Ballmer: IBM-Sun deal could help Microsoft

Microsoft CEO questions how IBM would handle Sun's many product lines

A union between IBM and Sun Microsystems Inc. would give Microsoft Corp. a competitive advantage while IBM worked to incorporate Sun's copious assets into a combined company, Microsoft's Steve Ballmer said today.

"We have a lot of competition with IBM, and I don't think it will change strategically," he said during an appearance in New York. "I think it gives them a year or two where all they're doing is digesting it. I relish that year."

Ballmer commented on a possible IBM-Sun deal, reported by The Wall Street Journal on Wednesday, at the 2009 Media Summit during a keynote in which he responded to questions from BusinessWeek Editor in Chief Steve Adler.

Microsoft's CEO called a purchase by IBM a good "exit strategy" for Sun shareholders, but he questioned why IBM might want to purchase Sun. The company has a complex product portfolio that includes a range of hardware and software products, many of which overlap with IBM's existing portfolio.

"I think you pick up a lot of stuff when you buy Sun," Ballmer said. "I think you have to decide if you want everything."

Microsoft has long been a competitor of both companies, but less so with Sun as the company has floundered over the past several years. Microsoft and IBM compete on a range of business software products, including middleware, application development infrastructure, database technology, and collaboration and workgroup software.

Microsoft's most famous association with Sun is a bitter seven-year antitrust lawsuit over the Java software programming language. The two companies resolved the suit in April 2004, with Microsoft paying Sun $2 billion to license Java.

As for the possibility of more acquisitions in Microsoft's future, Ballmer said the company will likely make "10, 15 or 20" small acquisitions -- which he characterized as sub-$500 million and which he said don't necessarily even need his approval -- in the foreseeable future. But Microsoft will probably continue its traditional strategy to keep acquisitions under $1 billion for the same reason he thinks IBM will struggle with absorbing Sun -- big acquisitions are extremely complex, he said.

An exception to that rule: Microsoft's $44.6 billion bid to purchase Yahoo last year, which so far has been unsuccessful, was also on the discussion table.

Ballmer reiterated his stance that Microsoft is open to some kind of search deal but not a full acquisition. Though they have spoken on the phone, Ballmer said he has not met face-to-face with Yahoo's Carol Bartz to discuss such a deal since she took over as CEO in January.

"I'm sure when it's appropriate we'll have a chance to sit down and talk," Ballmer said. "I've known Carol for years. She's very straightforward, no question about it; she's very friendly, and when she makes up her mind, when she's ready, we'll have a real discussion [about a deal] because she is that kind of person."

Ballmer also stopped short on acknowledging that a new search engine Microsoft is testing internally, called Kumo, will indeed be the next iteration of Live Search, though he hinted that it's likely the case.

Microsoft confirmed earlier this month that it was testing Kumo, long rumored to be the new brand for its Live Search engine and a major update based on technology Microsoft purchased from San Francisco start-up Powerset last June. Powerset developed semantic search-engine technology that attempts to understand the full meanings of phrases people type in while searching, returning results based on that understanding.

"I think we could use a set change, as they say in organizational behavior classes," Ballmer said of Microsoft's Live Search product and search strategy in general. "When we're ready to announce one, we will; whether it's called Kumo -- that's an interesting name."

Microsoft's share of Internet searches has lagged far behind Google Inc.'s, despite its making significant investments in its online services business to better position itself to generate online advertising revenue.

According to research by comScore, in February Microsoft's share of searches in the U.S. hit a 12-month low, at 8.2%; Google had 63.3% of U.S. search queries, and Yahoo had 21% during that month.

Ballmer acknowledged that Google has an even larger market share outside of the U.S. "We still have a lot of work to do," he said. "It's a challenge, but also an opportunity."

Copyright © 2009 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon