Gates Explains Microsoft's Need for Yahoo

eldavojohn writes "Perhaps it's obvious to you and perhaps you'll be pleasantly surprised by his answer but Gates revealed to CNet why Microsoft needs Yahoo. From his response, "We have a strategy for competing in the search space that Google dominates today, that we'll pursue that we had before we made the Yahoo offer, and that we can pursue without that. It involves breakthrough engineering. We think that the combination with Yahoo would accelerate things in a very exciting way, because they do have great engineers, they have done a lot of great work. So, if you combine their work and our work, the speed at which you can innovate and get things done is just dramatically more rapid. So, it's really about the people there that want to join in and create a better search, better portal for a very broad set of customers. That's the vision that's behind saying, hey, wouldn't this be a great combination.""

Why not save $40 billion then?

[suso (153703)]

You know, if its the great engineers that they want, why not just allocate $40 million or so to hiring them away from Yahoo? Getting access to Yahoo technology isn't really as big of a deal if they are talking about making something new. And great engineers are good at coming up with ideas anyways. If Microsoft couldn't think of doing things a cheaper way, then I doubt they are going to be able to drop the fat enough to fight Google. They are just throwing money at the problem when there are other ways. They could make a think tank like Xerox PARC with all the engineers they could hire for a fraction of the cost. And it would be a safer investment because what's to stop those engineers from just quiting after the buyout? $40 billion could be better spent.

Microsoft has forgotten that it doesn't take much money to get things done. A guy in a garage Bill, a guy in a garage.

Brute force and ignorance

[Lilith's Heart-shape (1224784)]

Microsoft is pursuing the buyout path because they can. They have a metric shitload of money, so throwing money around is their customary solution to every problem that comes their way.

Re:Brute force and ignorance

[Silver Sloth (770927)]

a metric shitload

Is that the SI shitload? Is it bigger or smaller than the imperial shitload? Can you combine the two shitloads when, for example, landing spacecraft?

Re:Brute force and ignorance

[zehaeva (1136559)]

I hope its SI, its a lot easier talking about kiloshitloads and centeshitloads as opposed to trying to covert imperial shitloads to shittons and shitgallons.

Re:Brute force and ignorance

[thewils (463314)]

Units are probably irrelevant, if you have a shitload and I have a shitload, we put them together and it's still a shitload. I think one fills the empty spaces in the other, it's funny like that.

Re:Brute force and ignorance

[zehaeva (1136559)]

you mean like how infinity + infinity = infinity? so then a shitload would be the finite version of infinity? I think I just gave myself a headache ...

Re:Brute force and ignorance

[peragrin (659227)]

actually MSFT can't afford to buy yahoo at the current price. they will have to take out some loans, or they will wipe out all of their cash on hand.

MSFT has less than $20 billion in cash available. With a dropping stock price MSFT will have to borrow money to buy yahoo.

On top of that MSFT has a history of screwing up acquisitions, and ruining whatever potentional they might of had. Remember yahoo is freeBSD based, MSFT will first attempt to replace all the servers with windows ones. Buy the time a new search engine is ready no one will remember yahoo brand.

Re:Brute force and ignorance

[haystor (102186)]

The cool thing about buying something like Yahoo is you can finance against the assets of the acquisition. Typically you might issue stock of your own company reflecting your value of theirs, only risking dilution of your own stock (looking at you Time Warner). Or some combo of that and cash.

What he's not saying is MS wanted to buy market Yahoo has. Critical mass is the most important thing in the search space. You don't spend $46B for strategic hires.

Re:

[eison (56778)]

If critical mass was the most important thing in the search space, Yahoo would have beat Altavista who would have beat Google.

Quality results are all that matter in the search space.

Re:Brute force and ignorance

[naoursla (99850)]

Selling ads is what matters in the search business.
Selling niche ads is what made Google money.
To sell niche ads you have to have lots and lots of niches.
To have lots and lots of niches you have to have lots and lots of customers and you have to know what niche those customers are in.
To have lots and lots of customers you need quality results.
Luckily in search, your customers tell you what niche they are in with their search queries.
Also, if you someone manage to get lots and lots of customers you can use their search behavior to improve your results.
The search engine with the largest number of customers improves their search engine the fastest.
They also happen to make the most money.

Re:Brute force and ignorance

[naoursla (99850)]

But Google was first to the search market with effective statistical natural language processing techniques.

Re:Brute force and ignorance

[Teilo (91279)]

There was no real quality of search results when that fight took place. It was a different era, with little more than keyword lookups.

I totally disagree. When Google first appeared on the scene, they had two things that nobody else did. The first was speed. It was jaw-droppingly fast. Nobody was that fast. Not Yahoo. Not Altavista.

Second, was a design decision: That search results would contain every word you typed. No more of this +term nonsense. This made things very simple for users who don't care to learn a search-term language.

The result: happy users.

After that, they hit hard on designing good algorithms, and hired the mathematical talent to do it. Nobody else treated search with so much science. This made users even more happy. Google had the most relevant results.

So - Google won because, from the common end user's perspective, they had a superior product. Period. That plays right into the GP's argument. Superior product = more customers = more ad revenue = the first .com services company to be seriously in the black.

Microsoft doesn't have enough debt

[pacalis (970205)]

Microsoft is way underleveraged for a mature company. With debt as cheap as it is, especially given MSFTs debt rating, they should go into debt whether they buy YHOO or pay out additional dividents.

Re:Why not save $40 billion then?

[rve (4436)]

You're absolutely right. If I were a MS shareholder, I'd demand that they focus on making money selling the software people use to get to their Google services, not spending 40 billion trying to turn a very successful software company into a probably doomed internet content / advertisement company, directly competing with Google.

Ballmer is Google obsessed

[EmbeddedJanitor (597831)]

Vista cost $5bn, Yahoo could cost $40+bn. That has to say something about where MS's current management priorities lie. They are Google obsessed.

If you're competition focussed, and not customer focussed, then don't expect your business to grow. MS has a lot of momentum, so it won't die overnight.

They've puled the Vista SP1 and that's not getting much of Ballmer's energy. Nope he's off buying Danger and trying for Yahoo to try make a fight with Google.

Google must be pissing themselves. Both Yahoo and MS are sinking in service space and there is no reason to think that they will be more productive together than as they currently are, while Google is growing.

Re:

[sw155kn1f3 (600118)]

It is funny though that MS itself started this way and B Gates knows about this, maybe even better than anybody in the industry, yet we've being seen MS to become big bureaucratic enterprise that can't really innovate no more. Their XP success is pretty much logically follows from NT4, and NT4 was still being developed by VMS hacker guys, old-type, so MS windows department just added bells and whistles and created new OS.
What modern day MS Windows department itself can produce we've seen few times already (

Re:Why not save $40 billion then?

[vtscott (1089271)]

I wonder how many yahoo engineers have non-compete clauses [wikipedia.org] in their contracts. If microsoft started cherry picking a bunch of yahoo engineers it seems very likely that yahoo would take legal action against those engineers. As far as the rest of your comment goes... It's an interesting idea, but microsoft seems to be less concerned about money and more about time. It takes time to develop those great ideas and get a bunch of customers on board. Yahoo already has the product developed and customers using it. This would allow microsoft to catch up now as opposed to 10 years down the road.

Re:Why not save $40 billion then?

[hrieke (126185)]

Because in California, Non-Competes [typepad.com] have no legal value.

That said, I agree 100% with the notion that this is MS' Waterloo. They have effectively stated that they can not, even with owning the OS and web browser, use people's web habits and make money from that.

Perhaps a bunch of Silicon Valley types should buy some MS shares and start a proxy war over where MS is headed (demand that MS pay out their war chest for example)?

Just a RND thought.

Re:Why not save $40 billion then?

[Chrisq (894406)]

Because they want the yahoo groups, mail, etc. Once they make them "silverlight only" they will have effectively locked people into a microsoft web. How many people will change groups because one member says that he cannot access it with Firefox?

MS track record moving research to products

[david.emery (127135)]

Microsoft Labs has done some really great stuff. But you don't see it in their products. That's why I have a really hard time believing MS can -execute- what Bill Gates proposed.

If you look at MS's desktop products, in particular, you see a pattern of buying a good product and then as part of integrating it, making it more and more baroque and buggy and security-vulnerable.

Reminds me of the comment I read somewhere during the MS anti-trust debates: "If Microsoft is so keen on innovation, fine. The decis

Re:Why not save $40 billion then?

[samkass (174571)]

If these engineers had wanted to work for Microsoft, they probably would have gone and gotten a job with Microsoft. It's not like Microsoft hasn't been hiring aggressively for a decade. My guess is the best and brightest from Yahoo would quickly go work for Google, Apple, or someone else if Yahoo is acquired, and Microsoft will be left with the folks who were unable to escape. Acquiring a culturally incompatible company for the engineers doesn't make sense.

It seems a lot more likely to me that Microsoft made this offer in order to disrupt the industry for awhile as Yahoo spins in panic mode and Google spends a lot of time contingency planning. I have little belief that Microsoft will actually go through with this acquisition.

Translation:

[brennanw (5761)]

"Look, we innovate. We innovate the hell out of stuff. Just yesterday I innovated a donut by taking one off some old guy when I pushed him down a flight of stairs. And Yahoo!, well, we're innovating them right now, and we're going to keep innovating them until they stop moving. Then we'll use their bloated corpse to innovate any Google employee that gets in our way."

But you're so wrong!

[brennanw (5761)]

I mean, in terms of software DEVELOPMENT you're right. I'd even say "spot on." But in terms of defining how the computer industry does BUSINESS... well, they wrote the playbook of dirty tricks, copyrighted it, and leased it to the rest of the industry. Marketers in the computer industry, no matter where they work, have a picture of Bill Gates on their wall, candles lined underneath, and genuflect to it every time they enter or leave that room.

Re:But you're so wrong!

[morgan_greywolf (835522)]

Marketers in the computer industry, no matter where they work, have a picture of Bill Gates on their wall, candles lined underneath, and genuflect to it every time they enter or leave that room.

Doesn't everybody have one those? *amazed*

Translation

[rucs_hack (784150)]

"Without Yahoo, we are years behind, and likely to stay that way"

Am I right or am I right?

Gates Explain's Microsoft's Need for Yahoo

[Rik Sweeney (471717)]

from the Cmdr-Taco-needs-a-grammar-checker dept.

Re:Gates Explain's Microsoft's Need for Yahoo

[sm62704 (957197)]

Is that grammar or spulling? But at any rate he needs to meet Bob [angryflower.com]. Sadly, so do a lot of other slashdotters.

And here I thought...

[sm62704 (957197)]

And here I thought it was because Yahoo's pages are as fugly and user-hostile as Microsoft's. Shows how dumb I am.

Where have I heard this before

[h4rr4r (612664)]

So, if you combine their work and our work, the speed at which you can innovate and get things done is just dramatically more rapid.

This is the school of thought that thinks if you get nine women pregnant you will have a baby in one month.

what about marketshare?

[utnapistim (931738)]

So, if you combine their work and our work, the speed at which you can innovate and get things done is just dramatically more rapid. So, it's really about the people there that want to join in and create a better search, better portal for a very broad set of customers.

While I'm sure the people and the innovation speed and all that sound nice, if he'd have said "We want yahoo for the marketshare" it would have been more credible.

Re:what about marketshare?

[Alsee (515537)]

No, they don't just want the marketshare. They want to synergize the paradigm!

And combined accelerate double the speed rapid faster.

-

Re:

[smurfsurf (892933)]

> And combined accelerate double the speed rapid faster.

I like to add: Dear aunt, let's set so double the killer delete select all.

To Bill Gates

[uss (1151577)]

Dear Bill Gates,

First, Take a look at http://www.eep.com/merchant/newsite/samples/ee/ee0801.htm [eep.com], for "Why Most Mergers Fail".

Next, take a look at press releases involving mergers in financial and industrial companies.
Note, how there is highest emphasis on cost savings, and very little mention of ideals and NEW business strategy after the merger.

Lastly, the kind of "merger" you are suggesting is typically done as a buyout of a small company by a much larger company.

See! This is what happens if you drop out of Business School.

For just a 0.1% Fee based on the deal value, I can help provide further advice.

Good Luck!

Boil it down

[Wannabe Code Monkey (638617)]

better portal for a very broad set of customers

You can boil his entire quote down to the above 7 words. Microsoft likes nothing more than to get their name/software/web properties in front of everyone's face. Adding Yahoo and all Yahoo's users to their portfolio is what they want. Imagine if all of a sudden everyone with a @yahoo.com email address automatically had a Passport account... all of a sudden Yahoo messenger is 100% compatible with MSN messenger.

Re:

[ubannoying (1180225)]

The problem with this plan is that many of these "customers" use the yahoo portal because they find to be the better portal as it currently is. If Microsoft takes over Yahoo, what are the odds that they'll leave the portal alone? Slim to none, I'd say. If they "innovate" it into the MSN portal, I think they'll lose a lot of customers, and find that they didn't really gain a lot in the acquisition.

Comes from great minds

[Alzheimers (467217)]

This merger comes from the great minds who brought us Reese's Chocolate and Garlic Butter Cups.

Re:

[Stanistani (808333)]

It was an inspiring accident! A Microsoft CIO bumped into a Yahoo! CTO in the hallway...

"Hey! I got some of my 'sucks' on your 'blows'!"
"I got some of my 'blows' on your 'sucks'!"
"You know, combining 'sucks' and 'blows' is a great taste!"

Problem is...

[JamesP (688957)]

Take great engineers, put them in a crappy company and they'll not be that bright.

Most of the problems (of people sucking) are inside the companies: philosophy work environment, colleagues, etc.

No Zimbra???

[jkrise (535370)]

Just an hour ago, I spoke to a Zimbra partner, and he informs me that in case MS does get to buy Yahoo, Zimbra would be out of it, to allay antitrust fears. That would mean Zimbra will have to be sold back by Yahoo and bought over by some other company. Is this true? Or is the popularity of Zimbra the reason why Microsoft would buy Yahoo to kill it off?

Translation

[Bob9113 (14996)]

We have a strategy for competing in the search space that Google dominates today,

"Ballmer has his panties in a bunch. He said we're going to fucking kill Google, and he gets a little attached sometimes, you know? So now we've got to figure a way to f'ing kill Google."

that we'll pursue that we had before we made the Yahoo offer,

"In case you think we're upset about Yahoo's rejection, we're not. Ballmer's still stuck on the '<expletive> kill Google' thing (do I have to keep saying it?) - he can't even see Yahoo past the bulging vein in his forehead."

<from offstage> "Yes you have got to goddammed keep saying it!" <sound of chair crashing into wall>

and that we can pursue without that.

"OK, we admit he's a little obsessed. But don't think this will divert an painful amount of capital into an a space in which we have utterly failed for years. Because, ummm, we don't want you to think that."

It involves breakthrough engineering.

"All we need is some of that breakthrough engineering stuff. We hear that stuff is all the rage with the kids these days, and we figure if we can get some of it, we'll be all set to *** kill Google."

We think that the combination with Yahoo would accelerate things in a very exciting way,

"We looked around for startups to partner with, so we could copy their technology then dump them, but apparently everyone has heard the compendium of stories that start with Stac. We figure it'll be easier to buy Yahoo. (we figure it would be easier to host a snowman making competition in hell, incidentally) Just have to figure a way past that little, 'Yahoo flipping hates us' thing."

Why Microsoft REALLY wants Yahoo

[mlwmohawk (801821)]

It is not very well known, but I remember talking to an engineer at Yahoo, and I asked, "How do you make money?" He said, this was a couple years ago, that 60% of all e-commerce sites were hosted by yahoo. Think about that, credit cards, transactions, data, users, etc. M$ would live to control that.

Think of all the anti-competitive stuff they could do. Subtle problems with non-windows platforms or non IE browsers. A requirement of Microsoft Wallet. (Remember that?)

There are a ton of reasons why Yahoo owned by microsoft would be a bad thing for the world. I hope Yahoo remains independent.

It's for the warm bodies, not for technology

[Jon Noring (715238)]

Bill Gates comment is interesting in that MS' purpose in acquiring Yahoo is primarily for Yahoo's technical people, and not for any particular technologies/IP held by Yahoo. That is, MS values Yahoo only for its technical people. In a sense MS is fighting a war against Google on two fronts: 1) the search engine business, and 2) attracting the sharpest technical people. MS is losing on both fronts. Instead of MS changing its corporate environment so as to again be attractive in recruiting sharp people, MS is simply trying to buy these people from other companies. It's sad really, and reflects the real problem with MS: its employee environment. Who wants to work for MS these days? (Just read Mini-Microsoft's blog for interesting insights into how MS has evolved -- it is a pretty brutal work environment that no longer sufficiently rewards those who excel.) It'd get real interesting if a significant number of Yahoo staff come out and publicly say they will move to other companies (e.g. Google) should MS buy out Yahoo. In fact, Google could get the word out essentially rolling out the red carpet for any Yahoo employee who decides to leave Yahoo should the MS takeover come to pass. Imagine if 1000 of the top Yahoo staff said "we will not work for MS." I can't think of a better "poison pill."

It's not about search

[0WaitState (231806)]

Microsoft is unlikely to be so interested in Yahoo for the search capability, though that's a nice side benefit. The real prizes are yahoo webmail and yahoo messenger. Combine those two with hotmail and MSN messenger and you have about 75% of all webmail traffic and about 2/3s of all IM traffic.

Fussing about the combined entity's search percentage is just noise--the real new killer market shares would be in webmail and IM.

It's the ad technology, not the search technology

[Animats (122034)]

I'm not sure that search technology matters all that much. For the first half of 2007, Yahoo search was probably better than Google search. Yahoo had all those special cases (weather, celebrities, stocks, etc.) working before Google did. Yet Yahoo's market share barely moved.

What matters for profitability is the effectiveness of the advertising-delivery system. In that, Google is way ahead of Yahoo, MSN, and the little guys (Ask, Mahalo, Wikia, etc.) Yahoo top management knew this in 2006 but couldn't catch up.

If Microsoft has some great idea, it's probably on the ad side, not the search side. They control a browser, so they can put in something intrusive if they want.

Re:Breakthrough Engineering?

[morgan_greywolf (835522)]

Microsoft's approach to breakthrough engineering is through acquisitions? Is it just me or do I sense an oxymoron here...

Yes. Just like "innovated" PowerPoint and they "innovated" MS-DOS, etc. Bill Gates thinks "innovate" == "acquire through any means necessary".

Re:

[imadork (226897)]

billg is still chairman of the board.

Re:Um, didn't Gates quit?

[Kaetemi (928767)]

yep, he's responsible for putting back the chairs

Re:Um, didn't Gates quit?

[SEMW (967629)]

I seem to recall that he stated he was retiring. And back in 2000, didn't he quit then, as well?

Prior to 2000, BG was CEO and chairman of the board. In 2000, he quit as CEO, and took up a job as Chief Software Architect. Later this year, he will quit that job, so will no longer be employed by Microsoft; but will still be chairman of its board.

Bill is buying relevance

[dougwhitehead (573106)]

Its not only about the engineer. If it were, Microsoft would (and may) go only as far as "due diligence" and get access to Yahoo proprietary information such as the important employee list.

But I think, Microsoft wants to buy users (Flickr, Delicious, Yahoo Mail, etc.). Google is making Microsoft less relevant, and there is some sort of network effect that makes smaller players nearly impossible to catch up. Anyone can duplicate an Ebay, but you can't duplicate the user base. The success of the service

Re:"because they do have great engineers"

[udippel (562132)]

Microsoft needs more programmers

DEVELOPERS!
it is, for the uninformed AC