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May 22, 2008

Microsoft Live Search Pays You to Shop

If you can't win the game, change the rules. This isn't about Hillary Clinton, though; it's about Microsoft. Changing the nature of a business is called disruption and it's often a good thing for consumers but never good for incumbents. Google changed the rules of the advertising business to its enormous (and well-deserved) advantage; Microsoft is making a good bid to change the rules of the search business.

The idea is as simple as most good ideas. If you find a product through Microsoft Live Search (as opposed to, say Google or Yahoo), you may get a cash back rebate on that product. There's an icon to tell you which products rebates are offered on and you know online how much rebate you'll get before deciding to purchase. You wouldn't use a credit card that doesn't give you frequent flier miles or cash rebates. Why use a search service that doesn't?

The potential for Microsoft is huge. From the Microsoft press release: "According to eMarketer Inc., U.S. online retail is projected to grow to $335 billion by 2012, and today 68 percent of all those retail transactions begin at a search engine. This translates to 3.7 billion commerce-related queries a month." What Microsoft doesn't say but eWeek does in their coverage of the story is that Google has a 60% share of the online search market compared to Microsoft's 10%. It's those pesky "little" guys that like to disrupt.

Part of the genius of this approach is it gives you a reason to have an account with Microsoft through which your shopping habits can be tracked; after all, you want your money. Microsoft says it won't share this information with third parties; it DOESN'T say that ads won't be targeted to you based on what you buy. But that's not all bad for you either.

The rebate comes from the merchant though Microsoft to you. It's not clear from the information on the Microsoft site whether Microsoft also charges the merchant a separate fee for the ad in this case; I suspect so. So why would merchants want to do this? Three reasons: their competitors are; they think this is where the shoppers'll be; they'd rather give money to their customers than to a middleman.

The MSFT PR says "The complete Live Search cashback product portfolio includes more than 10 million product offers from more than 700 merchants, including more than 13 of the top 40 U.S. retailers… Key partners participating in the Live Search cashback offering include Abe's of Maine, B&H, Backcountry.com, Barnes & Noble.com, Circuit City, Cookware.com, Crutchfield, eBags, eBay, Foot Locker, GiftBaskets.com, The Home Depot, HP, Jockey, J&R, Newegg.com, OfficeMax, Overstock.com, PetSmart, QVC, Sears, Spiegel, TigerDirect.com, Vitamin Shoppe, and Zappos.com." Not a bad start. Enough to get me to try it the next time I'm going to buy something online. Now tried with mixed results.

The incumbents' dilemma is that following this model is an invitation to lower margins as some of the advertising budget flows through to the consumers. Not following until Microsoft proves it works is dangerous because "frequent flier" programs are sticky. It would be easy for Microsoft to make rewards progressive so that there is incentive to stay where you've already built up "miles". Interesting to see how Google handles this challenge.

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