Apparently, not everyone leaves Yahoo (YHOO) to join Microsoft.

On Friday, sources said, it was announced internally at Microsoft (MSFT) that Karl Siebrecht (pictured here), the former president of Atlas at aQuantive, is joining AdReady at the end of the month as president and COO.

AdReady, based in Seattle, bills itself as an “advertising technology company focused on making online display advertising accessible and effective for advertisers of all sizes.”

The start-up has raised a total of $12 million in venture funding from Bain Capital Ventures, Khosla Ventures and Madrona Venture Group.

Aaron Finn is its current CEO and president, but is apparently giving up one title to Siebrecht.

And–probably no coincidence–aQuantive’s former CEO is Brian McAndrews, who is now managing director at Madrona.

But, sources said, Siebrecht was introduced to Finn through David Rosenblatt, an advisory board member of AdReady–and who competed with Siebrecht as CEO of DoubleClick, which was bought by Google (GOOG).

Also interestingly, Jason Kilar, CEO of premium video site Hulu, is on AdReady’s board.

Oh, it is a small tech world, after all.

Microsoft bought aQuantive–which is now called Microsoft Advertising–in mid-2007 for $6 billion and Atlas was one of its units.

With so many more ex-Yahoos out there now that the most recent layoffs have taken place, BoomTown put out feelers to a range of them to ask whom they would like to run the company they no longer work for.

After all, who better than to pick a new CEO than an ex?

The response I got was swift and varied wildly, depending on which way the ex-Yahoo felt the company should go, including quite a few who thought Yahoo needed to sell itself off completely.

Some considered Yahoo (YHOO) a media and advertising company, for example, while others thought of it as a more Web tools outfit. Still, others considered it a turnaround situation, requiring a wholly different kind of CEO.

Perhaps therein lies the problem–it is still hard to define precisely what Yahoo is and is not, even for its ex-employees.

In any case, here are some of the best suggestions:

1. The Media Mogul

“I think they need to sell to a media company,” said one ex-Yahoo, who posits the move needs to be drastic enough to truly reset Yahoo.

In this scenario, search gets sold to Microsoft (MSFT) and Yahoo’s online content is combined with media assets of a big entertainment and news conglomerate.

That would make the leader of Yahoo one of the following: Bob Iger of Disney (DIS); Rupert Murdoch/Peter Chernin of News Corp. (NWS); Jeff Zucker of General Electric (GE) unit NBC Universal; or Les Moonves of CBS (CBS). (News Corp. is the owner of this Web site.)

2. The Insider

A lot of votes here for former Yahoo COO Dan Rosensweig and not so many for current President Sue Decker.

Why? Several ex-Yahoos mentioned a need to refocus intently on products and the need for a product-obsessed leader, but one who also knew Yahoo well and could get things moving without needing a lengthy learning curve.

“Since Dan R. left, I think there’s been a definite void (at the senior exec level) on the product/consumer expertise and advocate front,” said another ex-Yahoo.

Other execs mentioned are former Yahoos Jeff Weiner and Jeff Mallett.

But several also pointed to board member John Chapple, who is the one most insiders say they are guessing will be the next CEO, especially since he has been reaching out to Yahoos on many levels and asking questions.

3. The Microsoftie or Googler

The new top name here is obviously recently departed online ad exec Brian McAndrews, former CEO of aQuantive, whom many think would be a strong pick and would focus the company on advertising.

In addition, most of those leaving–including several technical people–all seem to agree that Yahoo needs to get out of the search business, and pronto.

Said one engineer: “I hate to say this, but as good as we can be, we cannot compete in the war that is breaking out between Google and Microsoft. And it will only get uglier.”

Other names mentioned in this category include Yusuf Mehdi and Kevin Johnson of Microsoft, as well as Tim Armstrong of Google (GOOG).

4. The Fixer

While there are a lot of different opinions out there among the ex-Yahoos I spoke to, all agree that the company is in need of a sharp operator and someone who can do what it takes to turn the company around quickly.

That means someone like former Vodafone CEO Arun Sarin, whose name has popped up recently, or even nontechie execs known for operational skills.

“We need a decisive leader, given how slowly it takes for things to change at Yahoo, who has a real sense of urgency from the minute he or she gets the job,” said one ex-employee.

Another former exec described it as a “two-step process.” First, the turnaround CEO needs to come in and reorient, focus, and get the company going in the right direction, then a more product-oriented person can be installed under that CEO later.

5. The Holy Grail-Steve Jobs Option

I think the most interesting idea I got from all the many former Yahoos I spoke to was that Apple (AAPL) CEO Steve Jobs swoop in and buy Yahoo.

When I laughed out loud at this notion at first, the exec insisted that it was a feasible idea, given that Apple was interested in expanding its platform beyond its now-popular devices.

It’s an interesting bit of wishful thinking, of course, to imagine a “great leader” to calmly guide the company back to its roots.

Jobs, in fact, memorably addressed a meeting of Yahoo VPs in the fall of 2007. As I wrote then: “Jobs basic message [to Yahoo]: You have great assets–just like Apple did–and now it is all about execution.”

Yes, that tiny little detail.

6. Raise the Yangtanic

Interestingly, pretty much all the ex-Yahoos I talked to–as angry as some are at him for his tenure as a CEO less successful at execution and the ensuing loss of market value at Yahoo–said they did feel there was a need for Co-Founder Jerry Yang to stay around in a significant way.

“Jerry has been a really bad CEO,” said one former employee. “But he could still be an important leader at Yahoo and give the company the kind of inspiration it so desperately needs.”

Not everyone is on board with that.

“I completely disagree that Jerry should stay around. Jerry is one of the main issues at Yahoo and he and [David] Filo must go, as well as most of the board,” said one former Yahoo. “There needs to be free rein for the new CEO to make changes and that won’t be possible if Jerry is still there. Jerry is a nice guy and his heart is in the right place but he has failed as both board leader and CEO and the company needs to start fresh if it is to have a chance.”

Adds the ex-Yahoo: “Steve Jobs would be great, but I think he is busy.”

BoomTown strives to bring readers the very best in internal memo decoding, and this one is just too good to pass up.

Microsoft CEO Steve Ballmer sent a short memo to employees this afternoon about finally hiring someone to head the software giant’s lackluster digital efforts.

That someone, as this column reported earlier today before the official announcement, was former Yahoo (YHOO) tech star Qi Lu. He will become president of the Online Services Group at Microsoft (MSFT), right after the new year.

Thus, let us try to read between the lines:

What Steve wrote: From: Steve Ballmer
Sent: Thursday, December 04, 2008 1:39 PM
To: Microsoft–All Employees (QBDG)
Subject: New Leader of Online Services Group

Search, advertising and online services are critical to Microsoft’s long-term strategy. To succeed, we need the right talent. Today, I’m pleased to announce that Qi Lu will join Microsoft as president of our Online Services Group. Qi will oversee all efforts in search, our online advertising platform, and all of our online information and communications services. Qi will join Microsoft on Jan. 5 and report to me.

Translation: Really, taking five months to pick someone to head Microsoft’s most critical arena for the future is not a long time. If you’re counting in dog years, that is! Woof!

But, I digress, we have a winner and, best of all, he’s from Yahoo, costing us $39.9 billion less than it would have cost to get Lu with the whole company.

What Steve wrote: Qi is one of the most respected technical minds in the industry. He comes to Microsoft after 10 years at Yahoo, where he most recently served as executive vice president of engineering for all of Yahoo’s search and advertising development efforts. Before joining Yahoo, Qi was a researcher at IBM’s Almaden Research Center. He has a doctorate in computer science from Carnegie Mellon, and he holds 20 U.S. patents.

Translation: Did I mention that Lu is from Yahoo? Let me say it again: Yahoo. The YAHOO that refused to take our $31 a share offer. That Yahoo. The Yahoo where–at one time–engineers would never consider leaving the Jedi forces of Silicon Valley to join the Death Star.

Jerry Yang, I am your bother.

Also, did I mention 20 patents?

What Steve wrote: Qi’s combination of deep technical expertise, proven leadership capability and broad business knowledge is rare in our industry. There is no one better qualified to guide our work to reinvent search and online advertising.

Translation: By “reinvent,” I mean, stop the endless flow of cash out of Microsoft pockets, even as Google (GOOG) is minting money in the basement of that irksome Googleplex in the search business.

If Lu manages not to lose, say, $3.23 trillion dollars, I will consider it a job well done!

What Steve wrote: While I’m excited that Qi is joining Microsoft, I’m sorry to share the news that Brian McAndrews has decided to transition out of the company. Brian came to us with the acquisition of aQuantive in 2007. Since then, he has helped build a world-class business in online advertising that provides a solid foundation for future growth. I have great respect for the important contributions Brian has made to Microsoft, and I wish him the very best in the future.

Translation: OK, so I dragged my feet on this selection process long enough to make Brian feel really badly, given he wanted the job too.

But, he’s an “ad” guy and Microsoft’s track record with those who don’t consider pocket protectors the height of fashion is, shall we say, rocky.

But don’t feel bad for Brian–Microsoft bought aQuantive for $6 billion last year, and he was CEO. You do the math.

Of course, it would be deeply ironic if Brian suddenly was in the running for the now-open Yahoo CEO job and I was facing him over the negotiating table over the search deal Microsoft has been salivating over, despite trying to seem only mildly interested.

Brian, honey, don’t take it personally that I went for the geek. It’s in my DNA.

What Steve wrote: On Monday at 4 p.m. Pacific Time, Qi will join me at Café RedWest for an Employee Town Hall. I encourage you to attend or to watch the webcast. If you have questions for Qi or me, please send them in advance to and we’ll try to answer as many as possible.

Steve

Translation: Free nachos and unintelligible discussions about algorithms for all!

Microsoft moved up its official announcement of former Yahoo (YHOO) tech star Qi Lu to be the head of its Online Services Group.

BoomTown reported on the selection earlier this morning.

As part of the changes, Microsoft digital ad head Brian McAndrews, who had also wanted the job, is leaving.

Here’s the full announcement from Microsoft (MSFT):

For Immediate Release
Dec. 4, 2008
Microsoft Appoints Dr. Qi Lu to Run Online Services Group
Yahoo! veteran to oversee Internet offerings for consumers, advertisers and publishers.

As part of today’s announcement, several teams will move to further align resources. The field sales organizations in the Online Services Group will move to Microsoft’s centralized Sales, Marketing and Services Group led by chief operating officer Kevin Turner. This group, called Consumer & Online, will be led by Corporate Vice President Darren Huston and will include the Global Advertising Sales and Services organization, led by vice president Bill Shaughnessy.

Former Yahoo tech star Qi Lu (pictured here) is poised to take on the big job of being Microsoft’s top digital executive, according to several sources inside and outside the company.

The appointment could be announced by Microsoft as early as next Monday.

A variety of details is still being ironed out, though, including whether the well-regarded techie Lu will be “paired” with another executive at Microsoft (MSFT) with more general business experience.

While Lu has managed large teams while at Yahoo (YHOO) and also huge projects, he does not have advertising sales and media experience that will be a big part of his purview at Microsoft.

In that job, he will be the boss of three strong digital execs at the software giant: Satya Nadella, the SVP who heads engineering for Microsoft’s search, portal and advertising platform group; Yusuf Mehdi, whose online services portfolio includes marketing, online audience business development and product management for MSN and the search properties; and Brian McAndrews, the SVP for the advertiser and publisher solutions group.

That executive partner could be some higher-ranking Microsoft exec or even CEO Steve Ballmer himself.

Elevating McAndrews is also a possibility, as he has also wanted the digital chief job and could decide to leave after not getting it. (He also would not be a bad choice for Yahoo’s new CEO.)

McAndrews was the CEO of aQuantive, an ad company bought by Microsoft for $6 billion last year.

As I have previously written, Lu would be a different choice for the post than many had expected.

In picking a serious tech-oriented executive over a more media-centric one, a dichotomy that Ballmer has been puzzling over, according to several people with whom he has spoken, he is clearly staking out an even more head-on fight with Google (GOOG).

But since a lot of Microsoft’s future rests on winning in the search and search-advertising space and trying to catch up with its techtastic Silicon Valley archrival from way back in the race, Lu is also well suited for the position.

Lu was EVP of engineering for the Search and Advertising Technology Group at Yahoo, where he ran all development initiatives for its search and monetization platforms. He was at Yahoo for a decade.

Importantly, Lu will definitely be a draw in bringing in top talent to Microsoft, especially from Yahoo.

Microsoft already grabbed another top Yahoo search exec, Sean Suchter recently.

And it is reportedly in a competitive bidding war with Google right now for yet another top Yahoo engineer.

Ballmer (pictured here), who led the now-defunct takeover bid for Yahoo and who has indicated a strong interest in buying only Yahoo’s search assets, could almost be seen as bypassing it all by sucking the talent right out of the place instead.

That might be a good move, since Yahoo’s board, while under intense Wall Street pressure to do so, is still debating whether to strike a deal with Microsoft to sell off its search and search ad business for massive guaranteed ad revenues.

While board member Carl Icahn has been pushing that deal, others on the board are still dubious that decoupling search from Yahoo is the right strategic move and believe it could leave the company at the mercy of Microsoft.

Yahoo might already be, especially if it keeps losing critical engineering talent to Microsoft. Being able to convince talent like Suchter and Lu to switch is a very bad sign.

Before he left Yahoo earlier this year, Lu was on the staff of the IBM Almaden Research Center, and worked at both Carnegie Mellon University and Fudan University in China (he also got degrees from both places).

And, in the kind of cred Microsoft likes, Lu holds 20 U.S. patents.

He left Yahoo after becoming dissatisfied with all the turmoil there, quitting in June, without another job lined up.

There has also been speculation that Lu would take a position as CTO of Facebook or even return to China for a tech job.

The well-respected Lu certainly has a multitude of choices, but the chance to lead money-laden Microsoft’s digital efforts–as it suits up for battle with Google–has been perhaps too hard to resist.

BoomTown has been poking around to try to figure out who Ballmer would choose for the digital head, ever since the man who used to be in charge, Kevin Johnson, departed in July for Juniper Networks (JNPR), after the software giant’s takeover bid to buy Yahoo failed.

I raised Lu’s name in a post several weeks ago as Ballmer’s top choice.

Several people close to the situation say the aggressive CEO has been keeping the deliberations close to the vest.

On an interesting side note, another one of Lu’s reports at Microsoft would be Harry Shum, corporate vice president of Search Product Development, who was his classmate and friend at Carnegie Mellon.

Please see this disclosure related to me and Google.

The large round by Oak, which was led by Palo Alto, Calif.-based venture capitalist Fred Harman, will give the popular online news and blog site a valuation of just “south of $100 million,” a source said.

The new funding, the Huffington Post’s third, will be used for expansion of its offerings and the hiring of editorial and business talent.

“There is an inevitable shift from offline to online with people increasingly getting their news media online, and this election proved how powerful the Huffington Post could be,” said Harman (pictured here), in an interview with BoomTown. “And I think the post-election perception of the Huffington Post has changed in the eyes of advertisers to being a key mainstream news site.”

Indeed, the Huffington Post–which is now billing itself as ‘”The Internet Newspaper”–has been hitting on all cylinders during the current election season.

And it hopes to continue building that momentum into the Obama administration, which will give the liberal-leaning site a lot of advantages in coverage.

The Huffington Post has also become a powerful news aggregator, much as the more conservative Drudge Report has, sending traffic all over the Web from its site by linking with a variety of online sites. It also has a strong offering of high-profile bloggers.

But the site’s leaders are also hoping its traffic strength will allow it to be as strong in arenas outside of its flagship political arena, including in business, local, “green” and investigative news.

It will also use the money to make acquisitions, the company said in a press release about the funding, which it put out this morning.

It’s certainly a long way from May of 2005, when its high-profile co-founder, Arianna Huffington, was roundly mocked for launching the site. Today, she has seen her power grow as the site’s traffic and influence have.

The site’s namesake operates out of her California-based office in Los Angeles, while the company has its HQ in New York.

The Huffington Post’s traffic in September 2008, for example, quadrupled from a year before to 4.5 million unique visitors, according to comScore (SCOR). That performance made it the No. 1 “stand-alone political blog and news site,” besting Drudge.

“The cycle of print media is accelerating downward and there are not as many companies with a balance sheet and focus to do it right online,” said Harman, who will join the Huffington Post’s board. “The news market is really up for grabs in a lot of ways…and it is a good time for those who are viewed as authoritative.”

But, like a lot of advertising-reliant businesses, the Huffington Post is also facing a tough market and must show it can compete under more dire economic circumstances and build a sustained and profitable business.

This slug of money should give it a lot of room to do so, said Harman, who has invested in several digital media companies, such as Demand Media and Federated Media. He was also one of the lead investors in aQuantive, the digital advertising business that was bought by Microsoft for $6 billion in 2007.

“Who knows how deep this economic situation is going to be,” said Harman, who noted that he and others kept investing in aQuantive through the last Web downturn. “But strong companies that keep investing through a bad cycle can emerge as winners.”

Previous investments in the Huffington Post have totaled about $12 million. That funding has come from Softbank Capital and Greycroft Partners, as well as seed money from co-founder Kenneth Lerer and former AOL exec Bob Pittman.

Funding reports about the Huffington Post appeared about a week ago in the Times of London, with the post claiming a $15 million investment and expansion into investigative and local news.

But the most detailed posts were done by paidContent, which was the first to name Oak as the new investor and said the round was $20 million.

The company has been on the lookout for the person to lead its online efforts ever since the exec formerly in charge, Kevin Johnson, headed out in late July, after the Yahoo takeover bid failed.

At the time, Microsoft CEO Steve Ballmer promised a quick search for a Web leader the software giant has so sorely needed.

But, apparently, quick means not-so-quick at Redmond HQ, where Ballmer has had a few other things to deal with (like the vagaries of Windows Vista!). So, he has cast about for more than three months, both internally and externally, for the person who will turbocharge Microsoft’s Web efforts.

Sources said Ballmer continues to look for an external candidate to save the day, as he has been, preferring an outsider to give the division some spark.

And, while well-known Internet figures like former Yahoo COO Dan Rosensweig, former AOL head Jon Miller and former Facebook exec Owen Van Natta have all taken a pass, Ballmer is soldiering on.

New prospects include former Cisco exec and current Joost CEO Mike Volpi, sources said, with whom Ballmer is likely to be chitty-chatting next.

BoomTown likes that choice, given Volpi has both technical and deal-making skills, and he is someone well-liked in both media and Internet circles. In fact, Volpi has also been a favorite of Yahoo CEO Jerry Yang, who would also dearly love to snag the personable exec.

But Joost, the once-hot online video start-up, has just pushed the restart button with its new flash player, and is hoping to live up to its initial hype, especially in the wake of the success of rival Hulu.

So it is not entirely clear that Volpi would leave at this moment.

Other possible outside digital execs with the right experience are few and far between.

If I was making a list, I would include CBS Digital kingpin Quincy Smith (who probably talks too quickly for Ballmer), as well as Google ad head Tim Armstrong, although both are also unlikely to move from where they are ensconced.

Thus, with so few good choices, it might be that Microsoft (MSFT)–as usual–turns inward.

But even that’s in question, given the prospects of the main internal candidate, Brian McAndrews, who came to Microsoft in its acquisition of aQuantive and runs its online advertising business, seem to have dimmed, sources said. But some caution that McAndrews is not out of the running yet.

The other insider with a chance–Yusuf Mehdi–got the job running MSN and other of Microsoft’s online properties.

He is waiting for the digital uber-boss to lead him, as well as McAndrews and also Satya Nadella, the SVP who heads engineering for Microsoft’s search, portal and advertising platform group.

For now, said one source, that appears to be Ballmer. “He’s going to be the digital chief,” joked one exec. “Until he finds someone he likes just as much.”

In any case, here is a recent interview I did with Volpi in London about Joost’s restart:

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.

In truth, Johnson’s strategy of using Yahoo as an “accelerant” has been a sound one, playing to Microsoft’s strengths.

It includes a focus on servers (muscle), software (technology) and scale (bigger is better) that is tailor-made for giant like Microsoft, which must both jumpstart is long-suffering online services business and also keep its powerful Windows brand from weakening.

Microsoft’s recent Vista version of Windows has not been well-received, despite Microsoft’s claims that it is a success.

The company is now currently working on its roll-out of the next operating system, Windows 7. It will include touch technology and also be more integrated to its Live offerings.

In a memo to Microsoft troops today, Ballmer wrote: “The success of Windows is our number one job.”

At the same time, Microsoft has been trying to improve its online business, especially in search and display advertising. But its market share in the search market, for example, has persistently stayed under 10 percent.

Over the last year, Microsoft has tried to move forward via acquisition, such as its $6 billion purchase of online ad marketing firm aQuantive last August. It has also introduced new search innovations like a cash-back program.

But, most of all, it has zeroed in on Yahoo, which has a share in the mid-20s, in order to give it a better chance to compete with Google, the dominant market leader.

After first trying to buy Yahoo in a bit of a ham-handed manner, it turned to a plan to buy its search business.

That proposal has been rejected by Yahoo twice as not good enough for a variety of reasons, some better than others.

The hubbub sent Yahoo into the arms of Google, with which it struck an outsourcing ad search deal, which has attracted a lot of controversy, but will likely go forward.

Welcome to Microsoft’s nightmare!

With archrival Google allied with Yahoo, Microsoft has succeeded in burnishing its image as a Web also-ran and still has an uncertain path to change that.

What Microsoft will do next is unclear, as it now probably has to focus on getting its own house in order, before facing outward again.

To begin, the company said, Johnson’s large unit–which includes the powerful Windows division, as well as the online services business–will be reorganized into two parts.

The Windows and Windows Live online service will be one part and other will be made up of online advertising, search and MSN.

Perhaps in a sign to its troops and Wall Street–Microsoft’s stock has been swooning of late, due to its recent disappointing results–CEO Steve Baller will take over the Windows unit.

Reporting to him will be SVPs Steve Sinofsky (engineering), Jon DeVaan (development) and Bill Veghte (business).

Microsoft will search for a new head of its online business, who will also report directly to Ballmer. Until then, SVP Satya Nadella will run search, MSN and ad platform engineering efforts and SVP Brian McAndrews will continue to lead the Advertiser and Publisher Solutions Group.

Hey, Jerry Yang is looking pretty stable in comparison right now, doesn’t he?

Please see this disclosure related to me and Google.

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.

Regardless of the outcome of any new discussions, it is important that we continue to move forward to strengthen our online services business. The fact is that we are not where we want to be in this business yet and we’ve been in this position longer than we’d all like. To that end, we will be accelerating elements of our core strategy, and breaking ground in new areas.

On Tuesday, Brian McAndrews is hosting advance08, our annual advertising conference here in Redmond. Over 400 leaders from across the media, technology and advertising landscape will be here for two days to engage in dialogue on industry trends and opportunities. These leaders are some of our closest partners in the digital transformation of the advertising industry, and they recognize the increasingly important role Microsoft plays in this transformation. We are very excited to have these customers and partners on campus.

Brian’s keynote will highlight our unique position in the advertising industry. It’s amazing to see how far we’ve come with the aQuantive acquisition in differentiating our advertising platform. This foundation is paying off, with Q3 advertising revenue growth of nearly 40 percent, a rate that has accelerated over the past two quarters while growth rates at Google, Yahoo and AOL have slowed.

On Wednesday, we will be announcing a major new initiative that our search teams have been driving. We are getting better and better with our core algorithmic search, and at the same time, we are investing to differentiate in vertical experiences and to disrupt the current model. You’ll hear more about our plans Wednesday.

advance08 will underscore our commitment to search and online advertising, and you’ll continue to see announcements demonstrating our progress in this space. Earlier this week, I spoke to leaders across our online services business about our core strategy, the importance of acceleration and a set of actions we are taking, including:

1. Innovate and disrupt in search–We will disclose some elements of our plans with this week’s release of search and sharpen our focus on user experience and business model innovation. The work we have done over the last four years on search has established a solid foundation to build upon.
2. Win targeted distribution–With this release of search, we are now ready to throttle up broader distribution initiatives.
3. Reinvent portal and deliver new experiences across PC, phone and Web–We are building our new releases of Windows 7, Windows Live wave 3, Windows Mobile 7, Internet Explorer 8, Search and MSN with an eye towards optimizing and unifying experiences and scenarios.
4. Fix our online branding–Our brands are fragmented and confusing today, and we recognize a need to clarify and align our online branding . We are now driving forward to address this opportunity.
5. Win in display advertising–We have an advantage in tools, agency assets/relationships and a team laser-focused on capturing the display ad platform opportunity. As we build from a position of strength, we will increase engineering resources to drive even more innovation.
6. Build on our strengths in Europe–As measured by comScore in March, our online business in Europe is doing well. We have over three times the page view volume and nearly seven times the minutes of usage compared to Yahoo!, and 68% reach to internet users throughout Europe. We will double down on our investments in Europe and expand on this strong position.
7. Expand strategic partnerships–In addition to our organic innovation agenda, we will expand strategic partnerships that increase inventory on our display ad platform, enable new paradigms in search and accelerate growth in key geographies.
8. Pursue small, targeted acquisitions–Looking forward, we will focus on small, targeted acquisitions that support our work in search, complement our value in the ad platform and help us grow scale in key geographies. Recent acquisitions including Rapt and YaData are examples of these types of acquisitions.

   The PSD leadership team is actively working on the FY09 budget, including resources and investments to support the actions above. Additional elements of our work will be revealed in the coming weeks, leading to our Financial Analyst Meeting in July where I will share more details on our strategy and business/financial outlook.

As we move forward, I want to remind everyone that we are well positioned to compete. We have some of the industry’s best assets on our side: technical and business talent, global scale, a culture of self-criticism and tenaciousness, a healthy balance sheet and an unparalleled product portfolio. It’s time for us to seize the opportunity.

Thanks again for your continued leadership and focus on our business.

Regards,

Kevin Johnson l President Microsoft Platforms & Services Division

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!

For that, Viacom has agreed to use Microsoft’s digital ad-serving technology and also will let it sell some of its display ads on its–who knew?–300 Web sites. (Of course, Microsoft handed Viacom yet another one of those economically unsound guaranteed ad deals that both it and Google are so fond of doing these days.)

Viacom scores again!

Naturally, Google was not in the competitive mix, given Viacom is suing its YouTube unit for $1 billion over copyright-infringement issues.

And Viacom also got to smack Google again, since it dumped DoubleClick–the online ad network that Google is in the midst of acquiring–and replace it with Microsoft’s Atlas service (which the software giant picked up in its recent purchase of aQuantive).

Yep. Viacom. Scores. Yet Again. (Except the Microsoft-Viacom deal probably has now provided Google with some air cover about complaints–leveled by Microsoft to government regulators–that it had a dangerous monopoly over online advertising with its DoubleClick purchase, which means it is more likely to be approved now.)

While this is all very clash-of-the-titans, with most of the benefit accruing to Viacom, one has to wonder where this leaves Yahoo–considered the longest-standing and doubtlessly most experienced seller of display ads–in this war.

Viacom did pick Yahoo to manage its search-ad business earlier this year, and this deal with Microsoft will not impact that.

But Yahoo’s game in the future is not in the monetization of search, which Google dominates, but in turbocharging its graphical and video ad business, an area in which it has the best shot at differentiating itself. It should have been in this fight, but it was not mentioned once.

And watching Viacom work the Microsoft-Google Cold War, it feels a lot like what Facebook did recently when it expertly played the bickering pair against each other over its financing and the right to sells its international ads.

Given Yahoo keeps losing in this kind of warmongering (to be fair, it can’t even contemplate competing in what will surely turn insane), you almost want Yahoo CEO Jerry Yang to get while the getting is good and auction off his company’s crown jewel–its search monetization business–to the highest bidder.

If that was the case, if Yang was bold enough to do it and willing to swallow a little pride, I would think we haven’t nearly begun to see just how high both Google and Microsoft can bid.

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?

And while I gave a taste of my visit to celebrity news and gossip site, TMZ.com (with a fuller report to come tomorrow), I also would point you to a superb site in the same genre of celebrity-trashing called The Superficial, which is anything but that.

Though the topics are as deep as Britney without makeup, Jessica Simpson getting dumped and just about every starlet bikini shot in existence (along with all the many clothing malfunctions of this particular subspecies of humanity), the great pictures mixed with a sarcastic and funny writing style make this a daily destination for me. Like this on Pamela Anderson getting booed at Cannes:

Pamela Anderson got booed at the Cannes Film Festival today when she showed up late for a photo session and only stuck around for a few minutes. Which is lame, better there’s so many better things to be booing. Like war. Or terrorism. Or your kid’s piano recital.”

This is a nice piece in the New York Times about what happens when a volunteer effort–in this case Mozilla’s success with the Firefox browser–is a big hit. Money quote:

So far, no one has figured out how to balance keeping an open-source or collaborative project fully financed while remaining independent and noncommercial. Wikipedia, for example, holds occasional fund-raisers, while its leaders debate if it should take steps toward some sort of sponsorship or advertising.”

And the Washington Post has a solid story today about the Democrats’ domination over the Republicans when it comes to using the Internet. One GOP operative, in charge of President Bush’s Internet strategy in the 2004 campaign, notes, “We’re losing the Web right now.”

While I suspect that might be the least of the Republican worries, the unique visitors and the money raised tell the tale better about the inability of Republicans to close the information gap now or perhaps ever.

Or get used to its tools, as the article notes, like instant video that can highlight some not-so-pretty things like the “macaca” moment from former Sen. George Allen, which was the beginning of the end of his recent campaign.

But to me, the lagging Republican Party with regards to the Web (except to introduce legislation to hinder it) has been true ever since Al Gore was integral to the legislation that spurred the creation of the commercial Internet. He may not have invented it, but it most certainly would never have been where it is today without him.

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.