BoomTown was so glad we had this time together with Yahoo (YHOO) CEO Carol Bartz and Microsoft (MSFT) CEO Steve Ballmer, just to have a laugh or sing a song about a major Web search and advertising deal.

I liveblogged the conference call, which I updated as it happened.

Did Ballmer scream and jump up and down? Did Carol say something naughty?

Or as the companies said:

SUNNYVALE, Calif. & REDMOND, Wash., Jul 29, 2009 (BUSINESS WIRE)–Yahoo! Inc. and Microsoft will host a conference call for accredited media and financial and industry analysts at 8:30 a.m. ET/5:30 a.m. PT today, July 29, 2009, to discuss the search agreement the companies recently announced. In addition, b-roll footage will be available. The satellite feed of b-roll footage will contain broadcast footage of remarks from Yahoo! CEO Carol Bartz and Microsoft CEO Steve Ballmer, as well as corporate Yahoo! and Microsoft b-roll footage.

B-roll? More like, were Bartz and Ballmer on a roll?

To find out, read on!

5:28 am PDT: It was EARLY on the West Coast and we were being forced at first to listen to really sleepy music like you might hear in a dentist’s office.

Zzzzzzzzz…

5:34 am PDT: Memo Impresario Eric Brown was late! But, as soon as he gets on, the new Yahoo PR head began with an enthusiastic hello about the deal.

Bartz was up first, followed by Ballmer. They were clearly together in the same place, likely in Silicon Valley at some bunker.

“This is a great day for Yahoo,” she said. “It’s a game-changer and I am glad to finally be able to talk to you about it.”

Her patter was clearly scripted, but Bartz was pretty jaunty in her delivery.

And sassy enough to make the first of many dings to former Yahoo savior Google (GOOG)–not by name, but as either “the market leader” or “the competitor.”

Why not just go right to calling the search giant this deal is aimed at battling what Bartz really meant: The Borg.

Bartz stressed that this deal only covers search and the search ad business and not, say, display advertising.

And, she added, while Microsoft’s AdCenter technology will power the money-making, “search will continue to be an integral part of the Yahoo consumer experience.”

Boiling it down, Bartz said: “What this deal is really about for everyone is scale.”

Cue the next Google dig: “The combination of Microsoft and Yahoo search puts the choice back into the hands of consumers, increasingly concerned about the influence of a single player.”

Single player=Darth Vader.

5:40 am PDT: Ballmer was next. “I am so delighted to see [the deal] come to fruition,” he said.

He does not say much more except that he hoped it would “flourish and come to life over the many years.”

Ballmer sounded like someone speaking at a ribbon cutting of a copy store at the mall.

The livelier Bartz came back on, discussing the terms, hewing pretty much to what was already in the press release.

Microsoft’s AdCenter as technology. Integration. 10 years. No display deal. Separate user experience.

Now to the bucks, as Bartz noted, they add $500 million to Yahoo’s operating income, save $200 million in capital expenditures and improve annual operating cash flow by $275 million.

“At its full implementation,” she added. There is always a catch!

Bartz said Yahoo would use the money to invest in its other properties, although she was not specific.

Then, it was onto regulatory issues and getting this party started.

Bartz put on the brakes. “This deal will not happen overnight,” she said.

Actually, not even close. She predicted a closing in early 2010 and it being rolled out over the following three to six months.

Finally, Bartz thanked the tireless teams who did the deal. “With a lot of help from Steve and I,” she said and then quipped, “not always so.”

She and Ballmer were now sounding like a hip mom and dad.

5:45 am PDT: Question time!

The first one was about why the pair did not do a display deal and also how they were going to bridge the huge gap in how much each made per search compared to each other and Google.

Bartz said that the point was to keep the deal idiot-proof. “Frankly, we wanted it as straightforward and simple as possible,” she said.

Ballmer concurred: “We are taking a big bite here.”

As to the earnings gap in search, he said, “The deal in and of itself will let us close gap with the market leader.”

Ballmer tried not to say the word “Google,” but stumbled and did anyway.

The next question was about Bartz’s shift from her “boatloads of cash” quote–which she said, in an interview with me at the seventh D: All Things Digital conference in late May, was a must for a deal with Microsoft–to her new “boatloads of value.”

Simple, she said, trying to gloss it over–Yahoo did not need a big cash payment up front (and it did not get it either).

“As far as we are concerned, the boatload of cash is us preserving our revenue line,” said Bartz.

The next question was about what Microsoft gets out of this deal.

“We clearly see an upside as execution really builds,” said Ballmer.

After more money questions, there is finally one on regulator issues.

Back to Google-bashing from Ballmer.

“I suspect the competitor who may not like more competition is Google,” he said.

Microsoft General Counsel Brad Smith then jumped in and talked about working together and filings in D.C. and making the case.

He said he “looks forward to the debate,” which is just what a lawyer would say.

5:58 am PDT: Finally, the layoff question.

Bartz is clear here. Some Yahoo search employees will be dragooned over to Microsoft, some will move to other parts of Yahoo and some will be let go.

“Unfortunately, there are some redundancies,” said Bartz.

More financial questions, one on the mobile search market, one on innovation, one on scale and one on advertisers.

“Advertisers, especially smaller ones, want to make sure there is enough meaningful market for them and they don’t want to learn three platforms,” said Bartz. “They know how to enter into the Google system.”

She said “Google system” like she was talking about a gulag.

Meanwhile, Ballmer talked about how good it was to now be No. 2. Really, he did, since he was a distant No. 3 before this deal.

6:11 am PDT: Some technology question. Ballmer noted that the deal was not a “rip and replace” of Yahoo’s search for Microsoft. It will be an “integration.”

Next was a question about how this deal measured up to last year’s more money-laden offer by Microsoft.

Bartz said she didn’t just want an upfront payment, but a “true partnership,” with control over the Yahoo user interface and “real skin in the game.”

Ballmer called last year’s deal more investor-focused than operational. “The deal was different for Microsoft, not better,” he said, leaving out the cheaper part.

Finally, I get called on, and ask about who will lead the integration and how it will get done, so as not to create a huge distraction.

Bartz said it would be a “smooth transition…not that different from when Yahoo went from Overture to Panama.”

I did not have the heart to tell her that the transition of the Yahoo ad platform was anything but smooth and one of the reasons Yahoo got into the trouble it has gotten in.

Ballmer noted that the leadership that put together the deal is the leadership of the companies in the digital arena.

I also asked how the deal finally came together, especially after such historical rancor.

“It was like a snowball down a hill,” said Bartz.

But it was also a complex ball of ice, she added, noting “it was not a two-page term sheet.”

More like hundreds of pages. “There was not a high level of abstraction,” said Ballmer.

Finally, finding a kind of married groove–from that time before the random bickering sets in–Bartz noted that “dating is one thing, but having a partnership is another.”

She added: “The good news once we reached a point we believed to be advantageous, [we did a deal]…that’s how partnerships work.”

Well, exactly how it all works out, of course, still remains to be seen.

“Google is now officially our best friend.”

Oh no.

Instantly, an image popped into my brain– that of the slithery Kaa singing “Trust in Me (The Python Song)” to Mowgli from the Disney classic animated film, “The Jungle Book.”

“Trust in me, just in me
Shut your eyes and trust in me
You can sleep safe and sound
Knowing I am around

Trust in me, just in me
Shut your eyes and trust in me.”

You know what happens next, of course. A big squeeze, but not the good kind.

While Yahoo (YHOO) might not have wanted to be acquired by Microsoft (MSFT), its alternative to goose its revenues by relying on Google (GOOG) in an outsourced online search-ad deal is one it might regret even more if struck.

Why? Aside from the potential antitrust issues, which are distracting at the very least, it fundamentally puts one of Yahoo’s main businesses–search advertising–directly into the hands of the very company that killed off Yahoo’s chances of ever succeeding in the arena in the first place.

By its inability to innovate search–not exactly Google’s strong suit–and also not moving quickly enough after acquiring the once-superior technology from its Overture acquisition, Yahoo had perhaps already nailed itself into its own coffin.

But by now signing an outsourcing deal with Google, it will be saying that it cannot compete at all in the key arena of the Internet going forward.

AOL (TWX) did this kind of deal with Google and saw its search share dwindle, even though it collected Google’s payoffs. Now it is essentially a vassal state of Google, as its display businesses has weakened with the economy and its access business is to be cleaved off.

Speaking of pythons, Infectious Greed blogger Paul Kedrosky compared Yahoo to the crack suicide squad in Monty Python’s hysterical “Life of Brian.”

Still, Yahoo is putting lipstick on the pig.

In a statement today after news of the Microsoft pullout was revealed, Yahoo Chairman Roy Bostock asserted that Yahoo was “steadfast in our belief that Microsoft’s offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view.”

Those supposedly pleased shareholders will be hard to find Monday after the market opens and Yahoo shares hurtle downward.

Whether Yahoo’s management has the talent to pull the stock out of the basement remains to be seen, although Bostock added that Yahoo is “profitable, growing, and executing well on its strategic plan to capture the large opportunities in the relatively young online advertising market.”

Actually, it is Google that is executing well and that has always been Yahoo’s problem. Now it must apparently turn that disadvantage into a virtue, while it is under enormous scrutiny from everyone and everywhere to perform.

And that kind of pressure could crush just about anything.

For a more amusing take on being squeezed, here’s a video–courtesy of Google’s copyright-infringing YouTube–of Kaa singing to Mowgli (which might soon seem very familiar to Yahoo CEO Jerry Yang):

And here is the video of the crack suicide squad from “Life of Brian”:

Please see this disclosure related to me and Google.

I made the point to Dave (he is the kind of guy you can call Dave, as you can see pictured here), that an ad guy needs to sell himself, but to no avail, so we press on in text. Nonetheless, let me set the visual scene:

Nicest guy you ever want to meet walks into nondescript room, wearing khaki-oxford-jacket Internet uniform 101. Declares Yahoo is going to kick some advertising butt in the nicest possible way. It is revealed this nice guy has been around the Web block for quite a while. Much chitter-chatter ensues. Cut to my clear-as-Fiji-water observation that nice guy, as nice as he is, has his work cut out for him.

Indeed, Yahoo saw a disturbing falloff in its graphical ad-display business in the last quarter, just as its new system for better monetizing its search business, called Panama, finally got geared up–much, much too long an integration after Yahoo’s purchase of Overture in 2001.

In the wake of these results, Yahoo parted ways rather cloddishly with its longtime ad sales head Wenda Millard. In her place, Karnstedt was installed as head of all North American advertising sales, consolidating both Web-search ads and display ads.

Karnstedt, 41, used to be in charge of just the U.S. search-ad sales, coming to Yahoo from the botched Overture integration, and said it was time is to provide “holistic” solutions to clients. While in that division, he was responsible for selling sponsored search and other analytic products.

New Yahoo President Sue Decker acknowledged the error of the company’s ways in the recent quarterly call. “It is now apparent that by not integrating right away, we did not see as quickly as we might have the requirements to invest in the core product applications and technology platforms, delaying the development of Panama and allowing our competition to establish a monetization lead,” she said. “While we have more work to do, we are now fully integrating Overture throughout the organization and are very pleased with the initial performance of Panama.”

Karnstedt was diplomatic about the inability of Yahoo to use the prescient purchase to keep up with Google, which used the opportunity to run away with the search-ad business. “The decision at the time was to leave [Overture] separate,” he said. “Everything has its time.”

Perhaps, and perhaps Yahoo has finally fixed its search-ad problem with Panama. But then there’s the display-ad issue too and, while he is well-liked within Yahoo, some outside see Karnstedt as only a search-ad exec, more concerned with perfecting algorithms than wooing real live clients, a talent that the big-brand-loving Millard had in spades.

But Karnstedt noted he has longtime experience on both sides of the aisle and that what is happening now is just a further development of the past. “The more things change, the more they stay the same,” he said.

In fact, Karnstedt, a University of Illinois grad, made his way through a series of Internet concerns, some more successful than others, and does have a lot of more traditional online-ad experience. That includes his stints as Western ad director for Wired Digital Lycos, and as general manager of former search powerhouse AltaVista’s search group.

Karnstedt is talking the right talk, to be sure. “We want to really leverage our connection with the Yahoo user,” he said, pointing to recent campaigns with companies like Hellmann’s mayonnaise that include Webisodes and other more integrated advertising solutions. “And get them more engaged in the content too.”

In addition, he said another Yahoo plus is its ability to offer clients more products, especially in content features like its successful Answers product, where Google is not as strong.

“This is old school…how to get things to work together,” noted Karnstedt. “[But] I don’t look at Google like I look at Yahoo.”

It is nice to hear a Yahoo exec not obsessing on Google–and maybe it’s just wishful thinking, especially since No. 3 Microsoft is aiming to use its power to take Yahoo’s No. 2 spot.

While Karnstedt said that being a distant second was not his desire and he is appropriately wary of the powerful Microsoft, he is right that the market was only growing, and having a competitive position like Yahoo does still put it in a good seat for future growth.

He also is heartened by the momentum he said will surely come with Yahoo’s founder Jerry Yang becoming its CEO recently in all the management shake-ups, which also included the departure of high-profile CEO Terry Semel.

“People are excited to have Jerry as head, as he is passionate and people like that,” said Karnstedt.

Which is, as you might imagine, a very nice thing to say.

Please see this disclosure related to me and Google.

While both newly departed Yahoo CEO Terry Semel and company co-founder and Semel replacement Jerry Yang insisted in interviews yesterday that Semel left on his own steam, there has been clear disgruntlement growing inside Yahoo–even from those who liked Semel–and on the board about stemming the growing feeling that Semel was not the one to lead Yahoo out of the mire.

I am not sure what the problem is in admitting this, given that Semel did have some pluses in his column. For example, under his leadership, the Internet portal’s revenue rose ninefold, to $6.4 billion last year.

And Semel did ride the stock up from its all-time lows in 2001, despite its recent falloff. In fact, the stock price was at a low of under $5 right after Semel got there in 2001.

About a year ago, it was almost $44, but it has fallen since then, as problems have mounted, with shares dipping below $30 recently.

While Semel tried a bunch of moves, mostly moving around management slots, his main issue was timing–in that he was the one on watch when Google rose to its current dominance.

While I am in no way excusing him, Yahoo was not equipped to face down a much more technologically adept rival, who used its computing might to invent algorithms to let it more efficiently rake in the dough from ad search queries.

Semel tried to battle the Google brainiacs by spending billions to buy Yahoo’s way into tech supremacy with the purchases of Inktomi and Overture.

While that was not enough to catch Google, sources inside Yahoo said yesterday Semel’s slowness to take strong control of Overture, especially from its executive team led by Ted Meisel, kept the service from innovating as quickly as it needed to.

And then once Semel decided to ring the ad search alarm bell, his intense focus on it to the detriment of other Yahoo divisions was also disheartening to some there. Many, many former and current executives complained to me about the starving of other popular parts of Yahoo so that search would eat well.

Now, of course, that’s all Yang’s problem. But instead of just Google (there will always be Google, the Moby Dick of both Yahoo and Microsoft), he has to now convince those inside and outside Yahoo that his timing is impeccable.

Please see this disclosure related to me and Google.