Ballmer’s Not-So-Idle Threat to Yahoo: Do You Feel Lucky?

Several years ago, when I once asked Microsoft CEO Steve Ballmer if the software giant was ever going to be able to catch No. 1 Google in market share in the increasingly lucrative search arena–despite years of trying and billions in investment in its Web businesses overall–he said something I shall never forget.

“We don’t actually have to catch the leader,” said the pugnacious tech leader. “We just have to surpass the No. 2 to have a great business.”

At the time, Ballmer meant Yahoo (YHOO), of course, and his intention was clear to me. While it was probably well-nigh impossible to get into the pole position Google (GOOG) is in, Microsoft could begin an attack if it could crush Yahoo first.

Easier said than done, of course, with little movement in share so far–even after early labored and expensive organic efforts, a failed takeover attempt to buy Yahoo and endless but still fruitless talks about a partnership with the Internet giant.

But now with a very credible and consumer-friendly revamped service called Bing, which is getting a big slug of marketing money, Microsoft (MSFT) might actually have a product that at least has a better chance to gain market share.

While by no means certain or lasting, early results from surveys are promising and–combined with distribution deals the software giant recently signed too–could give Microsoft the kind of momentum is has long needed.

This is obviously not good news for Yahoo, which will doubtlessly be the one losing market share if it is to be lost.

Nonetheless, some think Google might be more impacted since its users make a conscious choice to use it and Bing is a direct alternative in this regard, while Yahoo’s users use search when they are using other parts of the site. (See comments below, which make excellent points.)

But, in any developing arms wars, it is not a good idea to get caught between monied giants and Yahoo needs to make sure it does not become the grass in an elephant battle.

In a recent onstage interview with me at the seventh D: All Things Digital conference, in fact, Yahoo CEO Carol Bartz said Yahoo definitely needed to maintain its 20 percent share.

Bad news for her then, when yesterday Ballmer shot another one across the Yahoo bow, by telling a group of business execs at a luncheon:

“Our shareholders, I told them we were willing to spend 5 to 10 percent of operating income for up to five years in this business, and we feel like we can get an economic return.”

Since it is cash-spewing Microsoft–more than $20 billion in operating income last year–that’s a lot of money.

And, even if history has not been kind of Microsoft’s like-a-drunken-sailor spending before in the Internet space, there is no question the company has an obsessive commitment to eventually gain ground, grinding down companies like Yahoo if need be.

And within the larger context of Ballmer and Bartz in hot-and-cold discussions about a search and advertising partnership deal, his statement is clearly a signal to Yahoo to get on the Microsoft train or run the risk of getting run over.

Thus, Bartz has got to ask herself one question as she ponders what to do: Do I feel lucky?

Speaking of which, here is a video of the classic scene from Clint Eastwood in “Dirty Harry” uttering those words:

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