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Microsoft's Yahoo Plans advance>>08

News Analysis. Microsoft's advance>>08 conference is another context for interpreting yesterday's company statement on Yahoo.

I looked at the statement in context of Carl Icahn's Yahoo proxy fight. But as I briefly mentioned yesterday, there is another context—Microsoft's advertising event—and I'd like to expand on it today.

The advertising expo, which starts tonight, is Microsoft's coming-out party for Brian McAndrews, former aQuantive CEO and current Microsoft Advertiser & Publisher Solutions Group senior veep. McAndrews' team and technology have invigorated Microsoft's advertising sales efforts. For example, in Microsoft's fiscal 2008 third quarter, advertising grew a respectable 29 percent, but 40 percent when factoring in aQuantive, which Microsoft bought in May 2007 for $6 billion. It's no coincidence, methinks, that Microsoft bought aQuantive on May 18 and a leap year later advance>>08 commences on May 19. McAndrews will give a full-year report (caveat: the deal didn't immediately close).

So, what does any of this have to do with Yahoo? The news media likes to present simple cause-and-effect scenarios—they make for better stories and easier reading—but human decision-making is rarely so simple, particularly with regards to business. In past posts, I put forth some reasons, all valid, for Microsoft's Yahoo bid withdrawal. But advance>>08 is another one, and it almost certainly factors into yesterday's Microsoft statement on proposing a new transaction with Yahoo.

When Microsoft made its unsolicited Yahoo bid more than three months ago, surely CEO Steve Ballmer and his top executives expected to have some deal in progress by advance>>08. The Microsoft advertising event would be an obvious place to talk about new ad platforms, of wooing existing and potential ad customers to Microhoo's future and providing sound alternatives to Google. I don't doubt that Microsoft would have announced lower pricing than Google. Low pricing is a longstanding Microsoft tactic for breaking into new markets. How could Microsoft be so bold without scale, which is something big to have gotten from Yahoo.

I've repeatedly said that in business, perception is everything, particularly in any situation where existing or potential customers are involved. A bloody proxy fight would have been a terrible distraction during advance>>08. How could Microsoft credibly offer a clear advertising future vision when storm clouds loomed over the present—and its impact on the go-forward ad strategy? After pulling out of the deal, Microsoft took charge of the messaging about its advertising and search future, making the best of a disappointing situation.

In context of advance>>08, yesterday's Yahoo statement and internal company e-mail from Kevin Johnson make sense. Johnson, president of Microsoft's Platform & Services division, is one of the architects of the proposed Yahoo acquisition. It's no coincidence that Microsoft dispatched these internal and external communications around the same time—and both have to be coordinated for this week's advance>>08. The company needs to show that it still has vision and that there might even be a Yahoo deal that could boost the ad-serving capacity. Positive perception is crucial as the event commences.

Yahoo issued its own statement sometime after I posted on Microsoft's statement yesterday:

"Yahoo has confirmed with Microsoft that it is not interested in pursuing an acquisition of all of Yahoo at this time. Yahoo and its Board of Directors continue to consider a number of value maximizing strategic alternatives for Yahoo, and we remain open to pursuing any transaction which is in the best interest of our stockholders. Yahoo's Board of Directors will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value."

I wouldn't exactly call that an open-arms response, but Microsoft can still hold out the promise of something, which should reduce some of the pressure from existing or potential customers. Surely they were going to ask what about Yahoo and what if no Yahoo?

Kevin's Memo in Context
Johnson's memo is interesting reading. Interesting aside: In the last 24 hours, lots of news sites or blogs published the internal e-mail in its entirety, including All Things Digital, CNET News.com and Giga OM. But I don't see that anybody cited a source, not even as leak or official distribution. What? Did a genie just pop out of thin air and type the text on blogger and journalist computers?

I fuss for a reason. In my many years as a working journalist, I've seen too many feeding frenzies, where one story leads to many "follows" by other news organizations. Sometimes, the original reporting wasn't accurate. The risk increases with the high volume of blogs and their hearsay style of citing other blogs. Original reporting is crucial to getting out accurate information. At the least, sources should be cited in the case of a major memo outlining Microsoft's advertising strategy. In this case, it's reasonable to assume that Microsoft leaked the memo, but nobody is saying. Microsoft's Yahoo statement and Kevin e-mail dispatched around the same time yesterday. That's no coincidence.

Early this morning, I confirmed the e-mail's veracity, but hadn't obtained a copy before posting (I actually delayed posting for some time waiting on the memo). I referred to full text from All Things Digital.

Kevin concedes early on: "We are not where we want to be in this business yet and we've been in this position longer than we'd all like." Then he begins to lay out the go-forward strategy:

"On Wednesday, we will be announcing a major new initiative that our search teams have been driving. We are getting better and better with our core algorithmic search, and at the same time, we are investing to differentiate in vertical experiences and to disrupt the current model. You'll hear more about our plans Wednesday."

Live Search group's spring update is progressional, and Microsoft has been rolling it out piecemeal over the last couple weeks. Kevin then launches into an eight-point plan:

• Be innovative and disruptive in search.
• Advance targeted search distribution.
• "Reinvent portal and deliver new experiences across PC, phone and Web. We are building our new releases of Windows 7, Windows Live wave 3, Windows Mobile 7, Internet Explorer 8, Search and MSN with an eye towards optimizing and unifying experiences and scenarios."
• Fix brand fragmentation.
• "Win in display advertising. We have an advantage in tools, agency assets/relationships and a team laser-focused on capturing the display ad platform opportunity. As we build from a position of strength, we will increase engineering resources to drive even more innovation."
• Expand European search and ad business.
• Expand strategic partnerships (which I assume is where the Yahoo statement makes some sense).
• "Pursue small, targeted acquisitions. Looking forward, we will focus on small, targeted acquisitions that support our work in search, complement our value in the ad platform and help us grow scale in key geographies."

To be honest, Kevin doesn't say much concrete about what Microsoft is going to do for customers now and perhaps he shouldn't. The thunder is best saved for advance>>08.

I will call out the third and fourth points. The third is affirmation of what I've been saying to expect: Tighter integration among Live services and Microsoft operating systems. The fourth is badly needed. Microsoft has too many major Live brands and associated sub brands—and too many logos. The common toolbar, presenting major brands Hotmail, MSN, OneCare and Spaces is a good starting place. But where's Messenger?

Microsoft has a busy advertising agenda ahead this week. I'll blog important topics as they come up.