From: Steve Ballmer
Sent: Saturday, May 03, 2008 5:18 PM
To: Microsoft - All Employees (QBDG)
Subject: Withdrawal of Offer to Acquire Yahoo!

This afternoon I sent the attached letter to Jerry Yang announcing that Microsoft has withdrawn its proposal to acquire Yahoo. We proposed the deal in the belief that a Microsoft-Yahoo merger would create a combined company with the resources and assets to win in the fast-growing market for advertising and online services.

Although the acquisition of Yahoo would have accelerated our ability to deliver on our strategy in advertising and online services, I remain confident that we can achieve our goals without Yahoo. We have a strategy in place to do so and we will continue to expand on this strategy and accelerate our progress.

Our strategy has three components:

-- Deliver on the basics. We will continue to improve search relevance and build out our ad platform.

-- Change the game through innovation. We will expand investments in engineering and deliver transformative tools and Web experiences.

-- Expand our global scale and focus. We will pursue partnerships and investments to realize the competitive advantages that come with scale.

At the heart of our strategy is a commitment to bring the benefits of competition, choice, and innovation to everyone who uses the Internet---from consumers to content creators to advertisers.

We are 100 percent focused on executing on this strategy and we have made good progress in a very short time. We've improved search relevance dramatically, introduced compelling new search verticals, successfully integrated aQuantive, and added nearly 100 new publishers to our ad platform. In the last couple of months we've rolled out new versions of key products including Internet Explorer and Silverlight, and introduced new technologies like Live Mesh. We now have over 430 million active users of our Windows Live services worldwide. And we continue to add new technologies with acquisitions such as YaData, which brings leading-edge behavioral targeting technology, and Caligari, which gives us advanced 3D modeling capabilities that will help us continue to improve Virtual Earth.

Ultimately, our goal is to build the industry-leading business in search, online advertising, media, and social networking.

We are absolutely committed to being the leader in each of these areas. Now is the time to do what we have always done best---be tenacious, focus on the long term, innovate, and keep working hard.

I want to thank all of you for your patience during this process and for your dedication and hard work across all of our businesses. We asked that you remain focused on our goals through these cycles, and you have done this extremely well. We are committed to making the investments that will enable us to compete and, ultimately, lead in the online services and advertising businesses. Together, I know we will succeed.

Steve