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Jul 31

Ballmer to the Rescue

Posted by meggebrecht in YahooSteve BallmerMicrosoft


I wasn't exactly the only one underwhelmed by the search ad agreement announced by Microsoft and Yahoo Wednesday. Yahoo shares have taken a beating, and the general perception -- fair or not -- is that the deal spells the beginning of the end for the company.

Enter Steve Ballmer, who is shocked -- shocked! -- at investors' and analysts' reactions to the long-awaited deal.  "Nobody gets it," the Microsoft CEO told financial analysts yesterday. "People haven't figured it out."

What people haven't figured out is why Yahoo didn't get a big upfront payment. But the deal, which will take two years put in place, is obviously more about the future and building a legitimate search competitor to Google. And "Yahoo will get 88 percent of the revenue," stressed Ballmer, trying to defend a pact he called "a little complicated."

The agreement is "a huge value creator," he added. "Nothing got bought and nothing got sold. But there is a magical way to create revenue synergy and cost synergy by putting these two things together."

When one general manager of a sports team fleeces another in a trade, he typically explains to the media how his counterpart actually got the better of the deal. Sound like the case here?

Personally, I think the pact has potential for both companies. But Ballmer didn't feel compelled to ride to Yahoo's rescue over nothing. The media has largely been harsh. "Yahoo has retreated from its core Web search business, outsourcing it to the software giant. This turns Yahoo into a company oddly reminiscent of the Internet also-ran AOL."

Harvard Business' Now, New, Next: "It may be surprising that the PhDs at Yahoo and Microsoft could not come up with a smarter deal. But it shouldn't be. Business combinations are fraught with emotions that interfere with strategic thinking."

The Guardian: "There's no going back now; Yahoo isn't, in 10 years' time, going to wake up and decide that it doesn't like Microsoft's search after all, and re-build a new search engine. All that money Yahoo ever spent on search has just been flushed down the toilet."

According to Ballmer, this is a "win-win partnership." Maybe. Or maybe Yahoo got fleeced.
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