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Microsoft platforms and services president Kevin Johnson addressed employees in an internal memo over the weekend to discuss Yahoo and Microsoft's online strategy. The 11-word version : "We are not where we want to be. Hear more Wednesday." For the superfluous details, see our 100-word version, or, for the gluttons for repetition and passive voice among you, Johnson's entire email, both below:

We are considering a transaction with Yahoo!, not a full acquisition, but we reserve the right to reconsider that alternative. We are not where we want to be. We are better with algorithmic search and we are investing to differentiate in vertical experiences. Hear more Wednesday. Actions we are taking: With search, we are ready to throttle up distribution initiatives. We are building new releases of Windows, Windows Live, Windows Mobile, Internet Explorer, Search and MSN with an eye towards optimizing and unifying. Fix our online branding-Our brands are fragmented and confusing. we need to clarify. In display advertising, we will increase engineering resources. Build on our strengths in Europe. Expand strategic partnerships. Pursue small, targeted acquisitions.

The full email:

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