The Street seems to have mixed feelings about this deal. Were expectations too high with people expecting boatloads of money up front, or are people misunderstanding how good this is for Yahoo?

Bartz: It’s probably a little bit of both, and I think there’s a third element too, Jon, which is I don’t think people quite understood that with regulatory and implementation, the cost savings for the company are a ways out. I think that just wasn’t something on the minds of folks who wanted a quicker flip. But at the end of the day, what we’ve got here is virtually all of our revenue at no cost, because Microsoft is bearing the cost of the technology. And that allows us to focus on other aspects of our business like growing the users, growing the audience, and growing mobile, growing display. Which, by the way, should grow search advertising.

Ballmer: I’ve gotta say, I’m surprised at the market’s reaction. If you said to a man from Mars who just arrived: Somebody gets 88% of their revenue, close to 100% of gross margin, and they’re going to get rid of R&D operating expense – it sounds like a lot of money to Yahoo and to Microsoft. So, the man from Mars would think this is a pretty good deal.

Is it 24 months before you think you’re getting that $500 million operating expense savings and $200 million capital expense savings?

Bartz: First of all we have to get through regulatory, which we hope happens in the beginning of 2010. Over the following 24 months some costs will be reduced. But we said that no more than 24 months after the deal closes, all the costs are finally off our books and Microsoft is powering the search and we’re powering the salesforce.

Ballmer: Hopefully if we do our jobs right, the bulk of that comes a lot quicker. The bulk starts in the U.S. and then fans out globally.

A question about data. Carol, in the past you’ve said a lot about the importance of search data, but also in this announcement you made a point of saying there will be limits on how much data is shared between Yahoo and Microsoft. Is Yahoo going to get as much visibility into search data as it has now, and will it be in as good a position to do display ad targeting and measure outcomes? Or are you making sacrifices to do this deal?

Bartz: No, we get the same data. It’s just that we’re not looking at Microsoft’s data and they’re not looking at our data. In fact, that was one of the strong negotiating points, to make sure we had access to the data so we can do the targeting and all that work that you do to provide great ads to customers.

Can you be more specific on that? It seems to me that Microsoft would need to see all of the data to get the benefit that it needs to continually improve search in general, and that Yahoo would want to see all of the data to figure out how to pair that with display.

Ballmer: Search data for improving the search product, which is anonymous, will absolutely – that’s our data. All the data that improves the search product, we will use to improve our collective search product. As it relates to personal information that somebody thinks they’re providing to Yahoo, that’s Yahoo’s, and they expect Yahoo to use it in certain ways. Targeting, whatever. That’s the privacy policy that Yahoo establishes with its customers. And similarly Microsoft establishes a set of privacy policies on the rest of our site, including Bing.com, with our customers.

On deals like the one Microsoft has with Facebook, how would that, if at all, be affected by this deal? How would similar deals be affected in the future? Will it be Yahoo negotiating those? Will Yahoo get any cut of those? If Yahoo negotiates a deal like that, will it get 88% as if it were an owned and operated site?

Ballmer: Microsoft has two deals with Facebook. We have a deal where we are a partner selling display ads – that is unaffected. It may be an area where we compete with Yahoo occasionally because we both like to sell people’s display ads. We’re also the search provider to Facebook. That’s a deal that we did, Yahoo’s uninvolved. Yahoo has its own set of affiliates for search, and we will be a vendor to Yahoo as they serve their affiliate partners. We will be embedded in what Yahoo goes and offers to its affiliate partners – it’s their relationship with their affiliates, and then we will have a back end business deal that applies.

Bartz: Whether it’s owned and operated or affiliate, Microsoft gets 12% for powering the search. But the 12% is on the revenue Yahoo gets. So let’s say we give the affiliate 30 points and Yahoo only gets 70. Microsoft gets 12% of the 70.

What’s the plan on execution to make sure that this works? Does planning start in any form before regulatory approval? Who’s taking the lead on that relationship? How will the teams combine?

Ballmer: All of the things that are permitted under regulatory regime – which includes planning – we will do all the things that are permissible. I’m not a lawyer, Carol’s not a lawyer, we’ll probably just say that.

Bartz: It’s really just planning. As far as who takes the lead, it’s a partnership. So, just as there was a deal team there will be an implementation team involved with both companies to move the marketplaces, not only the algorithm part of the search, but the paid or sponsored part of the search.

Folks out there are saying Yahoo runs the risk of pulling an AOL here, if it outsources too much key technology. How do you sum up Yahoo’s growth story in light of that kind of criticism?

Bartz: First of all, there’s a huge difference between Yahoo and AOL. AOL has no flexibility over their experience. They just get delivered what Yahoo delivers – which, by the way, is different than on the Yahoo site.

So we have full flexibility over the Yahoo user experience, and we can innovate on top of that. We’re reliant on Microsoft for innovation, but also reliant on us to innovate on the customer experience. I would say the other difference is we really focused on this as a partnership, so in the selling, Microsoft’s powering the technology – I would say that AOL/Google experience is much different from that.

But back to the investment: The fact of the matter is that with half a billion people coming every day to a Yahoo site around the world, this actually gives us a better chance to take the money we’re saving and get more audience. We can get more audience because of better properties, stronger entertainment properties. We have all kinds of ideas. We can focus on display advertising technology. Again, this is about freeing up good money to focus on other areas that will not only help Yahoo but help the search relationship, because more people will be there willing and able to do a search.

Ballmer: Just a couple of comments on the AOL deal. That was a three-year deal. This is a 10-year deal. Clearly quite different in character. AOL had not much of a Web business, it was mostly an Internet access business, and as it has declined in Internet access subscribers, not surprisingly, it has also declined in search volume. Yahoo has the largest Web business on the planet media-wise.

So there’s no reason to hit the bumps AOL hit. The timeframe is a different timeframe. We also have a different level of partnership, data sharing and product parity. We essentially have in our arrangement assurances that the best of Bing is available to Yahoo in this implementation. Arguably, you could say Google did not give AOL their best work.