What Ballmer really meant to say in Moscow

Microsoft officials maintain that acquiring Yahoo has always been part of "a" strategy, and not "the" strategy. Of course, Microsoft was primarily interested in the search piece, but does that make Yahoo's 500 million users a non-strategic asset.

While speaking in Moscow, Microsoft CEO and Yahoo suitor Steve Ballmer said, "Yahoo was never the strategy we were pursuing, it was a way to accelerate our online advertising business...We will spend money on some acquisitions. You can do a whole lot of things with 50 billion dollars."

In support of Ballmer's recent remarks, Microsoft officials maintain that Yahoo has always been part of "a" strategy, and not "the" strategy.

Yahoo is a means to an end. Of course, Microsoft was primarily interested in the search piece, but they apparently thought that acquiring the rest of Yahoo would also have some strategic value. Otherwise, why pay so much, unless Microsoft thought it couldn't achieve what it wanted without making an offer for the entire company.

In my post analyzing Ballmer's Moscow remarks , I said that he was doing a bit of historical revisionism. The initial $31 per share, $44.6 billion, a 62 percent premium on the January 31, 2008 price was for more than just getting access to Yahoo search technology, engineers, and contracts.

Now, after 113 days of going back and forth, Ballmer and his team have refined the overall strategy to focus on Yahoo's search business. It was apparently Yahoo CEO Jerry Yang who brought up the idea of Microsoft doing a deal around search at a meeting prior to Microsoft walking away from the negotiations on May 3. At the same time he dangled search in front of Microsoft, Yang was also talking to Google about a search-related partnership.

It appeared from Ballmer's letter to Yang on May 3 outlining the reasons he was taking a $33 per share offer off the table, that Yahoo's negotiation with Google for a search deal was a major pain point that drove Microsoft away.

Microsoft and Yahoo have reengaged negotiations on a search deal, and Microsoft is also reserving the right to reconsider a full acquisition "depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties," according to a Microsoft statement from May 18 . I guess that is part of "a" strategy, but it's "the" strategy of accelerating the online advertising business.

In other words, it still might be strategic to acquire all of Yahoo (given acquisitions are supposed to be strategic), but the predominant strategy is to blunt Google's search offensive with Yahoo search as an accelerant.

In effect, Microsoft has three possible avenues to take in its strategy: acquire all of Yahoo; acquire or joint venture on Yahoo search; or find another alternative (there aren't many left) to accelerate its online fortunes. At this point, Microsoft may no longer find it strategic to acquire all of Yahoo.

Yahoo could do a search deal with Google, which might never get done due to regulatory scrutiny and would make large shareholders unhappy, or do a deal with Microsoft. The odds favor some kind of Yahoo-Microsoft transaction.

Tune in next week for the next chapter in this saga. On Tuesday at the D: All things Digital conference, hosted by The Wall Street Journal's Walt Mossberg and Kara Swisher, the main actors will be in the same room. Bill Gates, Ballmer, Yang, and Yahoo President Sue Decker will be in attendance. The crowd will be looking for any contact or body language that could signal whether the two parties have found strategic alignment.

 

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