Ballmer: Yahoo would give Microsoft a 'consumer face' online

That which survives

In the history of marketing, Microsoft's branding ability has been likened to that of the old AT&T. For example, back in 1994, when the former Bell System acquired McCaw Cellular, rather than create a compelling brand around it, the phone company renamed the division AT&T Wireless Services...bland, non-compelling, and without the "personability" a modern brand requires. That service was later written off to history, partly because the old AT&T kept nothing about the brand that spoke of its own heritage.

Yahoo is, by design, one of the most personable brands ever created. Sure, it drives editors nuts with its prominent exclamation mark, which news services like BetaNews find themselves excising daily. But its intent is to reach out to customers in a way that "MSN" and "Windows Live" have not been able to.

So analysts' concerns this morning were rather natural: Would an acquired Yahoo soon become "Microsoft Yahoo Outreach Platform Information Center," or something else similarly ghastly?

"Look, the Yahoo brand is a great brand," Microsoft's Kevin Johnson said this morning. "We love the Yahoo brand. Part of our integration principles, and the learning and working with aQuantive and Tellme [acquired last March], is that we want to have clear integration principles and a joint leadership team of Microsoft leaders and Yahoo leaders, to really work through the thoughtful process of how you land the specifics on this. We've got clear line-of-sight to the synergies and the value creation we're going to unlock, we've got a clear set of principles, and we're going to go through a thoughtful process with great talent from both Yahoo and Microsoft to really make the specific decisions on how that lands."

In his company's takeover offer, CEO Steve Ballmer stated he's interested in Yahoo's talent -- in fact, he may be more interested in that than in Yahoo's technology assets.

"We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities," Ballmer wrote, only after having listed the search capabilities that his company already possessed. "You should also be aware that we intend to offer significant retention packages to your engineers, key leaders and employees across all disciplines."

This morning, Ballmer added to that by saying that his company could have continued pursuing its existing search strategy by simply hiring more people, but there was apparently a point of no return to that logic.

"Sure, we could've hired engineers and kept hiring engineers -- we're very good at that," Ballmer said. "We have been hiring engineers. But at the same time, the market continues to grow, and the leader continues to consolidate position. And there's nothing quite like putting together and having the chance to put together two larger, sophisticated R&D organizations. There's a lot of great talent, we're very respectful of what Yahoo has accomplished, not only in search and advertising, but in many of the other areas. Putting these things together with a great integration actually should be quite an accelerant to progress."

One of Yahoo's historically great talents has been Terry Semel, one of its founders and its former CEO. Late yesterday, Semel announced he would step down as chairman of Yahoo's board, after what are now confirmed to have been 18 months of spurning Microsoft's offers. Semel's move could be attributed to Yahoo's poorer than anticipated performance in the previous quarter, or it could be an indication that Semel's reticence toward a Microsoft acquisition may have generated serious opposition.

"In February 2007, I received a letter from your Chairman indicating the view of the Yahoo Board that 'now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction,"' wrote Ballmer, citing a letter never before made public from Semel. "According to that letter, the principal reason for this view was the Yahoo Board's confidence in the 'potential upside' if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved."

Not only was that a slap at Yahoo's progress, or lack thereof, but another indication that Microsoft isn't really all that interested in acquiring Panama, Yahoo's next generation advertising facilitation platform.

"Clearly we think the synergy around expanded R&D capability helps us get a broader reach on innovation and new areas that will help us drive breakthroughs in search," Johnson stated today, indicating that any new breakthroughs a combined entity would produce would come after their having been combined and not by virtue of the combination itself.

"The fact is, today we've got two engineering forces in our companies that largely are focused on many of the same problems," he continued, "around crawling the Web, the core search relevance algorithms, and many of the things related to search. By combining these engineering forces, we can be more efficient in the engineers that are allocated and really focused on driving the core relevance, and freeing up engineers to drive more innovation in the areas of search vertical, search user experience, the social media aspects of search."

Microsoft's statement this morning said it believes it could complete a merger transaction with Yahoo by the second half of this year. That statement could indicate either of two things: Either Microsoft hasn't fully evaluated the full extent of the scale, to coin a phrase, of what it takes to complete a $44.6 billion merger, or it isn't really looking to absorb Yahoo so much as to scale it down...all the way down.