Microsoft Analyst Day: Ballmer: Search Is A ‘Two-Horse Race’; This Is Not About Yahoo

imageAfter last night’s surprise news, this becomes a lot more interesting: Microsoft (NSDQ: MSFT) is hosting a day-long analyst event today, kicking off with Steve Ballmer at 11:40 (ET). Suffice to say, they’ll have plenty to talk about. You can catch the live webcast and a schedule here, and we’ll be updating with any major news. One other note: If you’re at work and can’t listen, you can keep refreshing this page for a live transcript.

Ballmer: Kicking off with some introductory statements about business, he says, jokingly, that today is all about “Shareholders! Shareholders! Shareholders!” in his trademark growl.

Org. Changes: For the first part of the talk, Ballmer talked up all the opportunities in enterprise and on PCs (including comments about competing with Apple (NSDQ: AAPL) that he made in last night’s memo). I’ll skip that here, but you can check the transcript. Before getting into the online stuff, Ballmer brings up the big elephant in the room, the org changes announced last night: “We wish Kevin the best… he’s been a great contributor here. We thought it was a good idea to announce org changes before today, so we moved things (the announcement) along a little faster.” He noted that they wanted to make sure whoever was up there talking internet would be there in three weeks. Lots more after the jump…

Online: Ballmer sounds like a starry-eyed tech blogger. ‘Everything is internet, internet, internet.’ Sounding much like Bill Gates here, talking about screens as thin and light as a sheet of paper: “Everu surface that we walk up to will be a window to the world of digital information.” Why are we pursuing this? “There’s at least a trillion dollars just of media, communications and advertising… we don’t have a lot of trillion dollar markets that are being transformed.” On search, why is it so important? It’s still a key gateway to internet services. Would GMail be as popular as it is without Google’s backing? “We’re going to have to ante up to be in the game,” (as they said on the recent earnings call.) There’s no avoiding the investments that they’ll have to make.

Search scale: Notes Google’s advantage because it has more advertisers: “A lot of our discussion around Yahoo (NSDQ: YHOO) 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?” This is the first mention of Yahoo during the presentation.

Following this, Ballmer introduced aQuantive CEO Brian McAndrews to explain what’s going on with online ads and ad exchanges. McAndrews predicts major consolidation ahead in the online ad game: “The ad network game is a scale game. You are collecting data. You are out there in the market serving ads and collecting data and the larger ad networks are the ones that can attract, collect more data, utilize that data through expensive investments in R&D to then monetize it better for publishers. At the end of the day the publishers want to work with the networks who make them the most money. It is hard for little guys to do that and compete over time.

Now back to Ballmer, who’s talking very specifically about goals in online competition: That is — let’s face it, this is not about Yahoo, I will talk about that in a minute. This is a two-horse race, Microsoft and Google (NSDQ: GOOG). We are saying we are in the game of anteing up, focusing and reinventing. Ante, focus, reinvent. You got to look at that and what it means in the context of Google. Google does about 500 billion queries a year, something like that.”

Anteing up: A major theme of Ballmer’s speech: Microsoft will ante up. He’s used that phrase several times already. The fight against Google is going to cost a lot of money, depending on your perspective.

Yahoo: “There’s nothing under discussion between the two of us… Yahoo for us was always a tactic, not a strategy: Ante, focus, reinvent, innovation, the focus on semantic expertise — that’s the strategy.” Yahoo was a tactic to achieve scale. At the right price: “It was a heck of a tactic… at the wrong price “we wanted to get our regulatory review in before administration shifts in Europe and the US” (Basically, it’d be harder to get such a big deal done under an Obama administration). He says it again: “It’s a tactic”. He likes to repeat himself for emphasis, clearly. A few more comments trashing Yahoo: “…Just a small reminder Yahoo has no position really outside of the United States and Japan… Yahoo will stay around and find their path. Yet for the kind of (thing we’re) talking about in this game I think it really is the two of us.”

Bottom Line: Microsoft will compete online. It’s too big of an opportunity not to try. It’s going to cost money, and Microsoft has to do a lot more on marketing that Google does (just the way it goes), but it can be done. Referring to Google, he notes how difficult it is for an industry leader to reinvent its business model and respond to threats (he might as well have been talking about Microsoft there too), suggesting it won’t be easy for Google to counterattack innovations in search from Microsoft.