Tellme shows the upside of Microsoft purchase

updated 3:19 p.m. ET March 5, 2008

MOUNTAIN VIEW, Calif. - Mike McCue hasn't talked to Yahoo Inc. co-founder Jerry Yang since Microsoft Corp. ambushed the Internet pioneer with an unsolicited takeover bid a month ago.

But McCue would like his old friend to know that becoming a Silicon Valley subsidiary of the world's largest software maker can work out well.

Becoming a cog in a corporate machine isn't something McCue had in mind during the eight years that he spent building Tellme, which makes the technology behind directory assistance and other voice-controlled services. It ranks as Microsoft's largest Silicon Valley acquisition so far.

(Msnbc.com is a joint venture of Microsoft and NBC Universal.)

After Tellme began making money in 2004, McCue envisioned the Mountain View-based company would remain independent so it could eventually make an initial public offering of stock.

But his feelings changed after Microsoft's chief executive, Steve Ballmer, persuaded him to fly up to Seattle to meet two days before last year's Super Bowl.

After being assured that Tellme would be able to retain its Silicon Valley office, identity and quirky culture, McCue negotiated an $800 million sale to Microsoft and agreed to stay on as general manager. It's a decision that he says he doesn't regret 10 months into the marriage.

"We are pretty much doing everything we were doing before — just a lot more of it," said McCue, 40.

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Because of the vast differences in size, the Tellme deal obviously isn't an apples-to-apples comparison to Microsoft's proposed $40 billion acquisition of Yahoo, which contends it's worth even more money despite a two-year earnings slump.

If the deal eventually gets completed as most analysts anticipate, combining Microsoft's online services with Yahoo's sprawling Internet franchise is expected to be a complicated and painful process that will probably involve significant layoffs.

In contrast, Tellme was so small that its payroll has expanded slightly since the Microsoft acquisition, to 360 employees.

But Tellme's experience as a Microsoft subsidiary so far indicates the Redmond, Wash.-based company's pledge to preserve Yahoo's brand, spirit and Silicon Valley presence may not be an empty promise.

Tellme's warehouse-like office located along some railroad tracks about six miles north of Yahoo's Sunnyvale headquarters looks pretty much like it did during a visit seven years ago. Some workers dart down the aisles on scooters and patio-style umbrellas loom over desks made out of doors bought from Home Depot.

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