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Microsoft's Ballmer defends massive search investment

July 24, 2008 | 11:13 am

Microsoft Chief Executive Steve Ballmer today defended his company's massive and so far unrewarded investment in online search and advertising, arguing that the software power was the only real threat to Google and that a major "ante" in search was the best shot at a $1-trillion market for Internet media.

Speaking during Microsoft's annual presentation to investors and Wall Street analysts, Ballmer said the company wasn't currently talking about a deal with Yahoo to combine forces against Google.

"Does that mean that nobody will ever talk to anybody again? I suspect the answer is no," Ballmer said in remarks at the company campus in Redmond, Wash. Ballmer was in the awkward position of explaining both why Microsoft wanted Yahoo so much that it offered more than $44.6 billion for the company and why it later walked away from a deal at the same price.

"Yahoo for us was always a tactic, not a strategy," he said, blaming the breakdown in takeover talks on delays that would have pushed regulatory review into the next presidential administration. More recently, two attempts to buy just Yahoo's search business fell short, and Yahoo then co-opted the noisiest advocate for a sale within its shareholder ranks by giving Carl Icahn a minority of seats on the Yahoo board.

Ballmer said the major drivers for a deal included the chance to increase revenue per search query and improve the relevance of ads shown to search users. Scale, he suggested, is crucial for success, and Yahoo was a shortcut to scale.

Yet without Yahoo, Ballmer said Microsoft has more flexibility in its approach and can focus on other ways to make ads more useful for searchers.

"There is a huge, huge, huge new opportunity around the Net and online, and we need to embrace that opportunity," Ballmer said. "When people say to me, 'How do you lose $1.2 billion in this business?' ... we're anteing, we're reinventing."

-- Joseph Menn

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