Feeds

Ballmer: People don't 'get' Microsoft's Yahoo! marriage

Synergies 101 for financial dummies

The next step in data security

FAM Steve Ballmer has had to sell Microsoft's search and advertising marriage with Yahoo! to financial hawks baffled by the deal.

Microsoft's chief executive told investors and analysts Wednesday "nobody gets" the deal because it's "a little bit complicated".

The chief source of that confusion? No acquisition was made and the deal is not about revenue. In fact, the costs, risk, and loss are all on Microsoft's side - at least initially.

Microsoft will pay Yahoo! 88 per cent of search revenue generated on Yahoo! sites for the first five years of their deal, with revenue guaranteed by Microsoft for the first 18 months of launch in each country.

Wall Street delivered its verdict Wednesday, when the marriage was announced, as Microsoft's shares remained almost unchanged during trading while Yahoo!'s stock closed the day down 10 per cent.

"I'd love to tell you we kept most of the economic value," Ballmer told Microsoft's annual Financial Analysts' Meeting at its Redmond, Washington, campus. "Well over 50 per cent of the economic value goes to Yahoo! We are in along term 10-year partnership with Yahoo!."

Ballmer called the marriage an opportunity to improve Microsoft's Bing search and AdCenter platform in the field, paving the way for future revenue.

Yahoo!'s combined online sites are the second most visited online destination, behind Google, according to Comscore. Having Yahoo! use Bing and Microsoft's ads platform gives Microsoft "scale", Ballmer said.

Scale means market share growth for Bing and AdCenter at a relatively low cost by simply rolling into Yahoo!'s existing technology and market footprint rather than Microsoft build its own. Ballmer said Microsoft could achieve scale for the same or lower percentage of its revenue.

"Scale is a tool for product improvement - the more queries you see the more you can tune your product, the more scale you have the more ads are on your system and the more relevant they make your ads. It's not about money, it's more about relevance," Ballmer said.

According to Ballmer, the deal frees Yahoo! to focus on its online media properties instead of keep spending on search and ads technology in an arms race against Google it can't seem to win.

"Economics is where people get even more confused," Ballmer said.

"What happened? Nothing got bought, nothing got sold... But the partnership in and of itself creates economic value, not just on the future promise of improved product and improved share and improved revenue, it creates immediate opportunities for synergy."

Despite being online since the mid 1990s with MSN, Microsoft’s missed many of the opportunities in search and advertising that Google and even Yahoo! capitalized on.

Reinforcing the need to partner with Yahoo!, Ballmer noted companies that don’t come to the right market early won’t grow.

“If this company is to grow on a sustained basis we need to invest in a few things that won’t pay off right away as well as somethings that will pay off right away,” Ballmer said.

“The greatest source of wealth creation is being in the right market early enough. If you aren’t in early enough, you aren’t going to grow with the market.” ®

Choosing a cloud hosting partner with confidence

More from The Register

next story
Phones 4u slips into administration after EE cuts ties with Brit mobe retailer
More than 5,500 jobs could be axed if rescue mission fails
JINGS! Microsoft Bing called Scots indyref RIGHT!
Redmond sporran metrics get one in the ten ring
Driving with an Apple Watch could land you with a £100 FINE
Bad news for tech-addicted fanbois behind the wheel
Murdoch to Europe: Inflict MORE PAIN on Google, please
'Platform for piracy' must be punished, or it'll kill us in FIVE YEARS
Bono: Apple will sort out monetising music where the labels failed
Remastered so hard it would be difficult or impossible to master it again
Phones 4u website DIES as wounded mobe retailer struggles to stay above water
Founder blames 'ruthless network partners' for implosion
Sony says year's losses will be FOUR TIMES DEEPER than thought
Losses of more than $2 BILLION loom over troubled Japanese corp
Radio hams can encrypt, in emergencies, says Ofcom
Consultation promises new spectrum and hints at relaxed licence conditions
prev story

Whitepapers

Secure remote control for conventional and virtual desktops
Balancing user privacy and privileged access, in accordance with compliance frameworks and legislation. Evaluating any potential remote control choice.
WIN a very cool portable ZX Spectrum
Win a one-off portable Spectrum built by legendary hardware hacker Ben Heck
Intelligent flash storage arrays
Tegile Intelligent Storage Arrays with IntelliFlash helps IT boost storage utilization and effciency while delivering unmatched storage savings and performance.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Beginner's guide to SSL certificates
De-mystify the technology involved and give you the information you need to make the best decision when considering your online security options.