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Q&A: Microsoft's Johnson on the Yahoo bid

Division head Kevin Johnson talks up the bid, but offers few specifics on key topics, such as cultural differences, brands, and what it will do if Yahoo gets stubborn.

On Friday, I had a brief phone interview with Kevin Johnson, president of the Microsoft division that includes Windows and Windows Live, shortly after the software giant announced its $44.6 billion bid for Yahoo. I tried to get more details on the how Microsoft plans to bridge the cultural gap between the two companies, which brands it is tied to and what it will do if Yahoo says no. Sorry, I don't have more concrete answers, but I've posted a pretty complete transcript so you can read for yourself.

Kevin Johnson Microsoft

What makes you guys feel like the cultural and technical and product differences can be overcome pretty easily?
Johnson: Well, let me just start with one thing, which is, our two companies share a common passion for innovation, and the way that innovation creates new and unique user experiences, and utilizes technology to create value for consumers, for advertisers, and publishers. So we share a common passion in that particular area.

It's more than passion, though. Whenever companies--and I've covered a lot of mergers--talk about it, it's always a common passion. But, when you look at the way Microsoft and Yahoo have approached this space, it has been fairly differently.
Johnson: Yes. I think the key on this is going to be the integration approach that we use, Ina, and I think through recent experiences with Aquantive and Tellme, we know how to successfully integrate. And certainly the Microsoft and Yahoo approach, we're going to work together closely on this integration process.

We've got three things. Number one, we've got clarity of the strategic and financial synergies that we're looking to drive. We've got a very clear set of integration principles. And we're going to put together a joint team of Microsoft and Yahoo leaders to work through a thoughtful process on how to do that integration. That includes the people, that includes the services and the technology, it includes the brand, and so we're confident that that approach is one that yields success.

You guys alluded on the call that the Yahoo brand would probably play an important role. It sounded like Windows Live and Office Live would play an important role and that maybe MSN might be the brand to go. Is that a fair reading?
Johnson: Well, I'm going to defer that to the integration team that's got to work through a thoughtful process. I recognize the fact that the Yahoo brand is a strong brand, and that integration team will factor that in as they work through a thoughtful process. But it's important that to have a successful integration that you put the right set of leaders across Microsoft and Yahoo together with clear principles, and clear goals, and let them work through the specifics.

Why do you think Yahoo has been less than willing to come to the negotiating table?
Johnson: Well, look, I think we've made a great offer, and we respect the fact that their management and their board have a lot to consider, and we're looking forward to the dialogue.

Right. But I mean, obviously, if they were willing to negotiate, you guys wouldn't be going public with an offer, you'd be negotiating one. Why do you think if it's such a great offer they've not been willing to entertain it?
Johnson: I'm not going to speculate. I would suggest you certainly should talk to Yahoo. But we think we've made a great offer.

Steve Ballmer said on the call that he called Jerry Yang last night. Do you know if they spoke and at what length?
Johnson: They spoke, I don't know to what length.

Are you guys committed to this no matter what, or is there a time frame with which it's important that negotiations conclude?
Johnson: Well, look, I'll just say, we believe in this combination now more than ever, and that's why we made it public so that both sets of shareholders and employees are aware of the opportunity inherent in this combination. We've got great respect for Yahoo and their employees, and we think this combination makes not only strategic sense, but it makes good financial sense.

And in terms of sort of the momentum issue in the meantime, what are you going to try and tell your troops in the meantime? I mean, obviously, this is going to take some time to work itself out.
Johnson: Well, certainly, as I outlined at the Financial Analyst Meeting last July, we've been on a good path, a lot of progress, whether it was the release of the Windows Live Suite in November, the release in the fall of Live Search, the successful integration of Aquantive. We've signed up over 60 publishers since we announced the acquisition of Aquantive to our advertising platform. And we've got a plan of record. Our team is going to stay focused on that plan of record full speed ahead.

It does seem like there is an admission, though, in trying to combine with Yahoo that alone you guys have not been making the kind of inroads against Google. I mean, I think, if you look at search market share, other figures, it seems like that's a part of the pitch here to shareholders.
Johnson: Well, the thing I point out is the online advertising industry is growing at a rapid rate. It will be an $80 billion industry around the year 2010, and that industry has the dynamics of scale economics. It's a big engineering problem, and it requires a lot of capital and infrastructure. And because of that we think that combining these two organizations enables us to be a more credible alternative to an increasingly dominant player.

Do you have a Plan B if Yahoo ultimately says no?
Johnson: Look, we're focused on... we've made a great offer, and as they consider this we look forward to the dialogue.