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Microsoft considers post-Yahoo spending spree

Steve Ballmer's objective wasn't to buy Yahoo. He instead is only interested in one goal: trying to speed up how fast Microsoft can become a credible player in the Internet world.
Image: Steve Balmer
"Yahoo is not a strategy; it’s a part of a strategy," Microsoft CEO Steve Ballmer told his employees last week.  David Hecker / AFP - Getty Images file
/ Source: Forbes

Expect to hear more from Steve Ballmer.

Ballmer's objective wasn't to buy Yahoo. He instead is only interested in one goal: trying to speed up how fast Microsoft can become a credible player in the Internet world. That meant he made a profoundly rational decision Saturday: Instead of a prolonged battle with Yahoo, he folded his hand.

But he's still on the prowl.

In a meeting with Microsoft employees last Friday, Ballmer hinted that he's got other companies on his shopping list. "If the Yahoo deal doesn’t happen, we know that there’s a different set of things that we’ll wind up investing in," Ballmer told his Microsoft colleagues. "Yahoo is not a strategy; it’s a part of a strategy."

( is a joint venture of Microsoft and NBC Universal.)

In the course of this three-month business soap opera, a handful of other companies have been suggested as possible acquisition targets or partners for either Microsoft or Yahoo TimeWarner would love to see a buyer for AOL, of course. Rupert Murdoch probably won't put up much of a fight for MySpace. With a $40 billion budget, Ballmer could make some hefty investments in a wide range of Internet companies.

And there should be plenty who will welcome the investment. Just in the past year, for instance, Microsoft bought search organization FAST, as well as Silicon Valley speech-recognition company TellMe. In both cases, the chief executives of those companies are now senior Microsoft executives. And in the case of TellMe, its co-founder, Mike McCue, feels the deal is giving his company a chance to take its technology to a wide audience.

Yahoo's Jerry Yang, by contrast, will have a lot of cleaning up to do. He may spend time Monday fielding calls from grumpy shareholders who were looking forward to the chance to cash in some of their stock holdings. Instead, they will likely see the value of those portfolios sink — Yahoo's share price is likely to slide back toward the $20-per-share value it had before Microsoft's bid.

Equally important:Yang will have to pick up where he left off late last year in trying to convince both employees and partners that Yahoo has a strong plan for the future, and that may be trickier than ever. As part of Yahoo's effort to wiggle out of Microsoft's grasp, the company has inched closer to Google, cooperating in a test to see what would happen if Google took over a portion of its keyword-based advertising program.

That kind of cooperating doubtlessly required more information sharing than most rivals tend to do.

When Yahoo reported its most recent quarterly results, company president Sue Decker underscored that Yahoo wants to be a premium site for advertisers. "The heart of Yahoo's strategy to win is the simple proposition that if we are the starting point for the most users and provide the most comprehensive, easiest-to-use, ‘must-buy’ platform for advertisers, we can drive the growth in volume and the improvement in yield we need to accelerate growth in revenues and operating cash flow," said Decker.

Although Yahoo does lead in banner advertising, it seriously lags behind Google in lucrative keyword-search advertising. Now Yang and Decker must prove that Yahoo has a strategy to win business — including from Google, which probably now knows more about Yahoo's advertising results than a competitor should.