Microsoft CEO Still Covets Yahoo’s Search Audience

If Microsoft makes another play for Yahoo’s search business, Microsoft CEO Steve Ballmer said today it would be for the search engine’s volume — and not its technology.

Ballmer, speaking at the McGraw-Hill Media Summit in New York City, also discussed Microsoft’s work underway to improve its own search engine, Microsoft Live Search, under a new name, Kumo.

Though Ballmer said he didn’t want to dis Yahoo’s search technology, he said Microsoft is interested in Yahoo’s search volume — and the data behind those searches that provide insights. Of the five top search engines in the U.S., Yahoo had the second largest share of searches totaling 20.6 percent in February 2009, according to ComScore. Google had 63.3 percent while Microsoft had 8.2 percent in the same period.

“The more users you have, the more data you have. The more users you have, the more advertising. The more advertising you have, the more relevant you can make the ads,” Ballmer said.

In response to questions from BusinessWeek Editor-in-Chief Steve Adler, Ballmer hinted that Microsoft could make a play for Yahoo’s search business. In February 2008, Microsoft bid to acquire Yahoo, but Yahoo’s board and executive team shot down the proposal.

“I think there’s a fairly compelling set of economies underpinning the idea,” he said, referring to Microsoft’s potential acquisition of Yahoo’s search business. “Unless I’m fooling myself, over time, there’s a good opportunity.”

Ballmer said Yahoo and Microsoft employees have talked, but he downplayed their significance. “When [Yahoo CEO] Carol [Baratz] arrived in January, we had a discussion with her. We’ll give her time to do her stuff,” he said. In addition, Ballmer said employees at each company have been talking, but insisted that’s the nature of the business world. That’s because former Yahoo employees now work at Microsoft, and former Microsoft employees now work at Yahoo.

Microsoft, he said, continues to invest in making its search engine more relevant and more task oriented. It is internally testing out updates every six to nine months. He did not reveal when searchers will begin to see those changes, nor did he disclose new features that would be included.

During a panel discussion following Ballmer’s talk, former AOL CEO Jonathan Miller said it’s inevitable for the search engines to consolidate. “There has to be consolidation among the big players. No one can compete with Google on its own,” he said, contending that’s a view he’s espoused since 2005. Acknowledging that he’s been wrong since that time, he joked that he’ll keep making that prediction until he’s right.

He noted ComScore’s data show that Google’s share of searches continues to climb, while Microsoft and Yahoo see a decline.

On another front, Miller said he thinks online video advertising holds great promise for growth. However, that growth won’t be realized until it’s easier to coordinate media buys across television and online sites. “The holy grail is when you standardize measurement across online and television,” he said.

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