In their own words: Ballmer on Microsoft’s search for Search

Why is it so difficult for Microsoft to compete with Google? Steve Ballmer tried to explain at the software giant’s annual analyst day up in Redmond on Thursday. (Thanks to our colleague Elise Ackerman, who covers Google and Yahoo for the Mercury News, for providing this to Docu-Drama.)

“We need more relevant ads. Turns out that one of the big advantages the market leader has is they have more advertisers in their system. So if you look at two pages today, one from Google and one from Microsoft, the thing that is perhaps most interesting because they have more people bidding on advertising they have more opportunity to serve up relevant ads. A lot of our discussion around Yahoo centers as much on this issue as any other issue. How do we get enough advertisers to have a pool of advertising to change the whole advertising approach?”

And, while Steve was being brutally honest, there is the fact that more people prefer to use Google’s search engine and that Microsoft makes less money off its users (RPMs) than Google does.

“Microsoft is certainly a small fraction of Google’s overall queries. We are a small fraction that, is a well known fact choice. And in fact we are a small percentage on a global basis, but even in the U.S. we are not a large — we are — what should I say? Substantially below Google’s RPM rates in the U.S. On the revenue line what is the strategic issue? We’d like to increase our revenue per search and the way to do that is to get more queries. The more queries we get, the more advertisers we get, the more advertisers we get, the more key words they bid on. The higher they bid — you get a virtuous cycle flowing. It is absolutely important the first thing we do is get queries and to get queries we need relevant advertising, which prevents a catch 22. I’ll talk about Yahoo in a minute. There are other alternate approaches around this catch 22 which I’m not going to talk about today, but we need to do things to bring advertisers in the system, to give great results, to drive queries and then after we’ve got the query engine going we can really drive the RPM machine.”

That’s where Yahoo came in:

“Since whatever, six plus months ago we were talking about 40, whatever, blah, blah billion for Yahoo. And then we weren’t and we were talking about a search deal and then we weren’t and we were talking about another search deal and now we aren’t. And that’s where things are just as a small summary.”

“There’s nothing under decision between the two of us. Yahoo was always a tactic not a strategy. Anti-focus, reinvent, the innovation, the investment in semantic expertise, that’s the strategy.”

“And yet when I talk to you about the need to change our position on the revenue per search curve, Yahoo was a tactic to accelerate that. Advertiser scale, for more advertising relevance and higher RPS. And we had R&D particularly and capital expense synergies by coming together and at the right price and with the right speed of operation it was a heck of a good tactic. At the wrong price and if it had to stretch out over two administrations of review, blah, blah, it was not a good tactic.

“We approached it, we had a firm time deadline because we wanted to get our regulatory review in without administration shifts in Europe and the U.S. We offered, they didn’t like, we left. Then we had a conversation about Search and we could we work together? A lot of good reasons to do it. We had one with management and we had one with Icahn and we weren’t able to come up with something that works. It’s a tactic and we are disciplined, we walked. People say you have to buy this, no, it is a tactic. There would be huge integration overhead in buying it or doing a search deal. That is part of a balance in evaluating this option.”

 

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  • Larry G.

    Semantic advertising will lead the next gen of internet advertsing. Hope MSFT will manage to lead this one.

 
 
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