Microsoft-Yahoo: Notes about the logic behind it

Here are some of the other themes that emerged from the conference call this morning held by Microsoft, after it announced a bid to acquire Yahoo for $44.6 billion. (See our original story here, along with my cliff notes from the call).

— In response to an analyst’s question, Steve Ballmer mentioned that there are three constituencies on the web – advertisers, consumers and publishers. Microsoft’s aQuantive deal addressed the advertiser constituency and also brought a publisher network to the Microsoft fold, but this didn’t directly touch the consumer. This deal addresses the consumer part of Microsoft’s plans. Yahoo has masses of individual users of its mail and other applications.

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— The large overlap between Live Search and Yahoo! Search was explicitly referred to as one of the driving factors. Microsoft asserts that building infrastructure, doing a crawl and hiring expensive R&D resources for search algorithms is far more efficient when combining forces with Yahoo. Microsoft also pointed out that Google’s share of the paid search market is 75 percent and that this precludes Google from pursuing Yahoo in a competitive bidding situation (because of anti-trust laws).

— Microsoft is clearly softening any potential blow to the thousands of Yahoo employees that woke up to news of a potential Microsoft acquisition (Yahoo is based in Silicon Valley, long a region of fiercely proud technology companies with an ambivalent relationship with the Microsoft giant, and one reasonable question is whether Yahoo employees will go for this). Multiple references were made to the strength of Yahoo’s brand, how much respect Microsoft had for Yahoo’s leadership team as well as the engineering team. Ray Ozzie referred to Yahoo engineers as “pioneering” for building out scalable services that are enjoyed by hundreds of millions.

— Microsoft is claiming that its other large acquisitions this year – aQuantive and TellMe – have given the company the ability to handle large integrations. The current plan is to have a joint leadership team from Microsoft and Yahoo thrash out the integration; an integration plan is already in place at Microsoft. Microsoft also asserted that since the leader (Google) continues to consolidate position, time to market is extremely critical and that this is the correct time for a strong #2 player to emerge in the market.