Ballmer now says that Yahoo merger would have added huge integration overhead.
Microsoft is often at the center of controversy for its business practices. Microsoft is currently languishing in a distant third place in internet search with Google sitting at the top of the heap and Yahoo following up in second place.
Microsoft and Yahoo have been involved in an ongoing soap opera over the outright purchase of Yahoo as a whole or Yahoo's search business by Microsoft. The talks between the two companies have ended and begun several times and ultimately no purchase has been agreed to by the two parties.
Microsoft CEO Steve Ballmer told analysts at its annual meeting that his company reached an agreement with Facebook to integrate Microsoft search services into the social networking site. In 2007, Facebook and Microsoft made public that Microsoft had bought 1.6% of Facebook for $240 million.
The original purchase gave Microsoft exclusive rights to sell advertising on Facebook until 2011. The new agreement between Facebook and Microsoft is an extension of the original agreement between the two companies reports The Wall Street Journal. Microsoft rival Google has a very similar deal in place with MySpace, the largest of the social networking websites online. Google search technology is used on the MySpace website and Google sells the ad space for MySpace.
The Wall Street Journal reports that a significant amount of time during the analysts meeting was spent addressing concerns about Microsoft's internet business. Ballmer says that Microsoft will be boosting its spending for on-line technologies and marketing. Part of the increased spending will be used to acquire new companies.
Ballmer and Microsoft are still trying to spin the failed purchase of Yahoo to a positive. At the time, Microsoft and Yahoo were in negotiations, Microsoft saw Yahoo as the fastest and most efficient way of gaining ground in internet search. Ballmer said that Microsoft could get to where it needed to be without Yahoo, but it would take much longer to get there. Now Ballmer says that the integration of Microsoft and Yahoo's operations would have created "huge integration overhead."
Why is internet search such a big deal for Microsoft? The Wall Street Journal quotes Ballmer as saying, "Search is one of the starting points on the Internet. It's the best place to distribute new Internet services to the consumer."
The new agreement between Microsoft and Facebook allows Microsoft to be the exclusive provider for search and ads only for U.S. Facebook users.
Microsoft announced last week that Kevin Johnson, the executive in charge of the division that includes its online services was stepping down and that the division will be reorganized. Microsoft also announced that it would be purchasing a company called DATAllegro for an undisclosed sum. DATAllegro is a start-up that manages data warehouses with computing hardware and is apparently the first purchase by Microsoft since it said it would increase spending for its online division.