Ballmer on the Microsoft-Yahoo deal: 'Nobody gets it'

Ballmer on the Microsoft-Yahoo deal: 'Nobody gets it'

Summary: Microsoft CEO Steve Ballmer said Thursday that no one quite gets the software giant's search deal with Yahoo. Speaking at Microsoft's financial analyst meeting, Ballmer said he was surprised by the market reaction---Yahoo shares tanked---to the search deal.


Microsoft CEO Steve Ballmer said Thursday that no one quite gets the software giant's search deal with Yahoo. Speaking at Microsoft's financial analyst meeting, Ballmer said he was surprised by the market reaction---Yahoo shares tanked---to the search deal.

Ballmer said he wanted to provide his full explanation of the deal and "body English on the issue."

He didn't have to worry about the body English part. Ballmer was animated as usual. When it comes to the Microsoft-Yahoo search deal "nobody gets it."

Overall, Ballmer argued that the partnership is about product, customer and revenue improvement. Yahoo gets to focus on being "the leading online media company in the world."

OK, maybe the economics are a bit muddled. Ballmer said:

Economics is where people get even more confused. What happened? Nothing got bought. Nothing got sold. People expected something to get bought. Nothing got sold yesterday, and nothing got bought yesterday. But the partnership in and of itself creates economic value.

How? The search product will improve and the ad market will become more liquid.

"Our cost of good sold will be lower on search," said Ballmer, noting "more liquidity that will improve monetization."

On the Yahoo side, Ballmer sounded thrilled about the economics---for Yahoo. Ballmer said:

On the Yahoo side -- this is the one that stuns me that people haven't figured it out. Yahoo gets 88 percent of the surge revenue they have today. They have 0 percent COGS (costs of goods sold) against 88 percent revenue and they have no R&D expense and no ongoing cap ex. It's sort of like unbelievable. You know, I don't know what you say because they're focused. But did they sell their search business? No, they get to keep 88 percent of the revenue. That sounds like they didn't sell and I'm not selling against interests. I just think this was a win-win partnership.

And they (Yahoo) said yesterday that they expect their operating income to go up by $500 million on full implementation. Remember, this is a company that makes $700 million. So you're talking about a 70 percent profit expansion just from doing the deal.

And Ballmer noted that folks aren't accounting for potential increased market share, more ad liquidity and product improvements.

Do you get the deal yet? I do, but there's a lot of regulatory and implementation wild cards before I can get as wound up about the Microsoft-Yahoo search deal as Ballmer does.

More reading:

Microsoft-Yahoo: Gauging the IT integration risks

Topics: Enterprise Software, Banking, Microsoft, Social Enterprise

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  • I was ge... liquidity means monetization, wha?

    I didn't really care. It's a better idea than Microsoft buying Yahoo
    (from Microsoft's point of view.)

    One day is too soon for the wisdom of the crowd to truly kick in (and I
    am dubious about the concept any way.)

    It looks to me as the initial reaction is that it wasn't a good deal for
    Yahoo. 10 years seemed like a long time to me. I see Microsoft may
    take back ad sales after five years. Now I'm just a simple country talk
    backer, but that looks to me as though Yahoo's upside (ad sales) is
    guaranteed for 5 years while its downside (I presume they pay to use
    Bing) is guaranteed for ten years.

    But, boy oh boy, the deal better work out for Yahoo, otherwise
    "Nobody gets it" joins our long list of favorite Ballmerisms.

    • Search will generate less revenue

      ... under this economy like every other consumer-oriented business. Americans are simply too broke to consume anymore, which means less and less online advertising. Goolge, M$ and Yahoo are fighting over a shrinking market. These guys need to think of a new source of income in order to survive the coming depreflation that will last for years (probably a decade).

        Googles "revenue in the first quarter rose just
        6 percent to $5.51 billion from $5.2 billion a
        year ago. First quarter growth was 42 percent
        in 2008 and 63 percent in 2007." While flat
        it's still increasing despite the worst
        recession on record.

        When the economy turns around at some point,
        the flow of the total advertising pie will
        continue to skew towards the Internet. As such,
        it's absolutely ridiculous for ANYONE to say
        that M$ should not be fighting tooth and nail
        to increase it's search share. Now, holding
        onto that immediate 28% market share and
        growing it to say 35% in 12-18 months is a
        totally different matter. However, it makes
        absolutely now sense for M$ to concede the
        search market to Google, Yahoo, et al. There's
        simply too much future revenue at stake.

        Like it or not, the search relevance of bing is
        virtually on par with Google. Moreover, bing's
        home page makes Google look like a joke, unless
        you're part of the small % of people who want a
        spartan 8.5 KB image as their search page.

        Ultimately, this comes down to M$ executing on
        changing the googling mindset, which though
        difficult is something that's attainable in
        terms of slow market share gains. For example,
        if after two years M$ is able to grab 33% of
        the market or a 5% increase, there's no reason
        they can't grow that to 40%, which would then
        position them to markedly increase their
        revenue as more and more advertising $$$ move
        to the web.
  • When you stack two piles...

    of together you just get a bigger pile of

    Now you have two companies depending on the same less than stellar search engine. This will just provide less options for the market and drive more people to Google. Google's market share will increase overall and Yahoo's and MS' will decrease overall.

    Yahoo's latest CEO has just sealed her fate. She will go the way of Yang and Yahoo's search share and thus revenues will tank. This move will cost both MS and Yahoo a lot of money and stock value while Google sets back and chuckles.
    • Bing is a "less than stellar search engine?"

      I use BING and have no issues finding what I want online. I've swtched by browser search engine to Bing when it came out, as a test, and haven't noticed a drop off in search results.

      This sounds like, "I hate Microsft so everything they do is say must be bad."
      • Do you expect no results

        when you use Bing? The point is that Bing is not doing as good a job at being relevant.

        There was a blind search provided by an MS employee, feeding criteria to all three, Bing, Google, and Yahoo. I tried it over 25 times, and the majority of times I chose the Yahoo results, before having found out they were provided by Yahoo.

        Google came in second, Bing dead last.

        Too bad Yahoo is giving up search, I was back to using them again, after a long time on Google.
  • It is not clear to me....

    what will be left of Yahoo at the end of the ten years, when they can no longer use Bing. Ten years is a long time in the IT world I know, but will MS be able to pick up what is left of Yahoo for spare change at the end of the contract period? Will MS ultimately get what it wanted for almost nothing? Any thoughts?
  • It's not unusual for Microsoft to have to explain...

    what they've done, is it? They should have named this whatever-
    it-is "partnership in the" Then everybody would
    have got it for sure.
    The newly-hired Microsoft PR guy has his work cut out for him!
    • Nobody understands because

      in today's market, if it doesn't make money overnight, it is a failure.

      It would seem the investores no longer understand the idea of a "long term strategy".
      • Bingo

        And it's even funnier (not really) that people still don't get long-term invsting after said short-sightedness has brought us to where we are today...
        • Of course...

          Of course, if people don't jump on board it's because they are just too stupid to understand. Not because it's a stupid idea. Unless the product improves (Bing) the situation is not going to change.
  • Ballmer: 'Nobody gets' that we're losing lots of money on Bing

    And now we've agreed to lose lots of money on Yahoo as
    well. Great news for Yahoo!
  • I Get It

    I get it...Microsoft lost.
    • Then it appears

      you have not gotten it.
    • assuming...

      your education is not business related? While I find the 88% number high, it sounds like a good [i]long term[/i] strategy to take on Google. MS cannot Saint George the Google dragon over night.
      I hope MS gives Google a run for their money (as competition breeds excellence).
  • RE: Ballmer on the Microsoft-Yahoo deal: 'Nobody cares really'

  • If you understand Ballmer's logic, I'd say that's a bad thing

    because there really is no upside for Microsoft. They pay lots to deliver poorer search, which will be found out sure as the sun shines.

    Ballmer will be found out to be the idiot we all knew he was/is, and his unnatural obsessions with search will begin his downfall.

    The shareholders will lose confidence in both companies, shown in part yesterday by the drop in Yahoo stock.

    Google wins by doing nothing.
  • "Nobody gets it". I do, it's another MSFT "me too" moment.

    Anyone remember when Yahoo Search was "powered by Google", then Google flew solo and ended up dominating search?

    Microsoft is pulling ([i]yet another[/i]) "me too!" strategy. Now Yahoo search will be "powered by Bing!". However, all the parallels end there. When Yahoo was "powered by Google", Yahoo was still a force to be reckoned with. They had tons of market share and lots of potential.

    After Google turned around a whooped Yahoo under the table and stole the "king of search" mantle from them, Yahoo has been absolutely irrelevant. Microsoft can't catapult Bing! off of Yahoo like Google was able to.

    When Ballmer sits here and talks about how Yahoo is an internet media leader, I can't help but laugh because it shows just how clueless Ballmer is. The time of Yahoo as a "leader" of anything has come and gone. Everything Yahoo has, Google has done, and has done better, and gets more action. Yahoo hasn't innovated a damn thing since the dot-com bust. Even their "new" web page looks like it came from 1999-2000. Notice the complete lack of "Yahoooooooooo-o-ooooo" ads for the last 5 years? The most interaction people have with Yahoo is with Yahoo Messenger. That's [b][i]it[/b][/i].

    What we have, ultimately, are two low market share search engines teaming up. They'll make for one search engine that is still sub 20% share.

    Microsoft will lose ad revenue by giving so much to Yahoo and get little-to-nothing in return. Meanwhile, Google will just laugh and keep on keepin' on.

    This MSFT-Yahoo venture to try to "compete with" Google will officially die the day Google Wave comes out with a public beta.
    • Yahoo is relevant

      Don't fail to realize that every successful company follows at some point. Every single one of them has had "me too" moments.

      Just because you don't appreciate Yahoo does not mean that it is not relevant. On my PCs, the first page I see when I open a browser (Firefox or IE) is MyYahoo! page. While I don't use Yahoo discussion groups, an awful lot of people/organizations do.

      As for Bing, I am using it more and more everyday, and several people I know (many who aren't even computer literate, and I'm not sure how they even found out about it) are trying Bing.

      I always caution bloggers not to start believing that their thinking reflects the mindset of everyone else, and that applies to myself. I'm not suggesting that I represent any significant portion of the user population, but I don't think you should either.
      • not sure...

        They got it because it was (correct me if I'm wrong) installed with a new install or upgrade of IE as the default homepage. Once again giving MS an advantage that they gained by means other than being the best option.