

The Ballmer edition came to light after one Windows enthusiast got their party kit early after complaining to Ballmer that they weren't eligible to participate because of their location. Eventually, they were sent a party kit anyway, including the Ballmer version of Windows.

Windows 7, at least in all its other versions, goes on sale October 22. Stay tuned on whether you will be able to get the Ballmer version.

Update 4:30 p.m PT: Here's a photo of the Ballmer pack, courtesy of Microsoft's M3 Sweatt.

(Credit: M3 Sweatt)

SAN FRANCISCO--Microsoft trotted out some of its biggest customers on Tuesday to make its case that it still makes sense to spend money on software in a tough economy.

The gathering of invited corporate IT users here is designed to serve as the beginning of the business push for Windows 7, which is already available to larger businesses and goes on sale to consumers and small businesses on October 22.

A panel of Microsoft executives and customers talked about the pending launch of Windows 7 at an event in San Francisco on Tuesday.

(Credit: CNET News)

Among those already trying out Windows 7 is Intel. The chipmaker did a lot of work to make Windows Vista work, but like many companies, it decided not to put it on its own desktops.

By contrast, Intel is adopting Windows 7 rather quickly. Already about 500 employees from throughout the company are testing the software, said CIO Diane Bryant. Of those workers, 97 percent said they would recommend the operating system.

"It's a very strong pull," Bryant said.

Although a good business case can be made for upgrading our machines, it can still be a tough sell, said IDC analyst Al Gillen.

CEO Steve Ballmer presided over an event that was, effectively, the business launch of Windows 7.

(Credit: CNET)

"The problem is it costs money to save money," Gillen said.

Microsoft CEO Steve Ballmer, who earlier Tuesday sent out an e-mail to customers arguing for "the new efficiency" driven by software, is slated to speak shortly at the event being held at the at the University of California, San Francisco's Mission Bay campus.

Update 9:55 a.m.: The panel has wrapped up and Ballmer has taken the stage. So far, we're hearing familiar talk about doing more with less and his case that technology is at the early stage of its influence on business.

10 a.m.: Ballmer starts his pitch for Windows 7.

Ballmer said his hope is that, once the new operating system hits the market, that individual workers will be going to businesses asking them to put Windows 7 on their corporate computers. "I think we are going to see a lot of that kind of demand," Ballmer said.

But, he acknowledged that alone won't sway businesses. "Even with that swell of interest, you are still going to have to confront the new efficiency."

There, he said, it will come down to whether Windows 7 really can make business workers more productive, something he clearly believes it can.

10:20 a.m. Ballmer has switched into the full-on sales pitch, highlighting the cost savings that can be achieved. Customers can expect to save $90 to $160 in costs each year per computer that they move onto Windows 7, largely from lower support and management costs. (It wasn't clear if this was as compared to a PC running XP or one running Windows Vista.)

Windows 7 can also make it cheaper to deploy new software, though Ballmer acknowledged that skeptics will point out the cheapest thing is just not to deploy new software at all. "I got that," Ballmer said.

Still, he said, it's a "very good place in the product cycle" to embrace Windows 7," Ballmer said, noting that businesses that move now would be early adopters, but not the first companies to do so, pointing to a list that included Ford, Fiat, BMW, Bombardier, Continental Airlines, Intel, Halliburton and Starwood.

Ballmer said he expects most companies will start moving to Windows 7 as they add new PCs, but won't do large-scale upgrades of existing machines and probably won't rush out to replace all their PCs either.

10:30 a.m.: On to questions and answers. Microsoft starts with a few written ones that came in over the Internet. First off: No, Ballmer is not free for golf next Monday--he'll be in London.

10:32 a.m.: Well, he took a couple more written questions but no live questions from the audience before the event wrapped up.

Microsoft CEO Steve Ballmer sent on Monday one of his periodic public e-mails, outlining the business realities of what he called "the new normal."

His e-mail comes just ahead of an event in San Francisco where he will talk about the lineup of products Microsoft is launching, namely Windows 7, Windows Server 2008 R2, and Exchange Server 2010. I'll be covering that event live later Tuesday.

"Today, people borrow less, save more, and spend with much greater caution," Ballmer wrote in the e-mail, which is sent to anyone who subscribes to the notes. "This is the new normal and it will be with us for some time to come. The issue now is how to respond."

Here's the full e-mail:

----- Original Message -----
From: Steve Ballmer
To: Ina Fried
Sent: Tue Sep 29 04:08:15 2009
Subject: The New Efficiency

In all the talk about the economy, one term that comes up more and more frequently is something called "the new normal." I like this phrase because it speaks to the fact that economic reality has undergone a fundamental shift over the course of the past 12 months.

So what is the nature of this shift? After years of economic expansion fueled by unrealistic rates of consumption and unsustainable levels of private debt, the global economy has reset at a lower baseline level of activity. Today, people borrow less, save more, and spend with much greater caution.

This is the new normal and it will be with us for some time to come. The issue now is how to respond.

I believe the new normal requires a new kind of efficiency built on technology innovations that enable businesses and organizations to simultaneously drive cost savings, improve productivity, and speed innovation.

Because you are a subscriber to Executive Emails from Microsoft, I want to share my thoughts with you about how information technology can enable organizations to operate more efficiently, more effectively, and more strategically as they respond to the new normal by moving toward the new efficiency.

THE NEW EFFICIENCY: WITH LESS, DO MORE

In the new normal, one thing is clear: cutting costs is extremely important. But cost cutting by itself is not a long-term winning strategy. To build a sustainable competitive advantage, companies must ultimately do two things-increase productivity and find ways to deliver new value to customers.

The issue, then, is how can organizations take costs out of their operations, increase productivity, and expand their capacity for innovation all at the same time?

For years, we've talked about how information technology enables companies to do more with less. But during this economic reset, IT provides business leaders with the answer to a slightly different question: Can my company with less, do more?

Other trends give this question even greater urgency. Workforces are more distributed and employees are more mobile. Government regulations are increasing and compliance requirements are mounting. Data security is more important to preserve and more difficult to maintain.

At the same time, companies struggle with legacy technology systems built on incompatible and disconnected applications that limit access to information and impede collaboration. The complexity of these systems forces IT departments to focus too much of their time and too many of their resources on providing basic services and protecting security.

Today, a new generation of business solutions is transforming IT into a strategic asset that makes it possible to cut costs without crippling customer service or constraining workforce creativity and effectiveness. A new generation of business solutions is eliminating the barriers between systems and applications, and automating routines tasks so IT professionals can focus on high-value work that is aligned to strategic priorities. These technologies can help organizations reduce risk, improve security, and drive down support costs.

This is IT how achieves the new efficiency with less.

At the same time, these technologies streamline access to information no matter where it is stored and enable people to work together securely no matter where they are located. This new generation of business solutions also provides improved mobile computing capabilities so people who work in a branch office, at home, or on the road can be as productive as employees who work at corporate headquarters.

Most important, a new wave of IT technologies offers advanced tools that enable employees to transform insights into innovations that address unmet market opportunities and meet unfulfilled customer needs.

This powerful combination of greater productivity and improved capacity for innovation is how IT enables businesses to do more.

SOFTWARE SOLUTIONS FOR THE NEW EFFICIENCY

This year, Microsoft is introducing a wave of new software created specifically to enable businesses to tackle their most pressing challenges and strengthen their ability to deliver innovation to the marketplace.

It starts with Windows 7, the newest version of our flagship PC operating system. Windows 7 simplifies tasks and lets people get more done in less time with fewer clicks. Ready to deploy now, it enhances corporate data protection and security, and increases control to improve compliance and reduce risk. Part of our Windows Optimized Desktop solution that includes Microsoft Desktop Optimization Pack, Windows 7 streamlines management of PC environments, making it easier to reduce costs, improve performance, and enable end users to work anywhere.

These and other enhancements are the result of close collaboration with millions of customers and thousands of IT professionals who participated in testing programs and provided suggestions about the capabilities and improvements they wanted to see. Thanks in large part to their help, Windows 7 is the best PC operating system we have ever built.

We've also just released a new version of our server operating system. Windows Server 2008 R2 is designed to increase the reliability and flexibility of server infrastructures. It provides a productive server platform that offers cost-effective virtualization and business continuity, great power saving capabilities, and a superior experience for end users.

Later this year, we will also launch Exchange Server 2010. The cornerstone of Microsoft's unified communications technologies, Exchange Server 2010 provides a great email and inbox experience that extends from the PC to the phone to the browser and it helps companies archive and protect information efficiently. It also enables companies to reduce costs by delivering a built-in voice mail solution and providing low-cost storage options.

ACHIEVING THE BENEFITS OF THE NEW EFFICIENCY TODAY

Organizations around the globe are already deploying these solutions and reaping the benefits.

At Intel, for example, Windows 7 is providing improved performance, greater application responsiveness, and a better platform for mobile workers. Ford is taking advantage of Exchange 2010 and Windows 7 to streamline communications, improve decision making, and boost productivity. Continental Airlines expects to save more than $1.5 million annually in hardware, software, and operational costs through the server virtualization capabilities of Windows Server 2008 R2 Hyper-V technology.

At Convergent Computing, an information technology consulting firm based in California, Windows Server 2008 R2 and Windows 7 will eliminate the $40,000 in annual spending that was needed to maintain a virtual private network for the company's 55 employees. In addition, employees can now access the company's corporate network instantly and download files 30 to 40 percent faster than before.

Another example is Baker Tilly, a London financial services firm with more than 2,000 employees and a network of partners in 110 countries. One of the first businesses to deploy Windows 7 on a company-wide basis, Baker Tilly expects to save about $160 per PC by reducing deployment, management, and energy costs. And because Windows 7 improves productivity, it offers the potential to increase billable time for mobile workers at a rate of nearly $600 per PC. This could return the equivalent of one-half of one percent of the company's current gross annual revenue to the bottom line.

Businesses aren't alone in their struggle to respond to the new normal. Governments must figure out how to deliver more services on budgets that are sharply constrained by falling revenue. As part of its response, the city of Miami deployed Windows 7 and expects that it will save nearly $400,000 a year in reduced security, management, and energy costs.

IDEAL CONDITIONS FOR AN ERA OF INNOVATION AND GROWTH

Despite the challenges posed by the global economic reset, I'm optimistic about the long-term opportunities that lie ahead.

I'm optimistic because there are encouraging signs that growth may resume in many parts of the world during the course of the next year.

More than that, I'm optimistic because I believe we are entering a period of technology-driven transformation that will see a surge in productivity and a flowering of innovation.

The new efficiency will not only help companies respond to today's economic reality, it will lay the foundation for systems and solutions that connect people to information, applications, and to other people in new ways. The result will be a wave of innovative products and services that will jumpstart economic growth as companies deliver breakthroughs that solve old problems and serve as the catalyst for new businesses and even new industries.

This too will be the new normal-economic growth driven not by debt and consumption, but by rising productivity and new ideas that provide real value to people throughout their lives. Information technology will play an important role. I look forward to seeing the progress that results.

Steve

REDMOND, Wash.--Kicking off a financial analyst meeting on Thursday, Microsoft CEO Steve Ballmer addressed the threats to Microsoft's biggest economic engine, its Windows business.

In addition to the usual issues of piracy and emerging markets and Netbooks, Ballmer acknowledged another challenge: rivals to Windows.

Ballmer

"We've got competition coming from a lot of different places," Ballmer said. He talked about the competition from Linux and Apple and the looming threat from Google's Android and Chrome OS.

"I don't know what Chrome OS is yet," Ballmer said. "Right now I just put it on the list for competitive completeness."

That said, he said he does expect more competition overall for Windows.

"We are going to come under attack," Ballmer said. "Any business that is as big...as Windows deserves competition."

However, he said that he expects Windows 7 to be a strong answer to all of those threats, noting that Microsoft understands that Windows is its flagship product.

"That is absolutely job one around here," he said.

Ballmer said the Windows business should grow roughly in line with the overall PC market in the coming year, although he declined to give a specific forecast.

He also walked through the economics of the Windows business, addressing all of the different segments.

"Many of you think we have problems we don't have in the Windows business," he said.

On the Apple front, Ballmer noted that the year was roughly a wash, with Apple gaining some share in the beginning of the year and Windows regaining some at the end of the year.

However, he noted that the company still had work to do with the analysts, counting up the significant number of Macs in the crowd.

"Don't hide it," he said. "I've already counted them. I've been doing it since we started talking...Feel free. As long as you are using Office go right on ahead."

Ballmer's comments follow a disappointing quarter in which Microsoft's revenue was hundreds of millions of dollars less than many analysts were expecting.

"It was kind of a wild quarter," Ballmer acknowledged. "It was a bad economy and we still had a pretty good year."

The company has said it sees the overall economy and its business to be challenging for the rest of the calendar year.

Earlier in his talk, Ballmer also walked through the economics of the search ad deal with Yahoo, highlighting its benefits to both companies, calling it a win-win.

(Credit: Microsoft)

Microsoft's search deal with Yahoo is the culmination of months of well documented negotiations, but in many ways, it is just the beginning of the long road ahead.

In the coming months, Microsoft and Yahoo will not only have to win regulatory approval for the deal, but also figure out how to bring together disparate approaches to the search market.

Microsoft has spent much of its energy in the last couple years refining its core technology, improving in vertical categories, and rebranding its Web search under the Bing moniker. Yahoo, meanwhile has put a lot of energy into tools that allow others to build on its technology, including the BOSS (Build your Own Search Service) and SearchMonkey efforts.

Mehdi

As part of the deal announced on Wednesday, Microsoft will now be responsible for trying to merge those efforts. In an interview, Microsoft Senior Vice president Yusuf Mehdi said Microsoft hasn't looked at the specific lines of code in that area, but is open to trying to take Yahoo's best ideas and integrate them into Bing.

"We like the approach that Yahoo has done," he said, referring to SearchMonkey and BOSS.

Both Mehdi and Yahoo Executive VP Schneider acknowledged that there are integration challenges, but Schneider said there is a clear delineation of who is responsible for what.

"At the same time we are integrating, we are really divide-and-conquering," Schneider said in the joint interview with Mehdi. "The reality is in the way we structured (the deal), it allows each of us to innovate in the areas that will jointly bring advantage."

The fact that the companies have already spent time thinking about these issues reflects the different nature of the discussions this time around.

Whereas last year's negotiations were done with Yahoo's board and a keen eye on Wall Street, the deal announced on Wednesday is much more focused on how to build a search business for the long term.

CEO Steve Ballmer noted on the conference call earlier Wednesday that the two sides have a 100-page playbook as opposed to a two-page term sheet and also noted that the negotiations were handled by management as opposed to representatives of the company's boards.

Schneider

In addition to being run by the top management from Microsoft's online group, including Mehdi, Senior Vice President Satya Nadella, and online unit President Qi Lu (a former Yahoo executive), Mehdi and Schneider said the negotiating teams routinely called on the companies' engineering and sales ranks to make sure the deal they were structuring made operational sense.

It wasn't just the typical few business development executives in a room hashing out financial details, the pair said. "We really have got a great vibe with Yahoo's operating team," Mehdi said.

The two companies will be able to do some work on their joint plans while the deal is pending, but there are limits as to how much collaboration can take place.

"We will do all of the pre-work that we are allowed to do in terms of preparing," Mehdi said. "We feel like we can make a lot of progress."

Ultimately, though, the two companies said they expect just integrating Bing's results into Yahoo in the U.S. will take several months, while moving from Yahoo's Panama ad-serving technology to Microsoft's AdCenter could take a year. It could be two years from the deal close before the two companies can fully implement the deal across the globe.

Microsoft's Mehdi didn't close the door on an eventual expansion of the deal into some of the areas the two companies had at one point considered, such as joint work on display advertising.

"Today is a start on a fantastic partnership which we are very excited about," Mehdi said. "By starting this partnership it allows us to over time build greater and deeper relationships. Right now the focus is on getting to a credible No. 2 player in search and paid search."

One of the open questions is what will happen to each company's business and workforce during the time that the deal is pending. Schneider said the companies have a communications plan for employees as well as the sorts of retention bonuses planned to keep key employees in place.

"We believe this is a winning plan," she said. "People want to be part of a winning vision."

Ultimately, Yahoo CEO Carol Bartz said some of Yahoo search employees will move to other parts of the company, some will be offered jobs at Microsoft, while others will eventually lose their jobs.

For his part, Mehdi said the company will continue to beef up its search staff while the deal is pending. "We are continuing to hire and invest in search."

Roughly 18 months after the word Microhoo entered the technology lexicon, the two companies finally have a partnership to speak of.

As part of a 10-year pact announced early Wednesday, Microsoft's technology will power the two companies' search sites, while Yahoo will handle ad-selling duties.

Executives from both companies will discuss the deal in a conference call from Yahoo's headquarters in Sunnyvale, Calif., at 5:30 a.m. PDT. Follow the live coverage here.

5:32 a.m.: Still listening to meditative hold music. They really could use something more upbeat.
5:33 a.m.: Getting the details on how conference calls work. Apparently we'll be in some sort of "listen-only mode."
5:34 a.m.: There will be some forward-looking statements. (Stuff they predict may or may not happen.)
5:35 a.m.: Yahoo CEO Carol Bartz says deal is a game changer "and I'm glad to finally be able to talk about it." She added: "We face a formidable competitor in one area and that area is search."
5:37 a.m.: Yahoo's sales force will handle sales of both sites' search. Self-serve ads will be fulfilled via Microsoft's AdCenter.

"What this deal is really about for everyone is scale," Bartz said. By combining, they can deliver a viable alternative.

Funny how it's all about Google, but she's not naming Google.

"Everyone wants a real alternative and advertisers are no different," Bartz said.

"Powered by Bing" will appear at the bottom of the Yahoo search results.
5:40 a.m.: "This agreement has been a longtime coming," CEO Steve Ballmer said. Um, yeah.

Ballmer continues: the bottom line is the agreement will enable us to create more innovation in search, better value, and world peace. (Maybe not the latter. Remember, these are forward-looking statements.)

It's apparently a win-win.

"Both companies benefit from scale and better economics. Consumers really will get better products," Ballmer said.
5:42 a.m.: Bartz talking nitty-gritty details. Both companies will have separate display-ad sales forces. Microsoft will pay Yahoo 88 percent of revenue for search ads on Yahoo sites.

"Our revenue will come down a bit due to revenue sharing," Bartz said, but added that operating income should rise, expenses drop, etc.

"This deal won't happen overnight," Bartz said. First, the companies will have to convince regulators it's a good thing.

Assuming they get the OK, the companies will start with major markets, including the U.S., which will transition to using Bing results in 3 to 6 months. Shifting from Yahoo's Panama paid search tool to Microsoft's AdCenter will take 12 months. Full global roll-out should take 24 months.
5:46 a.m.: On to the Q&A.

So why not display advertising? "We wanted to keep this as simple and straightforward as possible," Bartz said.

"We're taking a big bite here," Ballmer said. "Search is a more well-known thing" when it comes to automating the ad-selling.

How big is the revenue-per-search gap? (Microsoft is guaranteeing a certain amount of revenue for each search query to Yahoo.

"We and Yahoo are sort of close and we both lag Google," Ballmer said. Some of that is scale, he said which will be helped by deal.
5:49 a.m.: Why no "boatloads of cash" from Microsoft. Why wasn't there an up-front payment?

"Having a big cash payment up front doesn't really help us from an operating standpoint," Bartz said. As far as we're concerned, she said, the "boatloads of cash" is preserving our revenue line.
5:51 a.m.: The two companies have talked about the financial impact to Yahoo, but what about Microsoft?

Ballmer acknowledges that most of the revenue from Yahoo's search results will go back to Yahoo. "We paid a high TAC rate," he said, referring to traffic acquisition costs and the 88 percent of revenue that Yahoo will get.

Microsoft will spend "a couple of hundreds of millions" of dollars for implementation and transition costs "We're sort of betting into the future," Ballmer said. The upside, he said, is better relevance. "Ads are part of being relevant and we have a better chance of being relevant." Ballmer said it should improve relevance on both sites. The upside comes as execution really builds.

"There's a lot of work involved in this transition to our platform," Ballmer said.
5:56 a.m.: Any opposition in Washington?

"We expect we will face some opposition from...the competitor," Ballmer said. (Assuming he is talking about Google and not Ask.com)

Ballmer said that the deal benefits advertisers, publishers, and consumers.

"Obviously, we will be called to present that case in D.C. and Brussels and other places," Ballmer said.
5:58 a.m.: What about impact on jobs?

"There are certainly many Yahoo search employees that will be asked to take jobs at Microsoft as they integrate the technology," Bartz said. "There will also be search employees that we look to help us on the display side... And then unfortunately, there will be some redundancies in Yahoo."

Nothing will change until we get regulatory approval, which we hope is in early 2010, Bartz said. "There will be redundancies, but it will be in the future." Bartz didn't give an estimate of how many jobs will be lost.
6:01 a.m.: The most complex part of the deal, Ballmer said, is around protecting privacy and allowing both companies to build their products around search.

"You really have to say what data gets shared and how does it get shared," he said.

6:03 a.m.: How can Yahoo innovate if Microsoft is in charge of the technology?

"There is a lot of innovation that happens above the search results," Bartz said.
6:04 a.m.: What does this mean in terms of mobile and platforms beyond the Web?

"We spent time talking about mobile," Bartz said. "We have the option of using the Microsoft technology for the mobile Web experience. It's not exclusive as it is on the PC. The only difference is it is not exclusive. If somewhere down the road we wanted to switch, we could."
6:06 a.m.: What is the rate when Yahoo sells on Bing.com? What is the risk and impact on Yahoo's affiliates? What about all of the 800,000 advertisers that are running their campaigns only on Google.

Yahoo actually doesn't get split of Bing revenue.

"When the Yahoo sales people sell (they) don't know whether will sell on Yahoo or Bing," Ballmer said. "You are buying the keyword in both environments."

As for Google-only advertisers, Bartz said that combining Panama and AdCenter will help. "Smaller advertisers want to make sure there's a meaningful market, and they don't want to learn three platforms."

Ballmer said that the bulk of Google-only advertisers are outside the U.S. where the companies have even less share. Google has 78 percent of the paid search market here, but in Western Europe, Ballmer said, it is more like 92 percent.
6:12 a.m.: How much code will come from Yahoo vs. Microsoft's Bing. Our engineers know Bing, Ballmer said, but he added that Microsoft will be getting access to any technology from Yahoo. "We have a license to code."

Ultimately, though, Ballmer said, Microsoft will have to make those choices and build a product that is financially more successful than its current search effort. "The burden is on us to deliver the goods."
6:17 a.m.: Why is this deal better than one on the table last year.

"I've done some exploring of that," Bartz said. "There's actually more fiction in the market than there is fact."

The search partnership discussed last year would have had a big up-front payment, but would have generated less revenue over the long term for Yahoo.

"We really are trying to run a long-term business here," Bartz said.

Ballmer noted that last year's deal was negotiated more by the boards than by the operating management.

"The deal is different...For Microsoft, this deal is not better, but this deal is different," Ballmer said.
6:21 a.m.: Who will be in charge of execution?

There will be a team from both sides, Bartz said.

"This is not a minor project," Ballmer agreed. "This is a major execution (challenge)," he said, noting that for Microsoft, the team will include the top leadership of the online business, including former Yahoo executive Qi Lu.

"It's not like we come here with a two-page term sheet," Ballmer said. "I think we have well over 100 pages written to describe what we are doing."

Bartz acknowledged that a partnership is harder in some ways than going it alone. That's why the companies wanted to make sure they were really committed to one another.

"Dating is one thing," she said. "Having a partnership is another."
6:28 a.m.: Call ends, with a pitch for the companies' joint Web site www.choicevalueinnovation.com. (I guess ButItsNotGoogle.com was taken.)

Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer were all smiles on Wednesday morning.

(Credit: Yahoo/Microsoft )