There was a lot of speculation on who Microsoft would hire for this top position. Lu is an interesting choice because he has fundmentally been an R&D guy. About coming to Microsoft, Lu says “I am genuinely excited about the opportunities ahead for Microsoft to make an enormous impact on the online industry.”  Here is the email Ballmer sent to employees following the announcement.

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.

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.

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.

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.

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

This entire story was discredited by Kara Swisher when she said Ross Levinsohn was quoted on the record saying this is “total fiction”. This whole thing seems to be cooked up with someone with a good imagination. Paying $20 billion for one piece of a company that only has an entire market cap of $16 billion seems to be pretty odd. Even compared to the original search deal highlighted by TechCrunch, Microsoft would pay over double the price for the business and guarantee double the money, all in a down economy. I think Uncle Carl is spreading rumors trying to prop up Yahoo’s poor stock price.

Perhaps he thinks they are going to find some superstar CEO to save the company. But the outlook seems to be pretty grim. 

Last week Steve Ballmer, at the Microsoft shareholder meeting reiterated that he was “done” with an acquistion. In October Kirk Kerkorian sold his entire stake in Ford and lost over a half a billion dollars. Carl must be feeling a little luckier than Kirk.

Unfortunately, the hype came and went. Jerry spent months trying to just figure out what Yahoo had become in the post Semel era. Is Yahoo a media company? or Is Yahoo a search and advertising company? I don’t think Jerry ever figured it out.

The botched Microsoft deal will go down in history as the worst played Texas Hold’em game ever played. Yang tried to bluff Microsoft to go all in for the low price of $47 billion. If Yang would have truly understood his business, he would have realized he had really no other options. Yahoo was/is being pinched by two titans with deep pockets and they are right in the middle. In the the high scale, multi billion dollar fixed cost business of search you are either fully committed or you are not in the game. Microsoft knew that Yahoo could not afford to get into an arms race with Google.

Then Yang tries to sell his soul by partnering with Google and outsourcing search and advertising. This causes a mass exodus of talented engineers and senior leadership at Yahoo. Pursuing a deal with Google basically was omitting to the world that they have lost the search and advertising game, something that was essentially their birthright. It was also a bold strategy statement, which essentially said search and advertising and its underlining technology is not one of their core competencies.

With Google bailing on the deal, spooked by the DOJ, Yahoo is left with few options. The ship continues to sink, the crew has finally mutinied, and the pirates from Redmond are just off the bow.