Technology

Ballmer: Microsoft Still Wants Yahoo


Microsoft's CEO sees a "compelling set of economics" in a search-engine partnership, despite last year's brush-off

Microsoft (MSFT) Chief Executive Steve Ballmer says he's still interested in buying Yahoo! (YHOO), or at least part of it.

Even though Yahoo's previous management spurned a takeover bid last year from Microsoft, the software giant's chairman and CEO said on Mar. 19 that he has spoken by phone with new CEO Carol Bartz and that he "sees a real opportunity for a deal."

"There is a fairly compelling set of economics that underpin a search partnership," Ballmer said in an interview with BusinessWeek Editor-in-Chief Stephen Adler during the McGraw-Hill Media Summit in New York. "When [Bartz] is ready, we will have a discussion."

In terms of Microsoft's relative lack of success in search, Ballmer said that the "stakes are a lot bigger than we thought…we could use a set change." What makes Yahoo attractive is not necessarily its technology, Ballmer added, but its scale—"there are returns to scale." Ballmer declined to reveal much about Microsoft's new search product, Kumo.com, but joked that the name may have to be changed. When asked what Kumo means, Ballmer said: "I don't think it means anything."

Digesting Sun

As for the news reported on Mar. 18 that IBM (IBM) was interested in buying Sun Microsystems (JAVA), Ballmer said he "didn't exactly get it, but it doesn't surprise me…You pick up a lot of stuff when you buy Sun. There are some things you get with Sun." He added that if IBM and Sun do combine, it could be a year or two "digesting" for them. "I relish that year," Ballmer said.

In giving his assessment of the economy, Ballmer says he believes it could take as long as four years before normal growth patterns return. And he was cautious not to be too optimistic about recent stock market gains. "I don't want to be swayed by short-term turns in the market."

He did say the economy gives Microsoft advantages over Apple (AAPL) because of consumers becoming more prudent. Ballmer said that "paying an extra $500 to get a logo" on a device is not something he sees many people willing to do in this economy. He said he does not own any Apple products. "My wife doesn't. My sons don't," Ballmer said, garnering laughs from the audience.

Zune, Microsoft's response to Apple's iTunes and iPod music system, has made little headway, but Ballmer says the company remains committed to both the device and the online service. "I won't say full steam ahead," he said. "We won't accelerate our investment but we will retain our investment…The payoff [for Zune] will come on phones, TVs and PCs."

On the future of new media, Ballmer said: "The PC will be the driver of innovation…the PC will actually be the primary target device [for new media innovations] for now."

Ballmer said Microsoft could do as many as 20 acquisitions this year "but none large enough to interest BusinessWeek readers," mostly deals in the range of $10 million to $500 million. In terms of the biggest opportunities for Microsoft in the next three years, Ballmer said geographically they are in China, which buys 16% of the world's PCs. "And that is growing." He said the Microsoft's businesses with the biggest upsides by percentage were phone and search.

On what he has learned as a manager through years, Ballmer said: "I would characterize myself as hands-on, and not as much as a micromanager as in the past."

When asked what he would do if he were to leave Microsoft, Ballmer said: "I am really not sure. If you think about [other opportunities] too hard, you might fall in love with [them]." He then said he had three school-age kids, so moving out of Seattle is not an option for at least another eight years. He did say "education captivates me."

Yahoo shares rose 38¢, or 2.8%, to 13.80, in morning trading. Microsoft shares increased 1¢, to 16.97.

Lowry is a senior writer for BusinessWeek in New York.

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