TechFlash today interviewed Microsoft CEO Steve Ballmer and Yahoo CEO Carol Bartz about a wide range of topics related to their newly announced partnership -- including competition from Google, future acquisitions and what the arrangement may mean to employees of the companies. We also asked whether Ballmer plans to adopt Bartz's famous use of profanties as part of the deal.
As you can tell from the audio of the interview below, the two executives seem to have a good-natured, chummy relationship with one another. Read an edited transcript of the interview below.
Q: Steve, this is obviously, as you said in your email to employees this morning, been a long, long slog. Do you think you turned out better here, actually, than you would have had you acquired Yahoo outright?
Ballmer: I think it's not all that constructive to "woulda been, shoulda been, coulda been." That was then ... I am very pleased with where we are. I think we're in a place that we can gain share, we can create value for consumers, we're in a place where we can do well by Microsoft shareholders and Yahoo shareholders, which was the original principle in anything, is you gotta do well by both sides' shareholders and by the consumer, and in this case also by the advertiser, and we've wound up I think in a very good place relative to those goals, and the goal of giving a little competition to the front-runner in this market.
Q: Carol, you outlined this on the conference call this morning, but given the reaction so far in the stock market, what would you say to Yahoo investors who so far aren't necessarily pleased with the outcome of this?
Bartz: I think two things happen. One is some people wanted upfront money. I wanted a high (traffic acquisition cost) rate, because I want a revenue line -- in fact, what this deal has given me is virtually all my revenue, or 88 percent of the revenue, with no cost, and so I needed to be able to focus this company on other aspects of the business, and let Microsoft -- who we know is maniacal about the search business, so they can take a run against Google. So I wanted to ride their coattails, so I think people forgot all of the money we were saving here and tried to focus just on an upfront payment -- which to me, a billion dollars, I've got $4 billion, another billion after taxes and I get 50 basis points of interest, it doesn't really help me from an operating standpoint.
The second thing is, you know, I think people just didn't think about the timing. You know, everybody who was assuming the last few weeks that there was going to be a deal probably assumed by next quarter we'd be saving a boatload of money and the stock would go up, and they could jump in or out or whatever they wanted to do. So when we said, gee, six months of regulatory and two years after that, I think people went "Aaacck!"
Q: Steve, what will happen to Microsoft employees and their jobs in the areas such as the premium search ad sales?
Ballmer: We had been doing some realignment just because of the economy in our ad sales force, and I'm sure we will continue to do some alignment as Yahoo moves in to exclusively do the sales to the so-called premium advertisers. On the other hand, we got a lot of work to do, and I think we're going to productively employee many people -- perhaps not all, but many people -- in that process.
Q: Obviously the combined search market share in the U.S. is close to 30 percent now. Steve, can you give me any sense for where that could potentially go once you start realizing the economies of scale and efficiencies you're talking about here?
Ballmer: Up. ... You focused in on economies of scale and efficiency. Yes. The thing I want to point out is, that means a better product. Not that means a more profitable product -- which it may also -- but most importantly, it means a better product. Every advertiser who advertises on Google is going to want to be in our search marketplace and available on Yahoo and Bing. Everybody. That's important to us. ... In the case of Google I think one out of every 10 pages they get a click-through on an ad. It means the most relevant thing on the page wasn't the links that were generated algorithmically, it's the paid link and part of our job is to make sure we see all of the keywords and all of the bids by all of the advertisers.
Give you a good example. A good friend of mine rents apartments in Paris. She owns a bunch of apartments in Paris. She and her husband rent them out to mostly American tourists. We're friends, so she's been buying on our site, but she said, look, she would normally buy Google. So if you type "apartment in Paris for rent" on the Google site, you're not going to find her in the algorithmic results, you find her in the paid aid results. She wouldn't be on Yahoo, she wouldn't be on Microsoft. She'd be on the combined marketplace because she doesn't want to avoid 30 percent of the market and would need to do that.
It's a simple little personal example for me, and it turns out, if you're looking for a vacation rental in Paris, that's the most relevant thing on the page. So we can improve our product because of this deal.
Q: Carol, how do you expect the cultures of the two companies to mesh behind the scenes?
Bartz: I'm actually not very worried about that. First of all, Qi (Lu) who used to be a Yahoo employee and went to Microsoft, and is leading the online effort, worked here and has many, many fans here, and is well-known and well-respected. Joanne Bradford, who ran online sales for Steve, is now here for us in North America.
Ballmer: And has a lot of friends and fans at our place.
Bartz: So, you know, I just think people want to get stuff done. You know, the good news is there's not some long, bitter, funny relationship between Yahoo and Microsoft. Sometimes companies get together, they never like each other in the first place, and that's hard. I mean, I don't think, for instance -- it probably wasn't a lot of fun at the beginning for Peoplesoft and Oracle, cause they grew up, their lives, hating each other.
Ballmer: I think that's right.
Bartz: That's just not the case here, so there's no need to have a funny attitude.
Q: Steve, are you going to start dropping a few f-bombs just to make Carol feel more comfortable?
Bartz: No! No! OK, this is how it's going to work.
Ballmer: Ha! Ha! Carol's going to jump up and down!
Bartz: I'm going to jump up and down and I CAN YELL JUST AS LOUD AS STEVE!
Q: I'm sorry, Carol, what'd you say, you cut out there.
Ballmer: (laughing) You heard her.
Q: Maybe Carol, you'll need to jump around on stage and say, "Microsoft, Microsoft, Microsoft."
Bartz: I can, I can. And I can eat funny food, too.
Ballmer: We're both chronically on diets.
Bartz: (Laughing) Chronic misfits. ...
Q: Steve, just in terms of the regulatory process, I don't know if you saw, but Google this morning said it, too, agrees that competition is good in the marketplace. I don't know if they're implying, through that, that they're not going to oppose it, but can you give me a sense for what Microsoft's case to regulators would be?
Ballmer: Well, what the antitrust law and the regulatory officials I think are interested in is, is it good or bad for consumers ... should be good or bad for advertisers, and does it increase competition. And in this case, I think, sometimes when you see three competitors going to two, you say, that can't be good for competition. I think what you really got is a market dominated by one guy. Even more so in Europe, frankly, than here in the United States. It's not three going to two. It's a chance to give No. 1 a much more credible competitor, who is No. 2, and that will be kind of the line of reasoning that our people will have a chance to lay out in Brussels, in D.C., and in any other capital where people want this reviewed. I think it's compelling. Take a look at Europe. Google's got 92 percent of paid search share in Western Europe. That ought to be interesting to somebody.
Q: Carol, how do you expect the companies to coordinate on key strategic decisions, like acquisitions and investments in the search advertising business?
Bartz: I don't see us doing any acquisitions together, that really wouldn't make any sense.
Q: I'm wondering for example if Microsoft is doing a search acquisition itself, would Yahoo be brought in on that to consult?
Bartz: No.
Ballmer: No, I mean, in general the way you should think about it is, we'll drive our business, and these guys are smart guys, we value their opinions, but we're two independent companies, and anything we would buy we would buy because it would help our search product, and if we buy it, the way the deal's written, Yahoo has rights to our search technology. They can take and use advances and innovation, whether we have to buy something build something, all of our best work in the search area essentially under this deal is available to Yahoo.
Bartz: And simultaneously, and this is a stretch, because I can't imagine doing it, but if we bought a distribution group someplace like, say in India that uses our in-house sales force, we might have a conversation, but we're responsible for one, they're responsible for another, we're not mixing the egg up here.
Ballmer: Somebody asked us this earlier, is there a joint venture -- there's no funny structure,
Bartz: No, no, no, no, no.
Ballmer: Carol and I talked about it. We're both pretty hard-core that those weird governance structures don't work. They run their business, we run ours and we have a business partnership.
Bartz: That's right, that's right.
Q: It sounds like you guys are pretty happy and you get along, just personally. Am I right in that?
Ballmer: Yeah, we actually worked together for a long time.
Bartz: Long time.
Ballmer: I'm not sure I knew Carol when she was at Sun, we might not get along if I had.
Bartz: Remember at Autodesk, we were one of the good software partners.
Ballmer: Absolutely
Bartz: We were held up as an example of how Microsoft could get along with the industry.
Ballmer: That's true, that's true. No, we had a lot of experience together when Carol was running Autodesk.
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