Big Plans Without Yahoo

By Reuters -  |  Posted 2008-07-25 Print this article Print

The message for Microsoft's annual meeting with Wall Street analysts, an all-day affair at its headquarters in Redmond, Washington, was that it had a post-Yahoo plan to turn around its online services division and a strategy to take advantage of future opportunities, even as its Internet chief departs.


Seeking to show momentum in its existing Internet business, Microsoft announced that it had expanded its existing pact with Facebook, the world's largest social networking site, to provide Web search and search advertising in addition to its existing deal to run graphical display ads on Facebook pages.

Satya Nadella, Microsoft's senior vice president in its search and advertising group, said the expanded Facebook deal would be implemented in the next few months and "carry both our Web results, as well as our page search advertising."

Microsoft said the new search advertising deal will be limited to Facebook's U.S. pages. The pact builds on a deal in which Microsoft invested $240 million last October in Facebook for a 1.6 percent stake, valuing the company at $15 billion.

Ballmer said its pursuit of Yahoo reflected the importance of Web search as the starting point for consumers to locate a growing range of digital media and e-commerce services from online video to shopping, which he estimated represented a $1 trillion business opportunity.

Ballmer described Yahoo, the world's second-largest provider of Web search and related advertising, as a quick way for Microsoft, a distant No. 3 player, to gain scale in order to compete more effectively with leader Google Inc.

"A lot of our discussion around Yahoo centers as much on this issue as any other issue," he said, adding later: "This is a two-horse race. It is about Microsoft and Google."

Nonetheless, Microsoft Chief Financial Officer Chris Liddell all but ruled out a full acquisition of Yahoo.

"The chances of us buying Yahoo on a full acquisition basis are so small that they are essentially negligible," said Liddell, adding that he never says never.

Microsoft walked away from a full acquisition, according to Liddell, because it saw Yahoo as a "declining asset" and its value continued to sink while it dragged its feet about accepting the offer from Microsoft.

Liddell also said he is worried that by the time Yahoo comes around to accepting Microsoft's most recent proposal -- a bid to buy just Yahoo's search business that Yahoo rejected last month -- Microsoft will already be so far along in a strategy without Yahoo that it will no longer be interested.

Shares of Microsoft fell 3.75 percent to close at $25.44 on Thursday following the departure of Johnson, announced late on Wednesday.

(Additional reporting by Eric Auchard in San Francisco; Editing by Phil Berlowitz and Braden Reddall, Gary Hill)


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