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Jul 31
2009

Ballmer to the Rescue

Posted by meggebrecht in YahooSteve BallmerMicrosoft

meggebrecht

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.

Breakingviews.com: "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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