Microsoft's attempts to strike a deal with Yahoois an "accelerator" of its online strategy, but not the sole answer to advancing its Internet vision, the company's top software executive said on Wednesday.
Ray Ozzie, Microsoft's chief software architect, said at a Bernstein investor conference that a potential agreement with Yahoo would help Microsoft advance the build-out of a strong online advertising platform and increase its base of engaged users.
Still, Ozzie emphasized that a deal with Yahoo was "not a strategy onto itself."
He did not elaborate on the nature of current discussions with Yahoo.
Microsoft had said in recent weeks that it was engaged in new talks with Yahoo over a deal that stopped short of a full acquisition. Yahoo's board rejected Microsoft's previous takeover proposal, saying the $47.5 billion offer undervalued the company.
A source familiar with the discussions said Microsoft, in more recent talks, has proposed buying
Yahoo's search business and taking a stake in Yahoo after Yahoo sheds its substantial Asian assets.
During a question-and-answer session with Bernstein Research analyst Charles Di Bona, Ozzie said Web search leader Google's financial strength and savvy made it a formidable, but not unfamiliar, rival.
"Microsoft ... by necessity had to build up a culture of crisis," Ozzie said. "Ever since the early, early days, Microsoft has always faced some amazing competitor that looked like it was going to be some roadblock to success."
He cited Microsoft's early rivalry with Lotus, where he once worked, in spreadsheets and word processing.
But competition has strengthened Microsoft, according to Ozzie. He noted that online gaming
platform Xbox Live was born out of the fight against Sony in the video game console business, and the company began making software compatible with rivals to take on open-source products.
Similarly, Ozzie said Google's model of "cloud computing," an industry term to describe the trend by Internet powerhouses to arrange huge numbers of computer in centralized data centers to deliver Web-based applications to far-flung users, will lead to significant changes at Microsoft.
Ozzie believes that Microsoft's hybrid model -- adopting elements of cloud computing with traditional software running on a computer's hard drive -- is where the industry is going.
"Software plus services is an industry trend, not just a Microsoft trend," said Ozzie, noting that even cloud-computing advocates like Google and Salesforce.com are also developing offline applications.
Shares of Microsoft fell 32 cents, or 1.1 percent, to $28.12 on Nasdaq.