The Empire Strikes Back: Our Analysis Of Microsoft Live Search Cashback

May 22nd, 2008 at 2:47 am

Very interesting move by MS on this and there are some interesting figures on the commerce search revenue mentioned here. I’ve said before about the problem facing MS and Y! is that users are so mentally bought into Google = search, that even giving them money to use an alternative might not work.

I do agree with your comment through, when the chips are down, sometimes the crazy ideas are the ones which get through because they are radically different and I’m pleased to see MS trying new ideas like this. I’m sure that this move will have a positive impact on usages (i think that we’ll see a 50% increase in the coming months) but I don’t think that this alone will change the game. They’ll need to keep on with this innovation over a long period to cause any real pain to the G.

May 22nd, 2008 at 2:52 am

Coming from a mobile perspective, every money back promotion until now (YoSpace - Video Dowloading on 3 and O2 where users got 1p back if their video was bought) has been a success.

Its a fast way to get users interested and the promise of cash back works well with the “coupon addict”.

But what you find is that use tails off when users realise how little they actually earn and the service is used by a few core fans or wannabe money makers.

With search, the fact of the matter is that results are vital. If you want information FAST do you go to the best search engine with the best results or to a search that might give you a few cents and it will then take you a bit longer to find and buy.

On top of that someone will have to pay for this and it will probably be the advertisers.

Personally, I like it. Can I be bothered to sign-up? No.
If I was half my age now - would I switch for $? Probably.

May 22nd, 2008 at 3:00 am

This is eerily familiar.

Does anyone remember the A9 search engine? Search using A9 and save on Amazon, at least that was the idea.

Nonetheless, I will advertise my flat rate data recovery business with cash back if I can do highly localized targeting that I get from Google right now.

May 22nd, 2008 at 3:03 am

Going with a zero revenue approach is going hurt them at some point in the future when they feel the need to actually make…..money. At that point, the fickle users who went to Microsoft will probably go back to Google.

Is this really that different than what they did when they bundled browsers? They gave something away and took a loss to try and destroy a competitor. Granted, they aren’t really leveraging the OS to do this, but it smacks as a desperate move.

May 22nd, 2008 at 3:19 am

Michael - Your post should be titled the End of Empire…..we will look back one day on this as the start of what will admittedly be a long decline in MS market and industry power. The reality is that Search is game over - until some company we have not yet heard of emerges.

MS dominance on the desktop is under threat. OS is a mess. XBox has less strategic value than we all imagined. The initiatives that are working are not likely to move the dial.

Hail Google. To the victor goes the spoils, at least for now.

May 22nd, 2008 at 3:27 am

Thank you.

After hearing the news yesterday it was confusing to me.

Your analysis is simple , clean , and thoughtful.

May 22nd, 2008 at 3:33 am

I dont care how much they % cashback they pay out… the bottom line is in the search results…. how effective are they? Can they be easily gamed by webmasters and SEO experts? Are they biased to sites with whom MS has tie ups? Since MS already has a bad name in the market as far as their credibility and tactics goes … i suppose they would play evil again in spitting out results ahead of others based on some internal contract. This is just a last (probably not last actually) ditch effort to gain a small tiny blip in traffic. You cna mark my words that this will not succeed. I’ve yet to try it out - but if the main pitch is “cashback” and not “good search results” - well, you already know whats going to happen in the long run as spamdexing takes over and the effect of the wild west takes over. Plus… if they’re builing a cashback product search engine - why not just restrict the offering to a ecommerce search engine rather than trying to call it a full bown search engine and stupidly take on Google. I don’t seem to see the logic with the guys coming up with strategy at MS. Oh yah. there IS a lot they can do if they approach the Google challenge intelligently. There REALLY ARE multiple ways they can muscle and topple them over. But I wont tell. I seem to like Google. And its a hard habbit to break (and so, another reason i wont switch).

May 22nd, 2008 at 3:40 am

@michael_arrington “… It’s a bold move that goes for Google’s throat, and it will likely have a material impact on their search market share. …”

My initial reaction is the same: hahah, hehe, ha ha!

Look, here’s what will happen:

1. Initially cheapskates will go there to try it out

2. You’ll have to give a bunch of personal information to MS which will lower the conversion rate to that service. When people wade through the registration forms they will ask themselves why, when they could have easily found and bought whatever it is they wanted on Google already.

3. Importantly, after the first pay period, people will realize how small the cash-back will be and just dont bother.

4. More importantly, after searching at MS, and realizing how insufficient the result set will be, they’ll go back to google after a few tries.

5. The same people for get and forward chain mails are the people who are going to be attracted to this service (a low-information, low IQ, middle aged demographic)

Its a bold move into stupidity. Traffic will show a bump, then settle back down with maybe a 1% increase. Just like what happens when TechCrunch links to your site

May 22nd, 2008 at 4:03 am

I just read another article about ‘Live Search Cashback’ - their understanding was that Microsoft would wait 60 days before actually disbursing the rebate as a means of avoiding the possibility of buyers getting both a MS rebate - as well as a full refund by returning the product. Yet Mr Arrington says received his test rebate immediately. Not sure who needs to clean their contacts - but. we’ll see how the scheme pans out. Personally, I have a lot of confidence that MS will find a way to take an attractive idea and implement it poorly.

May 22nd, 2008 at 4:16 am

it’s pretty simple… they stole the fatwallet concept

will it work? sure deal hunters will come over bigtime - but will they switch for Web search which is what Microsoft wants? nope. they will just consider it another product.

what it could do is kill the other cashback systems out there.

if Microsoft wants to increase their revenue this way, that will work great - if they want to grow their search market share, that won’t happen.

May 22nd, 2008 at 4:32 am

“and things are guaranteed to get a lot uglier in the near future.”

just dying to see how google will strike back.

May 22nd, 2008 at 4:46 am

They are also trying to get search advertisers to pay CRAZY cost/click by setting the default bids at nearly $30.

http://adwordseditor.blogspot......n-new.html

The terms were NOT highly competitive.

Also, by getting people to log in when they surf on MSN…they can get better demographic info. With the “pay-out” tied to actually buying a product, MSN will be able to possible charge more to serve your ads to people who have spent the most money.

May 22nd, 2008 at 5:16 am

Yeah, ok. And then what? You’re paying customers to use your service. Great brand. You have to pay people to use it. The loyalty from that is the same as paying people to be your friends. Oh wait, that’s what Bill already does.

And you’re going to build on that with…paying them more? Paying more of them?

You don’t build a sustainable business paying people to use your service. Besides, search on MS is a bit lackluster. So, then paying me a couple of pennies…is worthless when it doesn’t deliver the product I want: meaningful search results.

If this is the best MS can do, they need to go back to buying up their own stock. Buying friendship, buying value, not creating it.

May 22nd, 2008 at 5:29 am

The best you can do for “the future doesn’t look bright” is that one gartner study that was full of mistakes. Laaaaammme. You do that office is selling better than it ever has right?

May 22nd, 2008 at 5:45 am

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

http://jenslapinski.wordpress......ogle-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.

May 22nd, 2008 at 6:23 am

Pasan, not questioning his credibility or suggesting at all that he’s made that figure up. I’m sure it’s a solid figure that someone has put out there. I just want to know the source cause, well, I like to know sources of stats

May 22nd, 2008 at 6:30 am

Danny,

I know that you are not questioning his credibility. I do because I see enough of these “facts” pop up in posts to wonder.

I seriously doubt that you will get a satisfactory answer to your question. It fits a pattern of pump and dump, exaggeration and carelessness. We like the site but wish Michael was more credible.

May 22nd, 2008 at 6:45 am

It was a very good analysis. I really enjoyed it. It’s different from what Techcrunch normally do: facebook is doing this or that, this is a new start-up or that is new…….and so on

This one is something different.

May 22nd, 2008 at 7:03 am

Microsoft has one huge problem — nobody will know about Microsoft Live Search Cashback. This article is the first I’ve heard of it ever (thanks to Scoble) and I’ve been an MS-centric dev and Hotmail user since before MS owned it. I see MSN every day, with the search bar right there and all of their adverts, but I’ve never heard of this cashback service. MS sucks at advertising themselves. They also never send a clear message to the consumer; it’s always so generic that nobody knows what they are talking about. Remember “Where do you want to go today?” — nobody knew what that meant for the products, it was advertising the company but it was the tagline for every product. Maybe they need to buy up the Apple marketing team.

May 22nd, 2008 at 7:12 am

Thanks Michael for finally putting together some logical analysis on the subject. The degree to which so many so called ‘experts’ have got this wrong is unbeleivable. I’m 100% in agreement that this is Microsoft going for Google’s throat (83. on the earlier article) and that it will hurt.

The only thing you have left out here is data. Having a profile attached to everything you buy is killer. Your purchase history is more valuable than anything else a company could get from you. If Microsoft knows you bought Lost series 1 and 2 they can target you with Lost series 3, if they know you bought annual home insurance on 14th May 2007 they can get those home insurance ads in your face around the start of May 2008.

This is better than anything you can pull from a social network (personal profiles is what their value has been based on) and way better than the farce that is the current behavoiural targetting industry (far too subjective, far too reliant on people as one of say 14 profile types).

The big issue as I see it is whether advertisers will let Microsoft do this long term. The more advertisers get onto the system, the less value it has for them and the more they are likely to be paying double marketing costs. The majority will start paying once for attracting the customer elsewhere and again for giving them their commission through Microsoft. My guess is yes as the majority of advertisers have very little idea of what is actually going on in the online world.

Either way, this devalues all online advertising and anyone relying on cpm or cpc had better watch out.

May 22nd, 2008 at 7:20 am

Michael:

Thanks for this thoughtful analysis. This kind of insight is exactly why I and so many others read TC religiously. Keep up the great work!

Here’s one question: how does MS determine the percentage per item to be returned via Cashback? It seems to vary widely. Apologies if this has already been covered.

May 22nd, 2008 at 7:26 am

Cashback is an interesting feature, but people will soon find out that it does not work… I tried it last night for few hours, but could not find any real good deals, e.g.,

- Wii, $373 on cashback, $300 on eBay
- Wii Fit, $85 on cashback from CC, but out of stock in every store

I worked for a Search startup in Web 1.0. In Search, content and context are key factors… The biggest problem of MS Search is content. MS only has about 1/10 of what Google has. Also they are indexing much slower than Google on new content.. IMO, to compete with Google, MS will have to find some real solutions other than Cashback.

May 22nd, 2008 at 7:44 am

Excellent analysis. In the UK, search accounts for about 60% of online revenues (source is the IAB Danny!) and we assume that Google accounts for about 90% of that (it claims 82% share of searches based on last figures we saw). Sharing cash with users is going to be a very big theme in the chase for scale… and CPA is a model that the successful ad-funded businesses will have to make work. Great move by MS: bold, innovative, goes right after Google’s money-maker - and it just might work.

May 22nd, 2008 at 7:49 am

43. Mike - Each company sets their own cashback, dependant on profit and what they think is viable. For any of the advertisers, search for their affiliate scheme and you will be able to see what they normally pay affiliates. Most of the ones I found are giving 100% or close back to the user meaning microsoft is taking nothing or very little from this. That’s why its a complete Google killing policy.

May 22nd, 2008 at 7:59 am

I signed up with a cashback party (quidco.com) last year and have been very happy purchasing via them as they gurantee 100% of the referal fee. Their business model is a fixed annual administration fee which I find very transparent.

I still use the best search engine (Google atm) to find the product and then use the independent cashaback party to purchase the item.

What MS has announced will not change my habbit.

May 22nd, 2008 at 8:13 am

@Frank Church, and Microsoft even presents Cashback in the form of comparison shopping. Search for a product on Live, and you’ll see a self-sponsored ad link (”Save on ___”) that ultimately opens a new result page on its price comparison engine. This level of indirection kills the effectiveness of this idea, as CPC ads retain a huge premium merely by being shown right on the SERP; there’s no incentive for the big guys to hold back on CPC campaigns.

In fact, behind the smoke and mirrors of excellent marketing, Microsoft may not be losing anything at all unless they’re dipping into their own pockets. Whatever CPA they’re passing back to the consumer never existed on their competitor’s equivalent site: Google Product Search (free to list, no CPA). As long as Microsoft retains this level of indirection, their presentation is no different from a Google universal search result linking to Product Search.

On the other hand, there’s a definite psychological benefit in having the discount separated out. However, that discount will likely change so that the total price reverts to the norm once the free press wears off.

May 22nd, 2008 at 8:20 am

53: “In fact, behind the smoke and mirrors of excellent marketing, Microsoft may not be losing anything at all unless they’re dipping into their own pockets.”

Oops. “Microsoft may not be *doing* anything at all…”

@DaBo, Froogle is already free and was never a revenue generator for Google. See my post 53 about SERP treatment for Live’s CPA ads. Some people have noted that Live wants CPCs to subsidize CPAs, so they’ll likely have to keep this first and second class separation of ad placement (right on SERP vs. indirect link to product search).

I’d be more worried for Pricegrabber, Shopzilla, and friends. This also prevents Google from ever monetizing Product Search.

May 22nd, 2008 at 8:41 am

Is the cashback site down, or just doesn’t work with Firefox? Going to http://search.msn.com/cashback I get
====================
Redirect Loop

Firefox has detected that the server is redirecting the request for this address in a way that will never complete.
====================

May 22nd, 2008 at 8:54 am

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.

May 22nd, 2008 at 8:59 am

Online search advertisement brings online shopper to online stores
Mobile search advertisement brings online and real world shoppers to online and real world stores. And yes, people still shop in real world stores!
Online ad spending is a fraction, less than 10% of the total ad spending. It is arguable, but winning online search != winning mobile search. So, mobile will be much > than just online search.

MS should learn from the past empires, pick your battle wisely. Don’t go marching into Moscow.

May 22nd, 2008 at 9:32 am

A truly useful shopping search would show me what I want to buy from my favorite stores — rebate or not — and no site out there does this yet, including Cashback. My wife took a look at this and scoffed that it didn’t offer her favorite online store. That’s a big problem Cashback needs to overcome.

May 22nd, 2008 at 10:03 am

How come no one noticed the parallels between this and iWon? iWon was a gigantic failure and so will this be.

May 22nd, 2008 at 10:12 am

“So $16 billion or so today, growing to $33 billion by 2010″

Wow is there any recession coming in from the cold ? any subprime and credit crisis ? $135 for oil…
I think everyone should reconsidering this market assumption.
GOOG is too dependant on advertising and the slightest accident could have serious consequences.

May 22nd, 2008 at 10:24 am

How could the search advertising market only be $16B if Google’s revenues are $20B?

May 22nd, 2008 at 10:26 am

@DaBo, I would agree with you if CPA ads were placed alongside CPC ads on the results page. However, Live does not do this. The CPA ads are located on a distinct entity which is one layer removed from the core search experience. I’ve tried this with several product queries, and I always get a link to product search. As long as this separation exists, Live Cashback/Product Search will be functionally identical to Froogle from the search user’s perspective. Since Froogle is free to merchants, they can (and will) just advertise “discounted” prices directly. CPC ads, meanwhile, will be able to retain a premium, since the user will see these immediately.

May 22nd, 2008 at 10:58 am

Correction to my above comment, I meant they’ve never done it before with web services… of course they’ve done it before in the internet game, remember Netscape? The difference is that with web services, since everything is given away to the user for free already, you need to disrupt the monetization, but the principle is the same.