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Ballmer's Competitive Zeal Was Key to Yahoo Chase

AP
Sunday, 4 May 2008 | 3:59 PM ET

As Yahoo continued to resist Microsoft's $42 billion takeover offer, a key question was just how far Microsoft's excitable CEO, Steve Ballmer, was willing to go in hopes of defeating online advertising and search leader Google.

Microsoft Chief Executive Steve Ballmer.
Chitose Suzuki
Microsoft Chief Executive Steve Ballmer.

For now, it seems Ballmer has kept his passionate side in check in choosing to walk away from a deal over the weekend rather than raise the bid amount or launch a hostile takeover.

But some see Microsoft's decision as simply one more step in the dance and expect Ballmer to reprise his pursuit later this year if Yahoo is unable to turn around its business.

If the CEO commandeers Microsoft's coffers for another run at Yahoo, he could face increased pressure to justify the move: Is he motivated by fear, or competitive zeal? Or is chasing Yahoo a product of rational calculation?

Ballmer has exhibited both tendencies in nearly 30 years at Microsoft.

A marketing guru in a company full of software programmers, Ballmer is known as an aggressive Microsoft partisan, who once allegedly screamed that he would "(expletive) kill Google."

He has strained his vocal cords exhorting Microsoft employees at sales meetings. A preposterous dance he did in front of one audience earned him the lasting nickname Monkey Boy. Video of it is widely available on the user-contribution site YouTube -- owned by Google .

"I'm well known not to be the world's best negotiator," Ballmer told a tech conference this year after the Yahoo deal was first put on the table.

Yet behind his jovial presence and booming voice, Ballmer reveals a deep understanding of technology and a sharp mind. Ballmer is pragmatic and realistic even if animated. At Harvard University, where he met Bill Gates in the early 1970s, he beat Microsoft's founder on a national math test.

Rob Horwitz, chief executive of the independent research group Directions on Microsoft, landed a job at Microsoft in the mid-1980s after interviewing with Ballmer, whom Horwitz described as intense but likable, and blessed with an uncanny memory for people.

Once, when Horwitz was one of about 650 employees in the company, Ballmer greeted him by name and told him he'd hit Horwitz's car in the parking lot a month earlier. Horwitz's old beater was undamaged, but Ballmer told him he had to shell out $1,500 to get his own car repaired.

Lots of things about Ballmer, 52, belie his outsized reputation and his outsized wealth of $15 billion, which makes him America's 16th-richest person, according to Forbes magazine.

He has lived with his family in the same suburban house for years. Like many CEOs, he has 13-hour days glad-handling customers. But unlike many of his workaholic counterparts, he gets back home often and boasts he gets seven or eight hours of sleep a night.

Ballmer grew up in the Detroit area, where his father was a manager at Ford Motor . At Harvard, where he was equipment manager for the football team, Ballmer lived in the same residence hall as Gates, who famously dropped out to launch Microsoft in 1975 with Paul Allen.

After Ballmer graduated with a degree in mathematics and economics, he got his first job at Procter & Gamble, handling marketing for Duncan Hines' Moist & Easy cake mix. His cubicle mate was Jeffrey Immelt, today's CEO of General Electric . (GE is the parent of CNBC and CNBC.com.)

Gates lured him to Microsoft from Stanford business school in 1980, giving him broad management responsibility. Ballmer was known for being funny yet intimidating. He would learn details about the company by immersing himself in certain aspects of the business, whether it was by living in Europe for a few months or acting as Phoenix-area sales manager for a while.

Ballmer was given the title of president in 1998, as Microsoft was fighting off the Clinton administration's attempts to break up the company. Ballmer became CEO in 2000, while Gates held onto the board chairman's seat and created a new title of chief software architect for himself.

As Microsoft grew into a dominant force in computing, thanks to the mass popularization of its Windows operating system and Office software, Ballmer and Gates were close.

Ballmer was best man at Gates' wedding.

They also have been unafraid to confront each other, shouting if necessary. One story holds that in 1985 Gates threatened to fire Ballmer if Windows wasn't on the shelves by the end of the year. It was ready by November.

Ballmer has shown plenty of his own bombast in his CEO tenure, but the Yahoo pursuit is in some ways out of character. Michael Cusumano, a professor at MIT's Sloan School of Management, said Ballmer "likes to do R&D, internal R&D, and small, targeted acquisitions."

Clearly, Google has changed Ballmer's thinking on such matters. Ballmer is not the kind of manager content to let Microsoft trail Google in the online search and advertising markets -- while Google also threatens to steal Microsoft's thunder with free software applications.

Forrester Research analyst Shar VanBoskirk pointed out that after Google agreed to acquire online ad company DoubleClick for $3.2 billion, Microsoft responded with an astonishingly high $6 billion purchase of aQuantive.

"It's like a Microsoft machismo thing," VanBoskirk said. "Flexing their muscle and showing how serious they are in this space."

That would also explain the court testimony of former Microsoft engineer Mark Lucovsky, who said that when he told Ballmer he was leaving for Google in 2004, Ballmer went ballistic, knocking a chair into a table in his office. According to Lucovsky, Ballmer lambasted Google and its CEO, saying he would "kill Google."

Lucovsky also said Ballmer warned: "Google's not a real company. It's a house of cards."

Ballmer has called Lucovsky's account a "gross exaggeration." But there's no question that now Ballmer has to show he's not the one building a house of cards.

His intense pursuit of Yahoo called into question the viability of Microsoft's solo Web search and advertising strategy. Despite a search technology overhaul and the aQuantive purchase, Microsoft couldn't get out of third place in the search advertising market.

Withdrawing the Yahoo offer may have spared the CEO from having to rationalize the massive deal, but it also leaves Ballmer where he started: on the hook to produce the online success that so far has eluded him.

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