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Summary:

Microsoft launched Live Search Cashback, a new service that allows the company to attract customers who want to get paid for their search-commerce efforts. It is a nice gimmick and no slam dunk. My breakdown of the news announcement. Continue Reading.

Yesterday, I read a post on Google’s blog about their focus on improving search quality. Today, I read a press release from Microsoft in which it said its Live Search product will be used to give “cash back” to those who use it to find and buy things. Innovation vs. buying your way into the market…in my book, that kinda speaks for itself.

Microsoft’s “Live Search cashback” site…promises to pay back a portion of the purchase price — ranging from about 2 percent to more than 30 percent — to people who use it to find designated products and buy them online from participating retailers…including the online sites of large retailers such as Barnes & Noble, Sears, Home Depot, J&R Electronics, Office Depot and others. [via]

Instead of jumping to conclusions, I decided to make a list of my thoughts on this, many of which the folks at Microsoft are not going to like.

  • We shouldn’t be surprised that Microsoft is using the lure of the cash. When it comes to beating Google in the search game, cash is the one asset it already has.
  • Microsoft Chairman Bill Gates is still running the company, despite not being the CEO. He talked about paying people to search almost three years ago.
  • eBay is using Microsoft to generate traffic. That leaves lead-generation players on a slippery slope.
  • TechCrunch notes that this program is based somewhat on Jellyfish, a company that Microsoft bought back in 2007. In other words, this isn’t a new idea, just new spin.
  • Will this work? That remains to be seen. Remember a company called iWON? Well, despite all the cash and prizes it handed out, it failed miserably. Will Microsoft’s size and online presence give it a leg up? Maybe.
  • It really doesn’t address the issue of Microsoft continuous loss of market share in search.
  • Microsoft will need to find a way to overcome resistance to register for the service.
  • Microsoft Live Search Cashback has 200 merchants, compared with the average comparison shopping engines, which each have about 10,000 merchants.
  • Microsoft is pretty serious about what amounts to little more than a gimmick. They recently bought Cashback.com, showing how committed Microsoft is to this effort.
  • What Microsoft is indicating: It will shift to a cost-per-acquisition model, instead of the more generic cost-per-click model, which I think is actually a good thing.
  • What they really need to do is to upsell merchants to other types of online advertising they offer — search, contextual, content and display. Now that could prove to be a very big opportunity

Final thought: Microsoft’s traditional strategy of “We will charge less and crush the competition” really doesn’t cut it anymore. How long do you think merchant partners are going to stick around and waste their resources if they can’t make money? This is not some PC-maker-schmuck they have in a headlock. Take a look at all the other new technologies where Microsoft hasn’t been able to dominate — this is a sad reflection on that trend.

  1. Well, don´t know about you, but personally I surf with treehoo.com the web that plants trees for most of its profit. What a simple and genious way to help our planet. Can any other webportal beat that?

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  2. Just a side note A9 – the amazon search engine also had the same or similar strategy. They gave a Pi/2 = 1.5 % disoucnt on Amazon.com for “regular” users of the website. A9 eventually stopped this As the advertising revenues did not match up. Then they gave up on the search itself.

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  3. okay.. next time when I ve decided to buy something.. i ll use live to get there.. simple.. but for regular use i ll stick with Google.. howz that?

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  4. The “search game” is about cash. So what if MS uses the lure of cash to attempt to win at this game. Business is business.

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  5. MSFT is now competing on business model, not on technology. They’ve given up on the tech side.

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  6. They might have been talking about this for a while but it is such a different business model for Microsoft, just tracking all of these computer purchases, checking to make sure the merchandise hasn’t been returned, sending out rebate checks, etc. I hope they have a good ecommerce infostructure in place because they are entering quite a different world that just selling their own software.

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  7. I think this is a terrible idea for all the reasons above and some I think you’ve missed.

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  8. Actually I don’t think this is a bad idea at all. Lets assume that MS is really serious about this and that the cash rebates are real. Given this assumption, lets take the worst case situation (from MS’s point of view) – I will search on Google most of the time, but when I am ready to buy, I will do a final search on MS to get the rebate.

    What does this mean? MS will get searchers who are more valuable to advertisers. So the quality of the traffic (from the point of view of the merchants) will increase.

    It is better for MS to give away all the money they make from search back to the searchers than to allow their marketshare to go to zero. In other words, this can change the game from “may the best engine win” to “an engine has to be good enough, the rest depends on the rebates and marketing”. MS obviously excels at the second kind of game.

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  9. Antoinette hits on a great point that has been missed by every outlet covering this. They have to absolutely nail the back-end portion of this promotion. If users have problems getting the rebate it could cause huge customer relations/PR problems for MSFT, not too mentioned ensuring those with a bad experience will never use Live Search again.

    This reeks of desperation.

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  10. But exactly which model will work best is anyone’s guess. Blingo.com seems to be doing OK : http://siteanalytics.compete.com/blingo.com/?metric=uv but I don’t know if they make money. It is certainly simpler than what MS is proposing.

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  11. couldn’t agree more. great post. i’m considering putting my own post together outlining some thoughts but overall my view is this: If you need to “pay” people to use your service, then the value simply is not there. If this is the best foot forward strategically, then just cede the search space (not that there is much to cede) but concentrate in re-focusing the organization into a space that you can win.

    Switching costs are low on the web. By getting people over by paying them, you better have a critical value proposition and key differentiators giving them a reason to stay and CONTINUALLY use. Otherwise, this is nothing more than affiliate search under a one-player umbrella.

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  12. couldn’t agree more. great post. i’m considering putting my own post together outlining some thoughts but overall my view is this: If you need to “pay” people to use your service, then the value simply is not there. If this is the best foot forward strategically, then just cede the search space (not that there is much to cede) but concentrate in re-focusing the organization into a space that you can win.

    Switching costs are low on the web. By getting people over by paying them, you better have a critical value proposition and key differentiators giving them a reason to stay and CONTINUALLY use. Otherwise, this is nothing more than affiliate search under a one-player umbrella.

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  13. [...] But there is one thing I vaguely remember reading back a few weeks ago.  Microsoft blasted current search advertising relevance, saying that the system was incredibly inefficient.  Ad buyers are paying for ad space by the CPM or click-through, but Microsoft’s stance is that advertisers should be paying by the conversion.  I happen to agree with them with this (and so does Om Malik). [...]

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  14. [...] -As I discussed with Om this afternoon, the whole idea sounds more like a gimmick than anything else. People don’t want a gimmick, they want an incredible search engine which returns answers to their questions. [...]

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  15. This is such an intellectually lazy analysis, I’m embarrassed for you. It’s like you have anti-MSFT mad libs.

    The business model probably won’t work, but add something cogent on that front. Lazily phoning in some snarky shit about cash being MSFT’s last asset, shifting the argument to declining search volumes (just like every other non-GOOG provider), and then claiming they can’t compete technically–it just feels like you don’t have anything interesting to say, just a continuing lame echo.

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  16. The key is the advertisers, the guys who actually pay Google money, probably like pay-per-action over pay-per-click. You and I the average Joe like Google because they search better but we don’t pay them (nor do we like to click on their ads). So M$ is achieving the goal here by disrupting Google’s business.

    What M$ does is actually giving Google a dose of their own medicine. Google has been trying to hurt M$ business w/ these low cost & low quality web apps like Google Docs, and gets a little traction. So M$ says “Fine, you hit us, we’ll hit you”, and throws out this pay-per-action as response. It’s a good move. Let’s see who hurts the other more. It’s exciting to watch.

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  17. What do you think Google does? Google also pays FireFox, Adobe, Realnetwork, Dell etc money for installing Google Toolbar with download of their products and Dell computers. They are also buys customers. Their service is good but yahoo and live search are no less. Google has mind share and market share but they pay to maintain as well. Its all business, google is no charity.

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  18. This suggests to me that MS have forgotten the lesson they learned when fighting Netscape. They bundled IE with Windows – but people still downloaded Netscape to use instead, because it was better. They paid people to push IE, as in AOL’s case. Eventually, though, they managed to produce an adequate browser – certainly not a great browser, but at least good enough that a lot of people couldn’t be bothered putting in the extra effort to replace it any more. (Then, of course, having “cut off Netscape’s air supply”, they sat back and ignored the browser until they were overtaken by Firefox and Safari, bringing back competition…)

    Now, with Live Search, they’ve tried ‘bundling’ it as the default search engine for IE – but everyone I know still replaces it with Google early on, because MS’s current offering gives lousy search results. Now they’re trying paying to give it away. The big question is, will they actually get as far as step 3, finally producing a search engine good enough not to merit deletion? I suspect Google will prove a much tougher challenge for them than Netscape did – and of course, unlike writing a browser, keeping a search engine on top of the latest spammer tricks is a constantly, rapidly moving target.

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  19. Om, do you have any credit cards that give you cash back, free gas, mileages or rewards?

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  20. All empires eventually end. The reasons are not really complex. Inevitably size, complexity, territorial reach, and stratification, become insurmountable obstacles to their success.

    We will, one day, look back at this as the beginning of the end of Microsoft. Yes, it will never disappear completely, but they are now on a long slippery decline that over the next decade will result in a significant decline in their influence in the industry and with consumers.

    Yes, the XBox business is finally profitable, but the business has less strategic value than was once imagined. The desktop applications business is strong, but we can all see that the required shift to a asp model (driven by Google and linux and open source) will decrease operating margins without a corresponding increase in volume. The OS business is a mess. Search is game over.

    Yes there are some good things happening at MS, (their CRM products for instance) but they do not offer the opportunity to create dominant positions of the past and as such their influence is now on the wane.

    Google has won. All hail the king……

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  21. [...] (CPC) to cost-per-action (CPA) and gives a lot of the revenue back to users. Most are negative. Some excessively so. After hearing Bill Gates give the pitch and trying the service myself to make [...]

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  22. Microsoft doesn’t have enough cash to out-spend Google. However, it DOES have enough to outspend Yahoo!, which is only just ahead of it in paid search ads.

    This is a shot aimed squarely at Jerry Yang, and sends a simple message: “Work with us, or we will use the money we would have paid your shareholders to bury you.”

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  23. You can’t find Cashback on Microsoft Live. In order to find it, you need to search for it on Google:

    http://jenslapinski.wordpress.com/2008/05/22/live-cant-find-cashback-but-google-does/

    I guess that as long as the search result quality on Live is at that level, Google won’t have to worry too much.

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  24. It does smell of desperation, but maybe it’s a slick attempt to push into CPA ads while getting consumer attention for the effort.

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  25. I personally dislike MS for a longtime now. But for some reason I don’t really think that this new business model is really worth that much criticism. They are just creating a new shopping portal (sort of). This has probably nothing to do with search. When you goto “search.live.com” and look for say “sony camcorder”, it doesn’t take you to “cashback.com”. Of course they might eventually drive you to that site in future.
    But I think they are narrowing down on “product searches” rather than “general search”. It’s just such a waste of their resources, instead they could try to build a better generic search.

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  26. Actually after I posted that comment – I realized that “Product search” is all that matters in terms of dollars… because the revenue comes from the advertisers of the products. So in fact this could be a brilliant move on part of MS to gain market share by hook-or-crook. Now I understand what “Om” meant when he said “buying their way into search than innovation”. Hmmm….

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  27. This is exactly why it is a bad idea for Microsoft to buy Yahoo or any portions of it. They seem to think that just throwing money around will generate more of it. But in the end they only manage to create a less than mediocre service or product. With Google and Apple burning on both ends of Microsoft’s candle, their days are really numbered.

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  28. [...] Microsoft is planning on offering money just to use their search. Sounds like the 1990’s all over again with the folks from Redmond [...]

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  29. Microsoft would be better off acquiring traffic directly on the ‘buy the Internet’ theme of Kevin Ham, rather than trying to buy consumption itself.

    A good place for Microsoft to start would be with the acquisition of Seattle-based Marchex, which operates thousands of subject-specific and location-specific portals that sport a mix of imported content and relevant ads.

    The two companies are located near each other and have compatible corporate cultures.

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  30. More thoughtfull and unbiased comments from Om compared to what Mike is trying to push on techcrunch.

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  31. [...] commentary was around Microsoft Live Search Cashback. Now that the story is out, and people have had time to digest it and a chance to play with it a bit, some are finding it pretty compelling.  Rich Tehrani gave a [...]

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  32. MS will try every possible thing it can think of.

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  33. “We will charge less and crush the competition” – Microsoft

    We will charge nothing and crush the competition – Google

    Gmail’s huge storage space, free analytics, Jotspot, Writley, NumSum
    Microsoft seems better to me

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  34. live.com is actually a decent search engine. In my experience it actually returns better results than Google when searching archives of technical email reflectors.

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  35. [...] GigaOm Analysis [...]

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  36. [...] The world was abuzz a couple weeks ago when Microsoft announced its new cashback search engine. Less reported was that Microsoft quietly purchased the domain name [...]

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  37. To me this is not a way of providing good content, but a way of scrambling for more profits from lack of ingenuity. Live search is one of the most cluttered web searches on the web right now and I believe it will continue to decline in popularity to others if Microsoft cannot devise a more “content rich approach” to its search engine. Of course Microsoft will still make money off of this endeavor but will at the same time alienate many of its current users. There is a difference between looking like a sweatshop and looking like a mom and pop shop.

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  38. This is such a lame and lazy analysis. It is painting a picture that using money to grow one’s bussiness is somehow evil.

    “Live Search Cashback” is not same as “Google Search” but more like “Google Product Search”(or “Google Shopping”). Having said that it is eay to see the innovative cost-per-acquisition bussiness model in this vertical search segment, which should have been the highlight of the analysis.

    And don’t forget that Google also pays aquire search queries. Searchbox on FireFox, Safari etc. help peddle use of Google’s search engine.

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  39. Is Microsoft attempting to compete with Ebates? Who owns Ebates?

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  40. [...] Of Life: Microsoft Confirms Windows 7 for 2010 (17 screenshots) Hot new updates to SkyDrive! The True Fiction of Microsoft Live Search GameStop Gives Up On Zune – Top Stories [...]

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  41. Om, first off, I’m a big fan …

    Most of the time you’re spot on, but I need to take issue with a point in this post. You write, “Remember a company called iWON? Well, despite all the cash and prizes it handed out, it failed miserably.”

    That is simply not true.

    Actually, while the rest of the first generation of dotcom companies were going bust, iWon was profitable, took on $240M in venture funding, bought Excite in the fire sale, created and/or rolled up a couple other search-related companies, and then sold for just under $500M to Ask.com … which then sold to Diller for $1.2 billion.

    I don’t think paid search is right for Microsoft, btw. It is about innovation, not buying market share.

    ~G~

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  42. [...] the web has a certain Moby Dick like quality. Me-too products, muddled branding strategy and constantly playing catchup with competitors has reduced the king of software to a punch line. The more they try, the further they get. In the [...]

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  43. [...] has tried many tricks, including giving people cash-back rewards, to grab a bigger market share in the search business. The results don’t match the efforts. [...]

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