The weepy countdown to Bill Gates' last day on the job as a full-timer must be getting to Steve Ballmer. Always full of surprises, the big galoot is at it again.
Eric who?
(Credit: Dan Farber/CNET News.com)In a revealing interview with The Financial Times, Ballmer distanced Microsoft from any criticism that it's lost a step over the years. In fact, he added, why not point fingers at some other software behemoth? (Any guesses who that might be?)
I haven't seen speed out of Google really. I mean, come on. They have one product. It's been the same for five years--and they have Gmail now, but they have one product that makes all their money, and it hasn't changed in five years.
Yes, but as his erstwhile comrade in arms is wont to say, doesn't that speak to the magic of software? Ballmer can try and call out Google for being a one-trick pony. Still that's one heckuva pony. Truth be told, if Microsoft enjoyed that sort of technology prowess in search, I very much doubt Ballmer would have wasted four months wooing a unenthusiastic Jerry Yang.
But what's with the nonstop trash talk from the CEO--especially in the countdown to Gates' upcoming "Going Away Day?" He ought to watch his words. Over the next week, Ballmer is going to be all over the media, reaffirming that Microsoft is finished with its Yahoo crush and as relevant as ever. Inevitably, reporters will pop the "What about Google?" question. And the more Ballmer insists on convincing interlocutors about chinks in Google's armor, the less people will believe him. In the same FT interview, for instance, Ballmer says the following:
I mean, (Google has) a gestalt, but gestalt is gestalt. Let's talk about the reality. The reality is one product makes 98 percent of all of their money, search. Oh, they have two products, AdWords and AdSense. They have two products, both search-based, that make all of their money, and it hasn't changed a lot in five years. I'm not giving them a hard time, but we've got to learn--if you say, what have you learned, we try to learn from people's successes, not from people's gestalt. The gestalt is yet to be proven.
Gestalt? If I didn't know better, I'd be tempted to diagnose this as a severe case of Google envy (which may be the flip side of Microsoft's ongoing search for respect as a technology innovator.)
"We're trained in Silicon Valley to believe that Microsoft steals other peoples' innovations," says Microsoft's Stephen Elop, who replaced the retiring Jeff Raikes as president of the company's Business Division. "We just don't give Microsoft credit. I don't know whether that's because of arrogance or hubris."
I spoke with Elop a few weeks ago. As I reviewed my notes, his comments as a former outsider shed a different light on Ballmer's ongoing eruptions of "Google-itis."
"A lot probably has to do with the fact that Microsoft is in a different geography," said Elop, who did prior stints at Juniper Networks, Adobe Systems, and Macromedia, where he held down senior posts. "We've had a generation of leaders who have had to compete head to head with Microsoft over the years. What's happening now is that we're moving on. We've got 2,500 people in the Valley. Maybe I'm surprised that opinion hasn't evolved yet in the Valley, but it will. Too many things are going on."
Maybe so. I can't predict whether Microsoft will ever be received warmly by Silicon Valley. There's a long history and memories die hard. (Microsoft's emissary to the Valley, Dan'l Lewin, keeps plugging away.) Meanwhile, the best way to put the relationship on a more solid footing is to continue to open up and prove Microsoft can build great technology, not just because management is "persistent." (Note to the inner sanctum at Redmond: You can remain obsessed with Google. But try not to let on so much. It's just bad form.)
Barring a come to Jesus moment by both sides, "Microhoo" is dead and buried. So who won and who lost? Months from now, we'll have a clear idea. In the meantime, here are my back-of-the-envelope picks.
Biggest winners: Steve Ballmer and Microsoft
A lot has been made of Microsoft's seeming inability to engineer its way out of a paper bag. Trouble with the conventional wisdom is that it's usually out of date. Prior to Ray Ozzie coming onboard and Microsoft's move to embrace cloud computing in a big way, Yahoo may have been worth nearly any price.
Jerry Yang is a girly-man--and that goes double for Eric Schmidt.
Not now. Besides, why buy trouble? By walking away from a protracted proxy contest, Ballmer saved billions buying a company which would have existed in name only. Too many malcontented Yahoo employees would have walked out the door. What's more, the cost of integrating the companies would have been a cluster bomb. Now Microsoft can dip into that big war chest and selectively buy any number of Web 2.0-ish companies to complement its bigger strategic ambitions.
Biggest losers: Jerry Yang and Yahoo
When Wall Street opens on Monday morning, I wouldn't want to be holding shares of Yahoo. After the company effectively put the kibosh on what would have been a 70 percent premium, investors are going to have a fit. In his letter, Ballmer said Microsoft was going to raise its offer to $33 a share, or another $5 billion, but the deal fell apart because Yahoo wanted even more.
I've got a plan. Really. I do.
I'm anxious to hear Yahoo's side of the story, but the spotlight's on Yang to convince outsiders that he held out for all the right reasons and not because of personal animus toward either Ballmer or Microsoft. Perhaps he thinks he can inveigle Rupert Murdoch and News Corp. or that the Google connection will work out to Yahoo's bigger benefit. Tough to say what's going through his head these days. Yang has remained incommunicado during the course of the entire novella. Perhaps he believes this clears the decks for the "rewiring" of Yahoo previewed by the company's CTO last month at the Web 2.0 conference. Maybe it does in the long term, but Yang doesn't have two years to muck around. He's got to produce a turnaround now.
Eric Schmidt and Google: Moderate losers
It's as simple as a zero-sum game. Whatever hurts Microsoft benefits Google. And vice-versa. The conventional thinking is that the Microhoo combo would have presented Google with a potent threat. I don't buy that line.
Sergey, Larry, and I quite enjoy Steve's Monkeyboy routine
On paper, a Microsoft-Yahoo merger looked formidable. In practice, however, it was rife with potential for a major culture clash. Management would have been bogged down for months trying to figure out how to get all the high-strung boys and girls on both teams to play nice. Google would have continued to feed its juggernaut, snickering all the while at "Micro-molasses." Now Ballmer's going to be in a frenzy to get Microsoft back in the game. Google would have fared better if Microsoft had to focus on making a Yahoo merger work.
Rupert et al: Moderate winners
Round and round they go. Maybe Murdoch or the folks at Time Warner (AOL) still hanker after Yahoo. If so, they may yet get another chance to twirl. During the last couple of months every scenario was on the table. Here's another: if Yahoo's stock fails to recover, Yang doesn't have any wiggle room. Without immediate improvement in the stock price, management may be amenable to a combination between Yahoo and one of its erstwhile suitors.
The rumors about Windows Vista apparently are true. People hate it.
Hey Jerry, you think Solozzo's tough?
Even with a cast of thousands and a sky-high budget, Vista's achieved more notoriety as a punch line for Apple's searing Mac-PC television spoofs than as IT's savior. And now The Wall Street Journal's Ben Worthen has put pencil to paper to correctly note that you've got a "Vista problem."
It's hard to draw a definitive conclusion because of the deferred revenue last year. At the time, Microsoft said that the $1.67 billion came from advance sales of Vista and the new version of Office, but didn't break it down further. If we take away the $1.67 billion, revenue for the two divisions combined only grew 4 percent.
To put that in perspective, PC sales grew somewhere around 12 percent to 14 percent over the same period depending on whose numbers you use. The sales that these divisions did make came at a high price: Even if we attribute all of the $1.14 income boost Microsoft deferred last year to the Windows division, income only grew 1 percent year-on-year. Between the two divisions, profits dropped 4 percent once the deferral is accounted for, meaning that it cost Microsoft more to sell the products this year.
But before you slam another bag of peanuts into your forehead, there's a good-news scenario you can consider.
Yahoo's born-again commitment to openness becomes a lot more interesting in light of what Microsoft is doing with its Live Developer Environment as well as Live Mesh. At the Web 2.0 conference, the company's Ari Balogh said the plan is to unify all profiles throughout Yahoo to create a single social Web-service API. The goal is to offer a common interface across Yahoo's invitation, presence, social-messaging and other services. How will that mesh (pardon the pun) with Microsoft? Beats me but you're both talking about platforms and services and openness. Ray Ozzie should be able to figure out how to make that work to common advantage.
Yahoo's got until Saturday to accept your original buyout bid, but why be a putz about it? Everyone knows Jerry Yang's toast if he decides to go it alone. If Google keeps racking up $5 billion quarters, you're not in such great shape either. I can predict what will happen, courtesy of The Godfather. (Isn't everything like The Godfather?)
The Corleones (that's Microsoft) have the desktop operating system and that's still a great franchise--until now. Not only is Vista a dog but search is undeniably the future. Has mankind invented a more efficient business idea than search-based advertising? So think of Eric Schmidt as Barzini. With the kind of money Google's printing each quarter, how long before it buys whatever's still needed to come after you in a big way? And I'm talking about stuff that will pose bigger headaches than just Google Docs.
So do yourself a favor and get Brad Smith on the line when you hit the tarmac. You can extend this bid a little while extra. You're doing a good job making Yahoo sweat but there's no reason to be precipitate. Besides, it's great fodder on the cocktail party circuit.
To quote Sonny, "Well, what's your answer gonna be, Pop, er, Steve?"
Jerry Yang: If Ballmer wants me, first, he must bring me a Shrubbery!
(Credit: Anne Broache/CNET News.com)Give Steve Ballmer credit for trying to bail Jerry Yang out of an impossible position. But he'd do better teaming up with Marc Benioff and Salesforce.com.
If you're a Microsoft shareholder, the good news is that Saturday's love letter to Yahoo's board finally starts the clock ticking. Yahoo's got three weeks to come up with a final yes or no answer--and no, Microsoft says, this is its best and final offer. Hopefully, Yahoo's incredibly deluded board will continue to fancy its prospects and tell Microsoft's negotiators to take a hike. At that point, Microsoft can do much, much better for itself by taking a run at Salesforce.com.
Microsoft is working on CRM Live in a bid to go after Salesforce.com, but its still unclear how its services push will do. In the meantime, Benioff's cleaning up and having a one great time mocking Microsoft's inability to turn "software-plus-services" into a winner. (Check out the recent interview News.com's Dan Farber and I did with Benioff.)
But this is all the usual window-dressing. Microsoft's ready to pay $44 billion and change--and that's still one helluva lot of change--to buy Yahoo. So if Ballmer came up with a serious offer, Benioff and the Salesforce.com board would take it in a heartbeat. The combination would bring together two companies whose similar enterprise DNA would mesh a lot better than would a kludge like "Microhoo." There's been a ton of discussion about the difficulty making a Microsoft-Yahoo pairing work. Do you really believe Yahoo's Greta Garbo act is going to make any post-merger transition smoother?
The Salesforce.com scenario's a lot cleaner. Benioff's company is developing a next-generation platform, similar in some ways to what Microsoft did with Windows except in the cloud. The similarity is in bringing thousands or millions of developers into the tent to build applications that require a subscription or license to the platform. It prints money, and in the case of Salesforce.com takes a lot of the 20th century drudgery out of the development process. Salesforce.com is based on Java and Oracle, but customers don't care whether its .NET or Java as long as it works.
In addition, Microsoft would still have money left over to invest in beefing up its search business. Microsoft's Google obsession shouldn't obscure the fact that there's huge potential revenue within grasp if management can turn its software services into a success.
If Jerry Yang & Co. want to screw this one up, Microsoft should avoid future headaches and simply wish them well.
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