Yahoo costs: The slide Microsoft didn't want you to see

Yahoo costs: The slide Microsoft didn't want you to see

Summary: Don't you hate when a rogue PowerPoint slide slips into your deck? Microsoft CEO Steve Ballmer shares your pain, after a slide including information not meant for public disclosure slipped into a deck he was slated to present to Wall Street analysts attending Microsoft's Financial Analyst Meeting (FAM) on July 30.

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Don't you hate when a rogue PowerPoint slide slips into your deck? Microsoft CEO Steve Ballmer shares your pain, after a slide including information not meant for public disclosure slipped into a deck he was slated to present to Wall Street analysts attending Microsoft's Financial Analyst Meeting (FAM) on July 30.

Ballmer never ended up showing the slide, entitled "Yahoo Deal Overview," during his FAM kick-off presentation. But Seattle Times reporter Brier Dudley grabbed it,

The slide notes that Microsoft is expecting to lose $300 million in the first two years of the deal, then start earning a "decent return," explained as "$400 million steady-state."

There is a bunch of detailed information on the slide about specific costs Microsoft is expecting to incur which is marked as "context -- not for disclosure." Next to that column is the abbreviated, cleaned-up (and far less-specific) information that Microsoft is acknowledging publicly.

The items spelled out as "transition costs" include

* Retention costs (pre- and post-close): $90 million * R&D paid search: $170 million * GFS (Global Foundation Services)/COGs (Cost of Goods Sold): $145 million * Sign-on: $150 million * Algo(rithm) R&D: $70 million * Advertiser migration: $50 million

Ballmer and Online Services President Qi Lu both emphasized during their talks today that the Microsoft-Yahoo search partnership was a win-win for Microsoft and Yahoo.  Ballmer spent much of his hour-and-a-half talk going over the Yahoo deal, claiming that "nobody gets it."

Microsoft execs have been intentionally vague about exactly how much the Yahoo deal would cost Microsoft in the short and longer term. But during his remarks at FAM, Ballmer told attendees that Microsoft didn't expect to make a lot of money from the deal in the short term and that they should expect Microsoft to absorb "a few hundred million" in transition costs." Ballmer said Yahoo got a great deal and is claiming that the deal will result in 70 percent profit expansion for Microsoft's new partner -- in spite of the fact that the market has been less-than-enthusiastic.

Topics: Enterprise Software, Banking, Microsoft, Social Enterprise

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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16 comments
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  • Message has been deleted.

    Richard Flude
    • Why was the message deleted?

      Posts critical of MS or highlighting their embarrassing mistakes are now
      deleted from ZDNet?

      Such a policy should at least be printed so we can put into context
      "articles" on this site.
      Richard Flude
  • RE: Yahoo costs: The slide Microsoft didn't want you to see

    Ultimately, Google is so far ahead of both, it's just embarrassing. In the area of search, advertising, merchant relations and innovation, it's really hard to imagine Microsoft catching up.

    The problem is the searches just aren't as accurate. Combining forces will not change that fact.

    MJ
    http://www.windows7update.com
    Ammalgam
  • What's the big deal?

    What company doesn't lose money to make money in the begining of any new product or deal?

    I'm sure Apple, IBM, Google, Oracle, ect all tend to lose money the first couple of years on anything they make.

    Does "delvelopement costs" ring a bell?
    AllKnowingAllSeeing
    • except it isn't the beginning of a product

      Yahoo has been around for far longer than google, and microsoft
      have been trying to get into the search game for years.
      I think it's very unlikely that microhoo will come up with an
      innovative idea so good it will blow away the much superior google.
      stevey_d
    • Think the iPhone lost money the first couple years?

      Throw in a bit for inflation and the up front costs are probably going to
      hit 3/4th of a Billion Dollars.

      That's real money.

      For a search engine? A month or so after Bing went public?

      Duh.
      Ken_z
      • So one example should be representative to all?

        I would imagine the profits offset the loss from AppleTV, which with it's low sales volumes i would imagine was a loss for the first year or so.

        The Mac mini? A money maker from the get go?

        How fast was deveopement paid off for the Mac line after redesigning, and rewriting the operating system when they went to Intel chips?

        The iPod and iTunes were a smashing success the first year they launched?

        If the iPhone made money it's first year, that is great, but I doubt the other lines did as well right out of the gate.

        So one exemption/example does not prove a point.
        GuidingLight
        • Well.........

          One has to keep in mind profit margins and in each case you mentioned
          Apple has healthy margins on these products so while the iPod was a not
          an over night success still each sale was a healthy one. Same I suspect
          even with the Apple TV and Mac Mini. Apple plays the game differently
          than most.

          Pagan jim
          James Quinn
  • Would it cost $300million to stand up a decent homepage?

    That's half of what Microsoft is paying for in Yahoo. I can't figure out what the other half is for, so I agree with Ballmer, I don't "get it".

    Google has many faults, but at least they are trying to deal with the main problems on the web today: deceptive and fraudulent SEO gambits and click-fraud gambits. I do a certain amount of shopping on the web, but these days it's like wadings through mountains of trash and fakes to find decent product info, reviews, and legitimate price comparisons. Bing isn't any better at it as far as I can tell, and I gave up on Yahoo a long time ago. So Google for all its warts is still the best shot.
    terry flores
  • RE: Microhoo

    I said it the last time, and I'll say it now: this deal is the equivalent of two boat anchors trying to teach each other how to swim. Google will continue to steal their lunch money unabated, and Microsoft's money pit will now include this, alongside XBox, Zune, etc., etc.
    vikingnyc@...
  • This is not the end, but start of the end of google

    google is the most disturbing thing on the planet, worse than cancer.
    jk_10
  • $975M way less than $47.5B

    The reality is that all M$ is really interested in at
    this time is Yahoo's search share. In time, M$ may
    decide that an all out purchase makes more sense,
    given the 500M unique visitors Yahoo claims to get
    each month. As I've said before, M$ would be much
    better off doing EVERYTHING they can to grab 5-10%
    market share from Google in 1-3 years, depending on
    the lower versus upper end. During that time, they
    need to seriously consider purchasing facebook and
    possibly around year 3-4 consider purchasing the rest
    of Yahoo. If all this comes to pass and M$ can grab
    nearly 40% of the search market in the next 3-4 years,
    then they'll probably add about $10B in total revenue
    at the end of that four years, which isn't bad given
    that Google has pushed past $20B in primarily
    ad/search revenue.
    jjworleyeoe
    • Zero original

      MS has run out of original ideas about 25 years ago.
      They either copy something or buy out somebody and
      their past run-in with the regulators shows how
      unethical they are. They missed the biggest thing in
      computers which is the internet and they still don't get it.
      I think the age of thin client is coming and that will
      drastically reduce their revenues, so my advise would
      be, short MS stock.
      prof123
  • Along as they keep Delicious bookmarks

    Other then that I don't care what Microsoft does with Yahoo.
    Randalllind
  • RE: Yahoo costs: The slide Microsoft didn't want you to see

    I don't understand why Microsoft even bought Yahoo in the first place when they have their own search engine, the supposedly fabulous, wonderful, rising star, Bing. Or does anyone actually use that service?
    noeman5
  • RE: Yahoo costs: The slide Microsoft didn't want you to see

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