Microsoft CEO Says 'Nobody Gets' Yahoo Deal

Steve Ballmer says he was surprised by the market's reaction to the search and advertising partnership but also characterized the deal as "a little bit complicated."
Yahoo shares were hit hard after the deal was announced. Shares were down 14.2% Wednesday afternoon to $14.75 from their Monday close of $17.20. Microsoft, meanwhile, was up a modest 3.7% from $23.11 to $23.96 as investors saw their side of the deal more positively.

"On the Yahoo side -- this is the one that stuns me that people haven't figured it out," Ballmer said. He pointed out that while Yahoo loses 12% of its search revenue as part of the deal, it will eliminate a significant amount of ongoing research and development costs and capital spending.

In a PowerPoint slide deck posted online to accompany Ballmer's presentation, Microsoft initially included a slide about the Yahoo deal, which Ballmer did not reference in his presentation.

That slide has since been removed from the deck, but it included details about the Yahoo deal that the presentation said were "not for disclosure," including a breakdown of expected costs like $170 million in additional search research and development expenses.

The slide said that Microsoft expected the deal to begin impacting the companies' businesses in the second half of 2011. The slide also noted that Microsoft expects that the deal would be a net money loser for the first two years, with the tide then turning. "More of our financial upside comes from long-term work," Ballmer said during his speech.

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