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Ballmer: We Can Compete with Google
Ballmer: We Can Compete with Google
By Richard Koman / NewsFactor Network Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
PUBLISHED:
OCTOBER
19
2007

Will Microsoft buy Facebook or Yahoo? Speaking at the Web 2.0 Summit Thursday, CEO Steve Ballmer wasn't saying, but he did strongly hint that Redmond is much more inclined to spend its money on small startups than expensive and possibly overvalued companies.

"We'll probably buy 20 companies a year consistently for the next five years," said Ballmer, at a price tag of about $1 billion a year. During the last fiscal year, Microsoft bought 13 companies for $1.34 billion, including voice recognition company Tellme Networks for $800 million.

As for Yahoo, Ballmer did not deny the possibility. "If at some point it makes sense, maybe then it makes sense. But that's not where we are going. We are driving in an independent direction," he said.

To hear Ballmer tell it, Microsoft is the little engine that will eventually surpass the behemoth that is Google. Comfortable with sports metaphors, he referred to Microsoft's search and advertising teams as young athletes who will eventually rule the basketball court. "You're growing up quickly. You're getting better every day," he said. "You're three years old and you're playing basketball with 12-year-olds. You're going to dunk on the other guys some day."

Who Will Get Facebook?

This being Web 2.0, however, the buzz of the conference was not Ballmer's statements, but rumors that Facebook is being valued at $15 billion. Ballmer declined to tip his hat about a possible acquisition of Facebook, but spent some time trying to drive down its perceived value. "I think these things are going to have some legs, and yet there's a faddishness, a faddish nature about anything that basically appeals to younger people," he said.

He hinted that Microsoft could easily create its own competitor to Facebook for far less money than the rumored numbers. "There can't be any more deep technology in Facebook than what dozens of people could write in a couple of years. That's for sure."

The Valleywag blog reported spotting Google cofounder Sergey Brin, Google executive Megan Smith, and Greylock associate Eve Phillips heading off to dinner. Greylock has invested $25 million in Facebook. Valleywag surmised that a deal for Facebook is "still in play" with Google "going all out to win it." The deal would involve private equity investment in Facebook and a Google advertising deal.

The Wall Street Journal reported last month that Microsoft itself valued Facebook at $10 billion by offering up to $500 million for a 5 percent share of the company. Those kinds of valuations show "the market for I.T. shares is still capable of irrational exuberance on a grand scale," Charles King, principal analyst for Pund-IT, said in an e-mail. "It's far too early to tell whether Facebook will ever figure out the solution" to the dot-com problem of converting eyeballs into sustainable businesses, he added.

Competing Against Google

In what areas does Microsoft need to tighten its play? Search and advertising, Ballmer said, which, of course, just happen to be the parts of the field firmly occupied by Google. While some might have trouble digesting Ballmer's repositioning of the company, Google's latest earnings, released Thursday, show just how dominant it truly is. Google exceeded analysts' expectations, reporting that third-quarter profits are up 46 percent to just over $1 billion.

Ballmer gave full recognition to Google's strategy. "The most valuable advertising real estate, in a sense, comes out of search," he said. "You're never going to grow a big advertising base, never going to attract a critical mass of advertisers if you can't be credible in search."

Such talk lends "gravitas" to Ballmer's claims that Microsoft can compete, King said. Even with Redmond's money and engineering talent, "the way ahead will not be easy. Throwing money at a problem has not been a successful strategy for the company in the past," King said.

"Google continues to capture increasing mindshare and market share as the vendor that really 'gets' Web-based advertising dynamics. That's a tough perception for any competitor to overcome, even for one with Microsoft's resources," he concluded.

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