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We all know that Microsoft chief executive Steve Ballmer loves developers. If you’ve somehow missed his infamous video clip over the past few years, go here and pick your poison.

There’s just one problem with this love. Since the launch of Windows Vista, apparently it’s unrequited.

Only 8 percent of developers are writing applications for Vista this year, according to a report from Evans Data. Again, not eighty percent — eight.

By 2009 that number is expected to triple to a still abysmal 24 percent. That’s a major problem. Why? Because shortly thereafter, Windows 7, the codename for the next iteration of Microsoft’s operating system is expected to launch.

If these numbers have any merit, that means that Vista throughout its lifespan will basically be a non-starter. It’s going to be hard to sell an operating system if no one is writing applications for it.

Despite Ballmer’s claims that Vista is selling “incredibly well,” it’s hard to find anyone outside of Microsoft would doesn’t consider the operating system to be a major disappointment. In fact, Vista is becoming such a problem that some are now expecting its slow adoption rate to shave some $395 million off of Microsoft’s revenues in the 2009 fiscal year.

This follows a report from a few months ago suggesting that the Windows operating system was on the verge of collapsing.

Granted, the 8 percent data is taken from only 380 North American developers surveyed, but over half of them said they were still developing for previous iterations of Windows. Meanwhile, Apple’s OS X has seen a 380 percent surge in growth as a targeted development platform.

It might be time for an encore of “Developers, developers, developers, developers.”

We’ve known that billionaire investor Carl Icahn had been trying to buy massive amounts of Yahoo stock to push ahead with his quest for a hostile takeover of the company. One speed bump in that plan was the Federal Trade Commission, which sometimes frowns upon massive stock purchases as being anti-competitive. That speed bump has been removed. The FTC approved Icahn’s purchase request today.

This puts Icahn squarely in the drivers seat if he wants to go ahead with taking over Yahoo by installing his own replacement board of directors. The question now is: When will this all go down?

Last week, Yahoo delayed its board meeting which had been set for July 3, when one of its board members resigned. The meeting should take place sometime near the end of July now, however no firm date has been set.

In related news, Microsoft chief executive Steve Ballmer and Yahoo chief executive Jerry Yang met for a round of golf last weekend. They are said to have discussed Microsoft’s new desire to buy just Yahoo’s search business. This follows the failure by both sides to get a deal done that would have merged the two companies completely.

It’s probably a good bet that Icahn’s name came up as well.

[photo: Chip East/Bloomberg]

Microsoft chief executive Steve Ballmer hasn’t had a very good month.

First, he walked away from his $45 billion deal to buy Yahoo when it became clear that the two sides would not be able to reach an amicable agreement — and that a hostile takeover might get too complicated. Then he was forced to listen as many people around the web called for his job. Then he was taken to school by billionaire investor Carl Icahn on how a hostile takeover should be executed. And then today he was apparently rejected by Facebook on a full purchase of the social network. Now he’s getting eggs thrown at him.

While he was giving a speech at a Hungarian University, one member of the audience began yelling at Ballmer for stealing Hungarian taxpayer money, and then the eggs starting flying. Ballmer quickly darted behind a desk for cover.

Perhaps worse is that everyone in the audience was either laughing or seemingly indifferent about the action as the protestor stood there for several seconds before being asked to leave (no security even rushed to stop him).

For his part, Ballmer took it in stride and laughed it off. Something tells me though that if Yahoo signs a search advertising deal with Google — and not Microsoft — he won’t be laughing.

updated with notes from this morning’s conference call; also see our latest update here

Yahoo’s troubles of late have come to a head, with Microsoft offering to lay down $44.6 billion to acquire the struggling online company. The price breaks down to $31 per share, about a 62 percent premium on the stock’s closing price yesterday of $19.18.

The offer comes as Yahoo’s stock has fallen far to its lowest price in over four years. Company chairman and former CEO Terry Semel, who rebuffed a merger offer from Microsoft a year ago, also announced his final resignation yesterday.

Microsoft made its announcement with a publicly released letter sent by Microsoft CEO Steve Ballmer to Yahoo’s board of directors, re-encapsulating the history of negotiations between the companies over the past two years and listing the advantages of combining forces.

“Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition,” Ballmer’s letter states, in reference to Google. It goes on to lay out four advantageous factors a combined company could hold against its large competitor: Scale economics, expanded R&D, operational efficiencies, and new user experiences.

The possible effects of combining the two massive companies on the rest of the Internet is somewhat harder to gauge. For starters, there would likely be a polarization of Microsoft/Yahoo and Google as the two major advertising forces, possibly pulling market share away from smaller competitors. Microsoft and Yahoo would also get a renewed chance at capturing a significant slice of the search engine market, which has been steadily captured by Google over a period of years.

Microsoft also notes in the letter that it intended to offer “significant retention packages” to Yahoo’s “engineers, key leaders, and employees across all disciplines”, indicating that it intends to keep the Sunnyvale-based Yahoo as a more or less separate business from Redmond. Yahoo, however, already recently announced the layoffs of about 1,000 employees.

The entire letter can be read here. Microsoft is also hosting a conference call at 5:30AM PST this morning to discuss the possible acquisition.

Update: Notes from the call led by Microsoft’s Ray Ozzie and Ballmer, as taken by contributing writer Saumil Mehta:

A decent bit of the call was duck and weave, as expected, but here goes:

From Kevin Johnson:
- second pillar of synergies is around increased R&D capacities such as mobile, online commerce, etc.
- third synergy is to remove duplicate cap ex for search and advertising. combine to a single ad platform and drop costs.
- fourth synergy is: operating efficiencies will increase because of this.
- Impact of 4 synergies will drive shareholder value
- Based upon the successful integration of TellMe and aQuantive, feel confident that this is possible.

Ray Ozzie joins:
–search and social media dominate the web. Social platforms have transformed how we communicate. Yahoo has played a key role and we hava lot of respect for their engineering organization.

Chris Odell joins:
50% cash and 50% equity. Looking to close in Q2 08.

Q&A:

Question from Sanford Bernstein for Ballmer: Why another deal when aQuantive is already done? How has the aQuantive acquisition fared?
Answer: consumers, advertisers, publishers are the 3 constituencies. aQuantive addressed the advertiser component
but was essentially transparent to the end consumer.

Question from UBS: Revenue synergies from software deals have been elusive.
Answer: From an advertising perspective, scale matters. Yield will go up for search as well as non-search advertising
– Will not relate operating margins to the corporate average.

Question from Sarah Fryer of Goldman Sachs: Do you expect competition on this deal?
What about the price? How was it arrived at?
Answer: Reaction from the publishers has been very positive. Claims that a more competitive #2 will be created.
– said very clearly that Google cannot take an interest in this because they have 75% of paid search business.

Question from Imran Khan from JP Morgan:
Answer: Two engineering forces that are overlapping on the same problems. Search is being very heavily stressed.
– Default would not be to make any change in any of the existing minority relationships.

Question from Bear Sterns: What about risk of integration? What about just expanding r and d internally?
Answer: Market continues to grow and the leader continues to consolidate position. This is the right time for
us to consolidate for a strong #2.
– Employees in both companies share a common passion.
[Missed part of this but was mostly about integration issues]
– Yahoo brand is a great brand. Will have a joint leadership team and a clear set of principles.
– Specific decisions on the integration are not yet clear.
– From Steve B.: Windows will become more “live”. Both companies need to get together to figure out how.

Update II: Saumil expands on the logic behind the deal here.

Microsoft chief executive Steve Ballmer just said at the Web 2.0 conference here in San Francisco that the software giant will acquire 20 companies a year for the next five years, ranging from $50 million to $1 billion.

This steals from the playbook of News Corp, the media company that generated excitement among Internet companies after it acquired MySpace and others. There’s a tactic here: By declaring you are hungry, you get entrepreneurs coming to you to show you their wares — letting you get a glimpse of emerging technology even if you’re not going to buy it.

Google and to a lesser extent, Yahoo, have also acquired dozens of companies over the past few years, with Google much more acquisitive recently. Google has acquired at least 10 companies over the last year (there may be more than we’re unaware of), compared to Microsoft’s four. Yahoo has also acquired four. See list here.
With Google’s momentum lately, the fear and loathing that startups once had of Microsoft might be ebbing. Microsoft became famous during its hegemonic rule of the 1990s for engaging in negotiations with a start-up, and then pulling back at the last minute and launching an internal competitor. Now, with less time on its hands to stay in front of eager, nimble Web competitors like Google, and needing more goodwill from Internet developers for its latest initiatives online, Microsoft may lose some of its ruthless edge — or at least, be perceived to be losing it.

[Mark Coker contributed to this report.]

Apple’s Steve Jobs ridiculed the Microsoft’s Zune, saying by the time you finish fiddling with one of its main features, “the girl’s got up and left.”

Microsoft chief executive Steve Ballmer now laughs at the iPhone (click image above for video), saying it is “the most expensive phone in the world” — even after being fully subsidized (with the Cingular plan) — and that it doesn’t appeal to business customers because it doesn’t have a keyboard. How vulnerable the iPhone looks, now that the hype dies down — even without Ballmer chiming in.

Before the Google-YouTube merger was announced, it didn’t sound ludicrous for Yahoo’s Terry Semel or Microsoft’s Steve Ballmer to speak boldly of competing against Google.

But Google has become so big, with advertisers willing to pay such a premium to place ads on the search engine, that a virtuous “network effect” has finally pushed Google out of their reach. EBay did it with auctions. YouTube enjoys the same effect — people flock to post videos there because they know it has the most users, and they want their videos to be seen by the most people. The biggest player wins. With the “two kings” (GooTube) together, there’s no stopping it. The concessions from Google’s competitors are eye-opening.

Here’s Microsoft chief executive Steve Ballmer speaking to BusinessWeek, admitting that that it is almost game-over:

The truth is what Google is doing now is transferring the wealth out of the hands of rights holders into Google. So media companies around the world are all threatened by Google. Why? Because basically Google is telling you how much of your ad revenue you get to keep. They better get some competition. Us. Yahoo!. Somebody better break through or you can short all media stocks right now.

As long as there are two, you can hold onto media stocks. Google understands that. And that’s one reason why they’re willing to lose money up front. Just look at some of these deals. That MySpace deal (where Google provides the ad engine for MySpace). We bid a lot of money on that MySpace deal. And we got outbid. We wanted to win that MySpace deal. At some point, we said we can’t do this. Now Google can afford to spend more than us and Yahoo because they have more people in their ad system, so they’re getting better yield, effectively.

There are fierce competitors on the content side, the folks who compete with YouTube for video hosting — such as News Corp., which owns MySpace. MySpace users can load videos at YouTube and link to them — something that MySpace apparently considered prohibiting. MySpace makes a ton of money from Google ads, and so News Corp. looks like it wants to work out a deal — but it could team up with Viacom and GE’s NBC and demand up to billions of dollars in copyright penalties (see WSJ).

The sabre-rattling Dick Parsons, chief executive of Time Warner (which own AOL), said his group would pursue its copyright complaints against the video sharing site YouTube.com But he too complains about Google’s size: “..Google can do that better than anyone and I didn’t have Google dollars,” he said.

(Keep in mind that Justin Uberti, AOL’s top AIM Developer, was recently poached by Google, which adds to the wounds.)

In other notes about Google’s reach:

–Essayist Nick Carr is known for his sensationalism, but he suggests a case for Justice Department intervention on GooTube on antitrust grounds. (Sen. Stevens from Alaska will agree with Carr about the need for action, now that Google owns the “tube.”) Chad Hurley, Carr notes, argues in a recent interview that YouTube enjoys a “natural network effect” that should allow its share to continue to rise strongly.

–Statistics, and damned lies: The data about Google’s market share is unreliable. Google has a 43 percent share of the video market, after acquiring YouTube, Carr says, citing Hitwise. However, Comscore, which says it considers more sources and has more reliable methodology, has got GooTube with only 10 percent market share. Hitwise is now saying that GooTube has almost 60 percent! Yeesh.

–And what does it mean for Limelight, the content delivery network (CDN) that distributed a lot of YouTube video around the world? It just raised $130 million from Goldman Sachs Capital Partners, in part because it was showing so much growth. Limelight had YouTube as a customer, which clearly was helping drive some of that growth. It was placing large numbers of servers around the world to carry the video traffic. Google has its own network so won’t need Limelight (though we’ll have more next week about why this may not be a real problem for Limelight long-term.)

Ballmer and me (Matt)
Today Microsoft chief executive Steve Ballmer invited me (Matt) for a twenty-minute drive in his car to the Microsoft campus in Mountain View.

I decided I could hang with Steve (Eric was busy with Google’s shareholders meeting). So I hopped into his Escalade, whipped out the ol’ audio recorder, and asked him questions as someone else drove and he knocked back Planters peanuts (you will hear his loud crunching), sipped at a Starbucks’ iced tea and played with its accompanying green straw.

Here is the audio file.

His comments on Google and Yahoo are revealing. The audio clip begins after we start talking about some Google products, and you will see that he rips into Google’s Desktop, calling it a “random hodgepodge of a bunch of incompatible things….I think it’s more embarrassing than anything else.”

Later in the clip, he talks about all the areas of current and possible deeper cooperation with Yahoo. He talks warmly of Terry and Jerry.

Here are links to the Mercury News stories about Ballmer’s visit:
–Coverage of his comments at the Churchill Club/Commonwealth Club (including praise of Facebook)
–An edited text transcript of the Q&A I had with Ballmer in the car.
–Related Merc story about how Microsoft is trying to shake up the PC gaming market. It is by Dean Takahashi who knows his stuff. He’s authored a book on gaming, released just this week, called Xbox 360 Uncloaked.