Yahoo’s stock continued to drop Thursday — and Microsoft (NSDQ: MSFT) CEO Steve Ballmer took time to defend the deal from Yahoo’s perspective at a meeting with analysts at Microsoft’s Redmond headquarters: “On the Yahoo (NSDQ: YHOO) side, this is the one that stuns me, that people haven’t figured out. Yahoo gets 88 percent of search revenue,” he said. “They have zero percentage COGS (cost of goods sold) and they have no R&D expense… Did they sell their search business? No. They get to keep 88 percent of the revenue.” He also emphasized that Yahoo would now be able to focus on “its leadership in online media.”
“People expected something to be sold. Nothing got sold and nothing got bought.” And he said that after fielding questions about the new partnership he realized that “nobody gets it.”
By putting together Microsoft and Yahoo’s market shares in search, Ballmer reiterated that Microsoft would be able to improve its search product. “The more queries you see, the more you can tune your product,” he said. “The more scale you have, the more relevant you make ads for users.” Economically, Ballmer said the partnership “creates an immediate possibility for synergy.” Because there will be more bidders in the marketplace, bid prices should be higher, he said, and Microsoft should be able to better monetize its search business.
On its own, Ballmer said that Microsoft’s relaunched Bing search engine had seen a “bit of momentum.” ComScore (NSDQ: SCOR) figures showed that during its first month on the market, Bing’s market share increased by 0.4 percentage points. “I can’t claim that going from eight to eight-and-a-half (percent) market share is momentum, but the buzz has been good,” he said. “The Bing effort represents a step forward for that product.”