REDMOND, Wash.--Microsoft's annual culture clash takes place Thursday as the software maker tries to dazzle and delight with technology and long-term plans, while a crowd of financial analysts presses the company for profits they can take to the bank.
Although Microsoft has continued to return solid profit and earnings, the company has also been spending more than some analysts would like, particularly in its online services area. There were already grumblings over the company's plans on last week's earnings conference call and I'd expect that to be an area of discussion on Thursday, especially in the wake of the departure of Kevin Johnson, the president of the division that houses both Windows and the online business.
I'll be covering the event and blogging frequently, but here's a preview of what to expect.
CEO Steve Ballmer kicks things off, followed by Entertainment and Devices boss Robbie Bach. Expect Microsoft to point to its Entertainment and Devices unit as an area where long-term bets are paying off. The unit turned its first annual profit for the fiscal year that ended in June, amid strong Xbox 360 sales as well as had the beginnings of returns on other investments such as in-car computing and IP television.
After a talk from Chief Operating Officer Kevin Turner, Bill Veghte will take center stage for a discussion of Vista. Expect him to point to evidence that Vista is both selling better and is better accepted than everyone thinks. Also look for detail on how Microsoft plans to use marketing to try and change some minds. I'll be keeping an ear out for a mention of Project Mojave, first reported in this space earlier Thursday.
New business division head Stephen Elop follows to discuss Office, unified communications, and Microsoft's Dynamics line, followed by server and tools boss Bob Muglia.
After lunch it's research head Craig Mundie, followed by oft-talked-about-but-rarely-seen Ray Ozzie, who will talk about how services are important across the company as well as where efforts like Live Mesh fit in.
Chief Financial Officer Chris Liddell wraps things up, followed by a Q and A with Ballmer and Liddell.
Updated at 6:45 a.m. July 24: Juniper Networks confirms it has hired Kevin Johnson as its new CEO.
REDMOND, Wash.--Kevin Johnson, Microsoft's online and Windows chief and a key figure in the company's failed Yahoo takeover effort, is leaving the company to become chief executive officer at Juniper Networks, Microsoft confirmed Wednesday.
No immediate successor has been named for Johnson, who as president of Microsoft's Platforms and Services Division had reported directly to CEO Steve Ballmer.
In conjunction with Johnson's departure, Microsoft plans to split its Windows and Online Services division into two separate units, as they had been up until a couple of years ago. Microsoft is searching both inside and outside the company for a new online services chief, it said. (Ballmer announced the changes to Microsoft employees in a memo that also detailed Ballmer's strategies for competing with Apple, Google, and Yahoo.)
The company did not say how it plans to handle Windows duties, other than that Bill Veghte, who heads the business side of things, and Steve Sinofsky, who runs engineering operations, would report to Ballmer. Microsoft said Johnson's other immediate directs will also now report directly to Ballmer.
Juniper did not immediately respond to requests for comment on Wednesday. But on Thursday, the company released a statement, confirming that Johnson will become CEO, effective in September.
In a statement announcing Johnson's departure, Ballmer praised Johnson's contribution to the company.
"Kevin has built a supremely talented organization and laid the foundation for the future success of Windows and our Online Services Business. This new structure will give us more agility and focus in two very competitive arenas," Ballmer said. "It has been a pleasure to work with Kevin, and we wish him well in the future."
As chief of Windows and Windows Live, Johnson was spearheading Microsoft's revamped online search and advertising strategy, which is considered key if Microsoft is to catch Google in the online search arena. He outlined the new strategy in a memo to his team in May while Microsoft was actively pursuing Yahoo. The takeover of Yahoo was expected to be a big boost to that effort.
After the first round of Microsoft's as-yet failed bid for Yahoo, Johnson in a memo to the troops tried to downplay the failure, saying part of the reason Microsoft abandoned its offer to buy Yahoo was that it viewed speed as of the essence if it were to buy the company.
Last month, Johnson heated up the Microhoo drama when the Financial Times Deutschland reported that he said software giant would be interested in bidding on a Yahoo under new management. However, according to a Microsoft representative, Johnson did not suggest such a scenario.
Johnson, who joined Microsoft in 1992, was named co-president of the Windows and online division as part of a sweeping reorganization of the company in 2005. When Jim Allchin, the other co-president retired a year later, Johnson assumed sole control.
Johnson was appointed group vice president of Microsoft's worldwide sales, marketing and services in 2003 after success leading the North and Latin America sales team. Before joining Microsoft, Johnson worked in systems integration and consulting business unit at IBM, and as a software developer in the petroleum and financial services industries.
CNET News' Steven Musil contributed to this report.
With Yahoo now off having fun with Google, Microsoft is trying to convince its troops that the single life ain't so bad.
In a memo to those in his unit, Windows and Windows Live boss Kevin Johnson said part of the reason Microsoft abandoned its offer to buy Yahoo was that it viewed speed as of the essence if it were to buy the company.
"In a March 10th meeting in Palo Alto, we explained to Yahoo management the importance of reaching an agreement by the end of April in order to have an opportunity to complete the regulatory process by the end of this calendar year," Johnson wrote in the memo, which was seen by CNET News.com. "Because we could not come to an agreement on price by the end of April and given our concerns about Yahoo's business performance, we elected to withdraw our bid and pursue better options for Microsoft."
Once that didn't happen, Johnson said Microsoft moved on to explore another type of deal, details of which have dribbled out over the last day or so. Johnson highlights why he thinks Microsoft's deal was a better one for Yahoo shareholders.
Here's the full text of his e-mail (with exclamation points removed from Yahoo's name):
From: Kevin Johnson
Sent: Friday, June 13, 2008 2:20 PM
Subject: Update on our Yahoo discussions
I wanted to take an opportunity to provide my thoughts and perspective on the conclusion of our discussions with Yahoo, and its announcement of a commercial agreement with Google.
As I shared in my mail on May 18 (see attached), we have better options than a full combination with Yahoo at the price it suggested, and we have moved forward on our strategy to grow our online business.
Let me share a little background with you. When we made our original proposal on February 1st to combine with Yahoo, we offered a 62 percent premium that was based on a desire to reach an agreement in short order. The faster we could reach an agreement, the sooner we could begin the regulatory process and create value through this combination.
In a March 10th meeting in Palo Alto, we explained to Yahoo management the importance of reaching an agreement by the end of April in order to have an opportunity to complete the regulatory process by the end of this calendar year. Because we could not come to an agreement on price by the end of April and given our concerns about Yahoo's business performance, we elected to withdraw our bid and pursue better options for Microsoft.
During the last few weeks, we spent a considerable amount of time with Yahoo discussing an alternative proposal around search. Specifically, this search proposal had three components:
• Microsoft would have invested $8 billion in Yahoo at $35/share;
• Microsoft would have purchased Yahoo's search assets for $1 billion, and assumed the operations and R&D expense while returning data back to Yahoo for use in their advertising business; and
• Microsoft and Yahoo would have entered into a long-term search partnership, where Microsoft would have provided favorable economics to Yahoo search, including a three-year guarantee of higher monetization than Yahoo's Panama paid search system currently provides.
This partnership would have created a stronger competitor to Google, providing greater choice and innovation for advertisers, publishers and consumers. This approach could have been implemented quickly and would have simplified the integration process for both parties. It would have also established the basis for a long-term Internet partnership between Yahoo and Microsoft.
We believe this proposal would have created compelling value for Yahoo and its shareholders in at least three ways:
• New Transfer of Cash to Yahoo Shareholders. This proposal would have transferred $9 billion from Microsoft to Yahoo, which could have been used by Yahoo to reward their shareholders.
• A More Profitable Ongoing Business. This proposal would have resulted in higher operating income on an annual basis for Yahoo, with our projections more than doubling Yahoo's operating income in the first year of operation, and increasing it by more than $1 billion above its current operating income level.
• A More Compelling Search Offering. The combination of the search platforms would have unlocked new R&D innovation, eliminated redundant engineering efforts and allowed for greater scale in serving our customers.
Taken together, we believe that our proposal would have created total value for Yahoo's shareholders in excess of $33 per share.
Unfortunately Yahoo has chosen a different course, and yesterday announced an agreement that would start to consolidate over 90 percent of the paid search advertising market in Google's hands. This will make the market far less competitive. There are many experts who suggest that a host of legal and regulatory problems lie ahead for Google and Yahoo.
Regardless of Yahoo's decision, we will continue to move forward on our strategy in online services and advertising.
Since my mail on May 18, we have been making great progress. At our Advance '08 conference, we announced Live Search Cashback and Live Search Farecast, and the initial response to these user experience and business model innovations in search has been very positive. On June 2nd, we also announced a distribution deal with HP, the world's largest PC manufacturer, to install a Live Search-enabled toolbar on all HP consumer PCs planned to ship in the United States and Canada, beginning in January 2009.
We look forward to sharing more milestones and details on our plans as we head to MGX (the company's annual sales conference) and our Financial Analyst Meeting in July.
I remain confident in our assets, plans and people to succeed in building our online business. Thanks again for your commitment and focus.
Regards, Kevin
Two Detroit pension funds have filed a shareholders lawsuit against Yahoo in the Delaware Chancery Court, according to reports Friday.
The lawsuit, filed by the a Detroit public employees pension fund and a Detroit firefighters and police pension fund, accused the Internet search pioneer of stonewalling Microsoft's unsolicited buyout offer, initially valued at $44.6 billion on February 1.
"Yahoo's directors cannot 'just say no' indefinitely to legitimate acquisition offers when the effect of that decision is to deny shareholder choice in the face of non-coercive and economically beneficial bid--especially where, as here, the bid may yet be improved through negotiations," the lawsuit stated, according to MarketWatch.
Earlier this month, the Wayne County Employees Retirement System sued Yahoo in a Michigan court.
Microsoft's big bid for Yahoo
Separately, Microsoft on Friday released a copy of an e-mail that Windows and Windows Live unit head Kevin Johnson sent to his staff.
In the memo, Johnson repeats Microsoft's language that it believes its offer is "full and fair."
"While Yahoo has issued a press release rejecting our proposal, we continue to believe we have a full and fair proposal on the table," Johnson said. "We look forward to a constructive dialogue with Yahoo!'s Board, management, shareholders, and employees on the value of this combination and its strategic and financial merits."
Johnson also addresses many of the key questions that have been raised about the merger, although he does so in largely general terms, sidestepping the question of which Microsoft and which Yahoo products would be kept once a deal was completed.
"Both Microsoft and Yahoo have great brands and technologies," he wrote. "Yahoo has a very strong consumer brand and we are committed to build on the Yahoo brand as a major part of the combined products and services we deliver to customers."
Kevin Johnson
(Credit: Microsoft)But, he repeated the company line that "it is premature to say which aspects of the brands and technologies we would use in our combined offerings," saying such decisions would be made by an integration team made up of leaders from both companies.
On the open source vs. Windows question, Johnson writes that "Services we've acquired over the years have been based on both Windows and open source technologies.
"Although Windows is our strategic platform and in some cases the teams ultimately migrated their products to Windows for a variety of reasons, in other cases we have prioritized continuity and have used open interoperability mechanisms to achieve effective systems integration," Johnson said. "Yahoo has made significant investments in both its skills and technologies, so we would work closely with Yahoo engineers to make pragmatic platform and integration methodology decisions."
He also briefly addressed the issue of competing corporate cultures.
"Some aspects of the two cultures will naturally merge quickly and some will remain unique in the near-term and merge more slowly over time," he said. "At Microsoft today, we have a corporate culture, but individual teams develop, nurture, and retain a culture of their own as well. The culture of the combined entity will be shaped by individuals and teams from both Yahoo and Microsoft."
Johnson had downplayed the notion of cultural differences in an interview the day the deal was announced.
News.com's Dawn Kawamoto contributed to this report.
On Friday, I had a brief phone interview with Kevin Johnson, president of the Microsoft division that includes Windows and Windows Live, shortly after the software giant announced its $44.6 billion bid for Yahoo. I tried to get more details on the how Microsoft plans to bridge the cultural gap between the two companies, which brands it is tied to and what it will do if Yahoo says no. Sorry, I don't have more concrete answers, but I've posted a pretty complete transcript so you can read for yourself.
Kevin Johnson
(Credit: Microsoft)
What makes you guys feel like the cultural and technical and product differences can be overcome pretty easily?
Johnson: Well, let me just start with one thing, which is, our two companies share a common passion for innovation, and the way that innovation creates new and unique user experiences, and utilizes technology to create value for consumers, for advertisers, and publishers. So we share a common passion in that particular area.
It's more than passion, though. Whenever companies--and I've covered a lot of mergers--talk about it, it's always a common passion. But, when you look at the way Microsoft and Yahoo have approached this space, it has been fairly differently.
Johnson: Yes. I think the key on this is going to be the integration approach that we use, Ina, and I think through recent experiences with Aquantive and Tellme, we know how to successfully integrate. And certainly the Microsoft and Yahoo approach, we're going to work together closely on this integration process.
We've got three things. Number one, we've got clarity of the strategic and financial synergies that we're looking to drive. We've got a very clear set of integration principles. And we're going to put together a joint team of Microsoft and Yahoo leaders to work through a thoughtful process on how to do that integration. That includes the people, that includes the services and the technology, it includes the brand, and so we're confident that that approach is one that yields success.
You guys alluded on the call that the Yahoo brand would probably play an important role. It sounded like Windows Live and Office Live would play an important role and that maybe MSN might be the brand to go. Is that a fair reading?
Johnson: Well, I'm going to defer that to the integration team that's got to work through a thoughtful process. I recognize the fact that the Yahoo brand is a strong brand, and that integration team will factor that in as they work through a thoughtful process. But it's important that to have a successful integration that you put the right set of leaders across Microsoft and Yahoo together with clear principles, and clear goals, and let them work through the specifics.
Why do you think Yahoo has been less than willing to come to the negotiating table?
Johnson: Well, look, I think we've made a great offer, and we respect the fact that their management and their board have a lot to consider, and we're looking forward to the dialogue.
Right. But I mean, obviously, if they were willing to negotiate, you guys wouldn't be going public with an offer, you'd be negotiating one. Why do you think if it's such a great offer they've not been willing to entertain it?
Johnson: I'm not going to speculate. I would suggest you certainly should talk to Yahoo. But we think we've made a great offer.
Steve Ballmer said on the call that he called Jerry Yang last night. Do you know if they spoke and at what length?
Johnson: They spoke, I don't know to what length.
Are you guys committed to this no matter what, or is there a time frame with which it's important that negotiations conclude?
Johnson: Well, look, I'll just say, we believe in this combination now more than ever, and that's why we made it public so that both sets of shareholders and employees are aware of the opportunity inherent in this combination. We've got great respect for Yahoo and their employees, and we think this combination makes not only strategic sense, but it makes good financial sense.
And in terms of sort of the momentum issue in the meantime, what are you going to try and tell your troops in the meantime? I mean, obviously, this is going to take some time to work itself out.
Johnson: Well, certainly, as I outlined at the Financial Analyst Meeting last July, we've been on a good path, a lot of progress, whether it was the release of the Windows Live Suite in November, the release in the fall of Live Search, the successful integration of Aquantive. We've signed up over 60 publishers since we announced the acquisition of Aquantive to our advertising platform. And we've got a plan of record. Our team is going to stay focused on that plan of record full speed ahead.
It does seem like there is an admission, though, in trying to combine with Yahoo that alone you guys have not been making the kind of inroads against Google. I mean, I think, if you look at search market share, other figures, it seems like that's a part of the pitch here to shareholders.
Johnson: Well, the thing I point out is the online advertising industry is growing at a rapid rate. It will be an $80 billion industry around the year 2010, and that industry has the dynamics of scale economics. It's a big engineering problem, and it requires a lot of capital and infrastructure. And because of that we think that combining these two organizations enables us to be a more credible alternative to an increasingly dominant player.
Do you have a Plan B if Yahoo ultimately says no?
Johnson: Look, we're focused on... we've made a great offer, and as they consider this we look forward to the dialogue.
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