All Things Digital

Time waits for no man–but Microsoft CEO Steve Ballmer seems to be taking an awful lot of it in picking who will head the software giant’s long-foundering digital efforts.

It has been almost two months since Microsoft said it would find someone to helm the part of the business that was run by former exec Kevin Johnson, who left in July after the software giant’s bid for Yahoo failed.

A decision could come at any time, although Ballmer is reportedly intent on getting exactly the right person for the job.

But, by now, most inside the company had expected him to make the most obvious internal choice of SVP Brian McAndrews, who came to Microsoft (MSFT) via its $6 billion acquisition of aQuantive.

McAndrews now runs Microsoft’s Advertising and Publisher Solutions Group.

Longtime digital SVP of Strategic Partnerships Yusuf Mehdi has been seen as the No. 2 candidate. He could also be part of a team that includes both him and McAndrews.

Many sources have said they expect McAndrews to leave if he is not given the top digital post.

But sources also report that Ballmer remains more intent on hiring someone outside the company, with the idea that such a person could better re-energize Microsoft’s moribund Internet efforts and bring in a fresher perspective.

According to sources, his favored external pick has been former Yahoo (YHOO) COO Dan Rosensweig, who has turned down the offer.

Ballmer has also been interested in former Facebook top exec Owen Van Natta, who might be a dark horse in the race.

In addition, Ballmer has previously queried former AOL head Jon Miller, who was in line to be on the board of Yahoo until he was nixed due to a noncompete agreement with the online service’s owner, Time Warner (TWX). Miller told Ballmer he was not interested in the job.

“Ballmer is burning up the Rolodex and coming up empty,” said one person familiar with Microsoft. “But he is still looking outward.”

Other sources said Ballmer (pictured here) might now be considering a more pure-tech exec for the role, rather than a Web exec.

Microsoft’s culture is more technical than not, and such a leader might have an easier time leading the company’s Web efforts.

Yesterday, Valleywag had an intriguing report that well-regarded former Yahoo tech exec Qi Lu, who was its top search scientist, might be headed to Microsoft.

But Lu would be a more powerful weapon in Microsoft’s fight with archrival Google (GOOG) in the search arena than as the company’s overall digital leader.

Then again, nabbing someone like Li could be part of a larger team Ballmer might be contemplating, made up of both external and internal elements.

Time will tell, of course. How much time, though, is anyone’s guess.

There will be a lot of different reactions to the first of Microsoft’s newest series of commercials, featuring Founder Bill Gates playing straight man to comic Jerry Seinfeld.

Set up as a discount shoe-buying skit, Seinfeld helps Gates purchase a pair called “The Conquistador,” and for some Seinfeldesque reason, it’s churros all around.

Actually, it feels a lot like the frequent and excellent Microsoft internal spoof videos Gates does with various celebs.

I have always liked them a lot and I like this one too, as it is quirkily charming (or is it charmingly quirky?).

But I am not sure the Gates-Seinfeld kibitzing will really get a lot of people talking about Microsoft (MSFT) products, as is the marketing goal.

And they surely are no where near as spot-on as Apple’s famed PC-Mac guys commercials, which are memorable and witty and deliver the message that Apple (AAPL) products are better.

What might be more effective, of course, at least in the Internet arena, is for Microsoft to get off the stick and lay out its next Web strategy clearly, especially in the wake of its failed attempt to acquire Yahoo (YHOO), and name the digital chief it said it planned to.

Several sources with knowledge of the situation expect an internal choice to helm the part of the business that was run by former Microsoft exec Kevin Johnson, who left after the software giant’s bid for Yahoo failed.

Although an external star coming in would be CEO Steve Ballmer’s top choice, I would guess, top internal contenders are Brian McAndrews, who came to the company via its $6 billion aQuantive acquisition, and longtime exec Yusuf Mehdi, who was Johnson’s strategy guy.

(BoomTown votes for a combination of both to make it extra complex!)

In any case, if it is serious about taking on rival Google (GOOG) in the online ad space and becoming at least the No. 2 player in the market, Microsoft has to move sooner than later and definitely much faster and it has a lot of options.

With Yahoo’s stock circling the drain, closing yesterday at $17.75, will Microsoft think about another bid for even a part of the Internet company?

Or will it try, as it claims, to get truly serious about building its business organically with programs like Live Search cashback, a deeper focus on vertical search improvements in places like video, images and mapping, and more content on its MSN sites?

Or should it be aggressively looking around for other properties to purchase to bolster its Web assets, such as the company that owns the Ciao price comparison and online shopping sites in Europe, for which it just forked over $500 million?

Of course, Microsoft will likely keep trying all of these, although I hope not in the muddling way it has behaved for far too long.

Johnson was entirely right in his internally controversial concept that being one of the top players on the Web is key to Microsoft’s future, even more than its lucrative Windows software hegemony.

(If you want to read an interesting take as to why, don’t miss New York Times columnist Joe Nocera’s “Does Windows Still Matter?” post yesterday).

And with Google’s new foray into the browser business this week, Microsoft surely has to be certain that it does not lose in the one place it does dominate.

In other words, Microsoft has a lot of work ahead of it, well beyond amusing us with Gates doing a thankfully hands-free adjustment of his boxer shorts.

In any case, you should see that, so here’s the first Gates-Seinfeld commercial:

Kevin Johnson (pictured here), the point person for Microsoft’s failed bid to buy Yahoo, is leaving the company to run Juniper Networks.

As the president of its Platforms and Services Division, the smooth Johnson has been trying, without much success, to beef up the software giant’s efforts in the Web space, especially in the online advertising arena.

He and Microsoft have had a little problem with that, largely due to an immovable object called Google.

In an attempt to make an end run around the search behemoth, Johnson led Microsoft’s attempt to take over Yahoo, the #2 player in the search and search advertising space.

The six-month effort, according to many sources at Microsoft, has led to a great deal of unrest at the company, including ire aimed directly at Johnson because of his perceived influence on CEO Steve Ballmer.

That got worse as Microsoft’s various tactics to grab Yahoo and later just its search business have failed again and again.

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Just prior to Microsoft’s annual advertising conference advance08, Kevin Johnson, president of the company’s Platforms & Services division, sent the following strategy update to PSD employees:

From: Kevin Johnson
Sent: Sunday, May 18, 2008 1:30 PM
To: Platforms & Services Division
Subject: Online Services Strategy Update

We have been executing against the core strategy I first presented at our Financial Analyst Meeting in July 2007 to go after the growing opportunity in online services and advertising. Four pillars have formed the basis of our strategy:

1. Consolidate ad platform and win in display
2. Innovate and disrupt in search
3. Deliver end-to-end user experiences across PC, phone, and Web
4. Reinvent portal and social media experiences

We have many options that support acceleration of our strategy. As announced earlier today, we are also considering new alternatives for a transaction with Yahoo! which do not involve a full acquisition. At this time, we have not made a new bid to acquire all of Yahoo!, but we reserve the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo!, shareholders of Yahoo! or Microsoft, or with other third parties.

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Please see this disclosure related to me and Google.

They say that only the grass gets trampled when elephants fight. And that grass might actually turn out to be Yahoo in the epic battle between Microsoft and Google.

While the New York Times spilled a lot of ink earlier this week in a very long piece about that massive mano-a-mano, the true fallout in the online ad space, at least, could be more painful for the No. 2 player–Yahoo–which sits smack in between No. 1 Google and No. 3 Microsoft.

Yesterday, that was clearly in evidence in a kind of round-tripping ad deal Microsoft struck with Viacom, a five-year strategic partnership that was valued at $500 million by the two parties.

It’s pretty simple, really. Microsoft dips into its massive cash coffers and buys ads on Viacom’s many online and offline media outlets and it also licenses Viacom content–from places like MTV and Comedy Central–for its online MSN and Xbox 360 services.

Viacom scores!

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I like this piece on Gigaom.com by Kevin Kelleher, mostly because he uses the phrase “bat-shit insanity” to describe the $6 billion Microsoft is paying to acquire aQuantive (which I wrote about here) and compares the software giant to an aging movie star in this tasty way:

So aQuantive as an investment is kind of like John Travolta’s career: It really all depends on when you catch him. Are you getting the epoch-defining ‘Saturday Night Fever’ or its unpalatable sequel ‘Staying Alive’? ‘Pulp Fiction’ or ‘Michael’?

Just Microsoft’s luck, Travolta is about to headline the new ‘Hairspray’ in drag.”

Was it just me, or did a vision of Steve Ballmer in drag just pop into your head?

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For those who think Microsoft did not have the guts to make big purchases on the Web, the $6 billion all-cash price they ponied up for advertising network aQuantive should quash that sentiment.

That’s more than 10 times its revenue last year, and, yipes, close to 50 times its cash flow. And that is double what the Seattle-based parent company to Avenue A | Razorfish was worth on the public market just before the acquisition, a figure that has already been bid up by all the recent activity in the market.

That includes Google’s $3.1 billion bid for DoubleClick, Yahoo’s $680 million to buy the rest of Right Media and WPP Group’s acquisition this week of 24/7 Real Media for $649 million. And, by the way, AOL bought a German-based online ad company called Adtech this week, too.

If you don’t know what to make of all this, consider yourself in the majority, as these prices seem–let’s just come out and say it, as we are not investment bankers–insane. In fact, the general Internet acquisition market feels to me a lot like the wacky IPO market back in the height of the bubble, where you were often slack-jawed by the rising stock prices for companies with no visible means of comparable growth.

But before I get going on that rant, at least the big players are overpaying in a market that I think we can all agree is one that is just at its most early stages. Here’s why:

1. Spending by big advertisers online lags well behind what many call “audience engagement.” In other words, time spent on the Web has obviously been growing and taking share away from traditional media. But spending online, though fast growing at about $20 billion this year, has not kept the same pace.

2. The time to act, then, is now, to lock up any and all available assets in this space, especially ones that give the buyer a big market share and critical mass. The three biggest online ad players, Google, Microsoft and Yahoo, have snapped up the three biggest independent online ad agencies.

3. As more ad spending shifts online, the ability to have expertise and to innovate quickly will become critical. What all these companies are buying–besides stronger relationships with advertising clients–are people and experience.

4. Most of all, there was no way Microsoft was not going to answer Google after it bought DoubleClick, especially if it wants (and it does) to stay competitive with the search giant in the online ad market. Given that its talks with Yahoo about some sort of partnership (as I have said before–please don’t) have not borne fruit (as eager as, I am sure, Microsoft ’s Steve Ballmer would like to make that announcement), such a move by the company seemed inevitable.

Could they resist? I think not.

Please see this disclosure related to me and Google.