Analyst Opinion - Microsoft just launched a new service called “Live Search Cashback” and it could revolutionize search and may even cause some of us to switch search providers. You can effectively get somewhere between 2% and 30% of your money back by purchasing a product using this service.
Incentives are interesting tools and often necessary when moving against a large and dominant company in any market. In the case of Google, so many of us - and I include myself - are tied to habitually using Google to search for information and products. Even if Microsoft or someone else were to create a better tool, we probably wouldn’t use it.
But will incentives work to give Microsoft an edge? Possibly, but they could, if used broadly, allow Microsoft to compete in a more traditional fashion through pricing. In this case, this would work through discounts, not through revenue sharing. In short, I think this is more of an opening move and not yet representative of the end-game. Let’s explore what this means and where I think it is going.
Using incentives to motivate people is very common. Years ago, there were stamp based incentive programs you could use to buy things. My first new bicycle was actually purchased through the Orange Stamp program. Incentives work best when they offer something you want and certainly you would think that plain money would be high on that list. Strangely enough, physical things tend to be more powerful and the trick is to find the right compromise between the two. It is this dynamic that has Discover Card giving cash back as an incentive but Visa and MasterCard often providing things like frequent flier miles instead. The promise of a trip is actually more powerful, assuming you want to fly, than the equivalent in cash.
Cash programs can be made more powerful, if marketing highlights what that cash actually can buy. Basically, morphing the cash into the physical object in the customer’s mind can be much more effective than just cash. But the result of an incentive program is the same: To motivate someone to do something they otherwise wouldn’t even think about.
If the sole problem you are dealing with here is simply one of habit, then an incentive program can be effective in getting people to try something new. And if you are better, a percentage of these people may choose your offering going forward. If you aren’t, and this is very subjective, they will only continue if the incentive easily makes up for the shortcoming.
I’d be interested in knowing what you think of Live Search and don’t want to color your impression with my own. Check it out and leave a comment with your thoughts.
Long Term: How can there be a price war with ‘free’?
The problem with any product that is offered for free is that a competitor has a great deal of trouble competing with it – simply because they have to make money. In the case of Google, the company makes its money through related advertising revenue and that has proven to be very lucrative. While this initial offering is just targeting sales incentives, Microsoft could broaden its incentive program to include advertising revenue sharing.
But this does give Microsoft, or anyone else, an attack vector and that is to share this revenue with those using the tool. I’m not convinced there is enough to do this for everyone that is searching, but what if you aggregated this money into a fund and once it becomes material you ran it like a lottery?
Assuming Microsoft could find a way to do this legally, would you use their search engine if there was a chance you could win $1 million? How about if I told you the odds might actually better than in a real lottery and you didn’t have to put up any of your own cash? Or, what if this massive amount would be given to the Red Cross or some other acceptable charity?
To counter, Google might have to do the same thing, which would have the same effect as a price war but by raising costs rather than cutting revenues. This is the path I think we are on and whoever will figure it out the best is likely to win what may be a costly war.
Wrapping up: The big picture
Microsoft has been making the mistake that its competitors historically have made: Chasing a competitor, in this case Google, from behind. But now the company is trying to find a creative way to move Google from a battlefield of Google’s choosing to one Microsoft has chosen. To be successful, it will require Microsoft to both assure their tool is better and provides an incentive program adequate to the task of getting people to switch to Live Search. Once moved, these same people will need to stay there and resist Google’s efforts to get them back. Google is hardly going to sit still for any of this.
This is only an opening gambit that will probably play out over the next several years. We are likely to learn a lot about what incentives work best on the Internet before this is all over.
Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently he provides his services to most of the major technology and media companies.