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The real question: Is Microsoft still interested in Yahoo?

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I actually believed Microsoft CEO Steve Ballmer when he said he was walking away from buying Yahoo. I wasn't among the crowd who thought Ballmer was just posturing, waiting for Yahoo stock prices to plummet and Yahoo shareholder lawsuits to mount before sweeping back in and getting Yahoo for a cut-rate price. But now, what to think? With billionaire investor Carl Icahn mounting an attack on Yahoo -- leading many to speculate that Yahoo will run to Microsoft, lower share price in hand, begging to be acquired. (Or that Microsoft will end up buying Yahoo from a new Icahn-picked board.) Microsoft officials and those pesky people "familiar with the company's thinking" aren't commenting on whether Microsoft would still be interested in buying Yahoo or not. The $64,000 question is why Ballmer & Co. ended up walking. Was it really because Yahoo wanted a $3 billion or $4 billion more than Microsoft said it was ready to pay? Or did Ballmer cold feet at the end of the Microsoft-Yahoo negotiations -- because of too much Yahoo-Microsoft content and services redundancies, stagnant Yahoo search share, too many potential antitrust issues, difficult-to-bridge back-end .Net and open-source technologies and/or too many potentially unhappy employees (at both Microsoft and Yahoo)? Another question: Do Ballmer & Co. really have a Plan B as to how to grow online-advertising share without Yahoo being part of the mix? Microsoft officials never spelled out to the satisfaction of many Wall Street analysts, shareholders, customers, partners, employees and industry watchers exactly how Microsoft thought it could better compete with Google using Yahoo. Combining Yahoo's and Microsoft's search shares (exact percentages vary from tracking outfit to tracking outfit, but the total hovers around 20-30 percent) doesn't even begin to come close to Google's 60 to 70 percent share. Here is the Microsoft "10/20/30/40" strategy for growing its online-ad business that Platforms & Services chief Kevin Johnson outlined last December:

Get the Microsoft Web sites to comprise 10 percent of all Internet page views (up from what Johnson says is Microsoft’s current six percent share).
Increase the percentage of minutes spent on Microsoft Web sites from 17 percent per user to 20 percent.
Grow Microsoft’s online query share from 10 percent to 30 percent.
Capture 40 percent of all dollars spent via digital advertising (compared with Microsoft’s current six percent online-ad-spend share claimed by Johnson).

What would happen to Johnson's 10+20+30+40 equation if the 30 percent search share was actually closer to 20 or less? And how is Microsoft doing, in terms of achieving the other onilne-advertising goals it outlined at the end of last year? Perhaps we'll hear more next week, when Microsoft holds its invitation-only ad summit in Redmond. In the meantime, what's your advice to SteveB? Should Microsoft buy Yahoo this time around, if it can? Or should the Redmondians wash their hands of Yahoo and move on?

posted by Mary Jo Foley
May 15, 2008 @ 6:37 am

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The real question: Is Microsoft still interested in Yahoo?

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