Mehdi's Argument: You Need Micro-Hoo

Exec Says Deal Will Up ROI, Reduce Complexity of Running Campaigns

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NEW YORK (AdAge.com) -- It's been little more than a week since Microsoft shook up the online-ad landscape with its $44.6 billion bid to take over Yahoo. (Of course, since then, Yahoo's stock has jumped, and Microsoft's has dropped almost 10%, effectively lowering the price of the half-cash, half-stock bid.)
Yusuf Mehdi, Microsoft senior VP-strategic partnerships
Yusuf Mehdi, Microsoft senior VP-strategic partnerships
But the week has been "better than expected," said Yusuf Mehdi, Microsoft senior VP-strategic partnerships. "A number of other people who may have been bidders have said, in kind of a unique way, that they're not going to participate," he told Ad Age last week. "I think that's a validation of the strength and nature of the offer."

Mr. Mehdi talked to Ad Age about Google's opposition to the deal, the potential integration challenges and what it all means for advertisers.

Advertising Age: During the past week, Google has really come out against this merger. And there's been talk that Google could help keep Yahoo from being acquired by partnering on search. Do you think the idea of Yahoo outsourcing search to Google is a viable one?

Yusuf Mehdi: It's very clearly not an option. In fact, that's the reason this combination does make sense for the industry, for advertisers and for publishers. By coming together around search and advertising, which is what this is about, we can create a credible alternative against an increasingly dominant player and deliver more value for everyone.

Ad Age: What's your take on Google's reaction? It criticized the share this would consolidate in other internet services such as e-mail and instant messaging.

Mr. Mehdi: The core of the combination is around search and advertising and getting us to critical mass so there's another alternative out there for advertisers and publishers. That is the 80% to 90% of what this is all about and the real focus. The other allegations are not there and not the focus of what we should be talking about in this combination.

Ad Age: What do you see as the value of the brands involved in this?

Mr. Mehdi: As we come together, we're going to do a thoughtful evaluation with the Yahoo folks. ... As of today it's probably too early to say definitively we have a point of view. The one thing I will say is we do think the Yahoo brand is a fantastic brand -- that's one of the reasons we're excited about this combination. I think it's safe to say we should assume there'll be some great way we can bring that and continue that in the marketplace.

Ad Age: There's a lot of skepticism about integration. Microsoft itself isn't completely integrated into AdCenter, and Yahoo has been talking about integrating search and display for two years, and it still hasn't actually happened. What is to give us hope that these two giants can successfully integrate?

Mr. Mehdi: We don't underestimate the task. But that said, I'd say: Look, we have a lot of great things in our favor on this. First of all, we have a track record of integration. We acquired aQuantive this summer, a $6 billion acquisition, largest in this company's history, and we retained virtually all of the company's top management of that organization, and we're making immediate traction -- we've signed over 60 publishers. And that follows on the heels of other acquisitions, like our ad exchange, the Massive online gaming system.

Ad Age: But those companies are a fraction of what we're talking about with Yahoo.

Mr. Mehdi: Well, $6 billion is quite big. But there's definitely a level of magnitude. ... The other good news is this is consistent with the strategy we're on. We are building a long-term successful search and advertising business and overall media business, and the assets we're acquiring are in line and consistent with that approach. It's not like we're trying to head down some new direction and do something we've not done before.

Ad Age: Not all the advertisers we've talked to are happy about this. While it creates a stronger second place in search, it also consolidates a lot of display, and it means there is one less Big Four player in the marketplace.

Mr. Mehdi: What the market needs is a credible alternative on the search and advertising platform. Without that, there's less innovation, less competition and less value being generated. It's very clear our combination with Yahoo, especially on paid search and advertising, will drive value for folks. The other benefits and opportunities include improving ROI and decreasing the cost and complexity of running campaigns. The market continues to innovate, and there are a lot of players and media out there to reach. That will continue. It's good news for advertisers.

Ad Age: How much of this is about being a near-term competitor in search during the next couple of years and how much of this is Microsoft realizing that the software business is changing, and the future of that business, which has always been Microsoft's core, lives online?

Mr. Mehdi: For us, the big No. 1 goal is, we think, soon, a $100 billion online advertising market, of which today we are less than 10%.

And the second part is the world of software and services is coming together, the way the products are built and run, the fact you can access e-mail from a kiosk when you're on vacation, the fact advertising can fund software. And online gaming is part of the future as well. This helps us on those fronts, which is basically the division we have at our core for the future of our company.

Ad Age: What's your sense of timing on this deal? Has Microsoft given Yahoo any sort of time frame or deadline?

Mr. Mehdi: No. ... Our desire and intention all along is we are ready and eager to get on the plane and come down and talk about how we make this combination really come together.

Ad Age: Will you guys consider other acquisitions while you're in the process of pursuing Yahoo, or does this put other acquisitions on hold?

Mr. Mehdi: We're going to continue to invest and grow in the space. We think the market opportunity of, in a few years, a $100 billion ad business warrants us to continue to make investments.

Ad Age: If Yahoo comes back and says this isn't enough money, would you borrow money or partner to make it happen?

Mr. Mehdi: Without a question, we are very committed to this combination. ... We have a whole set of plans and preparations ready to go to make it work. And we'd like to do that in a cooperative way with Yahoo. No question -- our commitment is clear with this one.
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