Is Microsoft Cashback the Future of Search?
Last week’s search news was dominated by Microsoft’s announcement of Live Search Cashback. The idea is simple: You use search to find things to buy (68% of retail purchases start at a search engine, according to Microsoft). Folks who want to sell you things are more than willing to pay to get your attention (this is pretty much the model of all advertising). If you use Microsoft’s new Cashback service, those folks will pay you for buying their stuff, assuming of course you used Microsoft’s search as part of your buying process. The cash back items are shown in the right rail, mixed with traditional paid ads.
In essence, Microsoft has taken the affiliate model - where merchants pay channel partners for leads which turn into sales - and turned all of us into potential partners. If it sounds like a crass play to buy your search allegiance, well, it is. But Goto.com was crass too, and it turned into a multi-billion dollar market, the ultimate expression of which is Google. So before you judge it, it’s worth thinking about a bit more deeply.
There’s no doubt that with Cashback, Microsoft is attempting to disrupt the search marketplace. But there are only a few axes around which you can do that. One, you can disrupt the presentation of search. This is very hard to do, but it’s happened before, and will happen again. Secondly, you disrupt the business model of search. And third, you can disrupt how search is created (ie, the secret sauce of relevance). There are startups along every one of these axes of disruption. But with last week’s news, Microsoft is focusing on the second one (business model). Unless, that is, you read between the lines. That’s when we see the beginnings of disruption along lines one and three as well.
But to the specifics, and I’ll circle back to that idea at the end of this post.
First, Cashback is a well understood evolution of the same direct response model pioneered by Goto. Instead of paying for a click, or lead (CPC, CPL), advertisers in the Cashback program pay only when there’s an actual sale. This CPA (cost per action or acquisition) model is well trod (Google rolled out a limited version two years ago, and there are no shortage of companies playing in this space), but in this case the action is a sale, and this is the first time a major player is providing incentive directly to the person who is doing the searching.
The reaction to Microsoft’s news this week was decidedly mixed. Obviously, the easy (and accurate) criticism is to point out that Microsoft is attempting to buy its way back into the search game. But according to the Microsoft executives I spoke to last week (some of which were off the record), this is about far more than buying back search share (Microsoft’s US share is around 8-9%, Google dominates at 65-68%). Instead, Cashback is an attempt to disrupt the markets by shifting the value proposition from one of harvesting consumer intent and delivering leads to advertisers (Google’s model) to one of harvesting commercial intent and delivering sales to advertisers.
This is where Microsoft’s purchase of Farecast comes in. Lost somewhat in the analysis so far, I think Farecast is a key part of Microsoft’s strategy - it’s a disruption along the first axis of search - how search is presented. Those of you who have read Searchblog for a while may recall my initial post on that site: Rip Me Off No More. It really struck a nerve, I had more comments on that post than nearly any other in the history of my site. Turns out, people really like a search engine that promises to 1. help them find the best price and 2. does it in a trustworthy, intelligent, and timely fashion. From my coverage:
What Farecast does is shift the power of information back into the consumer’s hands, and that’s why I like it. I remember when the web was young and the first car buying sites were up and running. Dealers scrambled for that early business, and I bought two cars off the web by forcing dealers in the Bay Area to compete for my business. It really felt like the web was going to change the dynamic of who was in charge in a car buying transaction - because I could force dealers to their best price, I was always going to get the best price. It felt like this would be the model in most large transactions, like travel, loans, etc. Price would stabilize, and folks would differentiate on service, relationship, and approach.
But something funny happened on our way to internet mediated bliss: the big companies figured out how to game our demand. Dealers realized they can make more profit if they cooperate and withhold pricing information from the aggregators, and the aggregators got into bed with the supply side of the equation (if you think AutoByTel or Expedia is on your side, you’re kidding yourself). Nowhere is this more true that in how an airline prices its tickets.
I like how Farecast puts the consumer back in control of the data. The interface is very slick and the idea is quite promising.
Promising enough for Microsoft to buy the company, in fact.
OK, so where is all this going? Well, let’s start with the full suite of Microsoft’s news last week. Sure, there’s Cashback, but that’s not all. Microsoft also announced that Farecast was, well, Live (ie, now a travel search vertical on Live search). This points to a longer term strategy: create (or buy) the best in class vertical search engines, then tie them into Cashback. So far, Farecast is not integrated, but I am sure it will be. And the Farecast engine can work for a lot more verticals than just airfare. It’s just data and software, after all. And that’s the business Microsoft has been in for a long, long time.
Secondly, let’s look at the list of partners who launched in support of Cashback: “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, and Zappos.com.”
So which one jumps out at you? If you said eBay, you win. eBay is still one of Google’s largest customers, but thanks to Google’s Checkout program, it’s not a exactly happy one. eBay’s already hedging its bets in Europe with Yahoo, and it’s more thank willing to do the same with Microsoft via Cashback. Watch this space closely. If Cashback starts working for eBay, eBay will start spending less with Google. And you can be certain that Microsoft has every intention of making Cashback work for eBay. Not to mention, eBay has every reason to work with Microsoft to limit Google’s power.
So let’s circle back to the original idea. Is disrupting the business model by paying search customers when they buy something a good idea? I think it is. But it’s not going to work unless we trust the search results in the first place. That’s where Farecast comes in. In the short term, Cashback will probably goose Mircosoft’s user loyalty numbers, which should also boost its share of searches overall. But longer term, the key to winning will be the integration of Farecast-like innovations into Microsoft’s offerings. I’d look for these to come in the next year, if not sooner.
Lastly, if Microsoft really wanted to disrupt the market, it should look at turning Live search, including Farecast, into an open development platform (I see this coming from Yahoo already) - in short, disrupting the third axis of search - how search is created.
But that’s the subject of my next post. Stay tuned!
May 26th, 2008 at 3:28 pm
[...] I’ve posted some thoughts on Microsoft’s Cashback program over at Thomson’s Future of Search site. From the post: ….In essence, Microsoft has taken the affiliate model - where merchants [...]
May 28th, 2008 at 8:11 am
[...] on a sponsored series of pieces on the Future of Search. The latest post is John Battelle’s thoughts on Microsoft’s Cashback initiative. Then today a post by Mike Troiano about how Google [...]
May 28th, 2008 at 2:33 pm
[...] The Future of Search agrees and even looks at how Microsoft’s acquisition of Farecast could play a huge role. Results will crown the victor here and advertisers will determine whether quantity of clicks or quality wins out. Im betting on quality. [...]
June 17th, 2008 at 3:56 pm
So basically M$ has to pay you NOT to use Google… Is this what it’s come to?