Microsoft Shows Its Hand
by Steve Baldwin , Monday, June 2, 2008

IT'S BEEN CALLED A STUNT, a desperate move, and "little more than a gimmick." It's been derided as a failed idea already tried by Amazon's A9, iWon, and other rebate-hawking sites that never gained traction. It is, of course, Microsoft's Live Search Cash Back, the first of what promises to be a series of "disruptive" initiatives designed to derail Google's overwhelming, yet ever-growing dominance in search (now consisting of about 62% of all U.S. searches, according to comScore).

Why Cash Back Matters

Much has already been written about Live Cash Back, and I'm sure you're familiar with the way it works. Whether it's a "Google-killer" is besides the point: what matters is that it provides a no-risk channel for advertisers to sidestep the traditional "search engine as middleman" model we've lived with since the dawn of CPC. Advertisers don't really want to buy clicks, or even shoppers, from search engines. They want to attract buyers, and Cash Back is designed to do just that. This will be welcome news to marketers tired of fighting long, hard battles against non-converting clicks, pricing uncertainties associated with the auction model, and other flaws in the CPC marketplace. For many CPA has been a holy grail, but has never taken off because it imposes too much risk on the publisher. But because Microsoft has basically assumed that risk, we are likely to see the CPA model achieve scale for the first time.

What Impact on the Search Ecosystem?

I don't expect any near-term change in the search ecosystem, because the vast majority of SEM advertisers will not withdraw from Google's CPC marketplace anytime soon. Many have invested significantly in the CPC model, with in-house teams, long-term outsourcing contracts, etc. The obvious danger to Google is if a few heavy spenders start to get positive feedback from Cash Back and then begin to reallocate spend. At the very least, I would expect many e-tailers running Adwords campaigns to at least test Cash Back, because testing it costs nothing and the upside may be great. Any defections -- even a handful -- from Adwords will crimp Google's earnings and Wall Street's expectations, which could cause a disproportionate downward adjustment of Google's stock (which would cause considerable pain). The same will happen if/when Google decides to match Cash Back with a similar initiative.

Yes, But Does It Have the Lowest Prices?

Obviously, even the best-thought-out economic model will fail unless it delivers real value to its core constituents (consumers and advertisers). Right now, Cash Back's ability to serve up the lowest prices on the Web remains spotty. In tests I performed, Cash Back sometimes provided the best bargains, but items listed at Google Product Search were often cheaper. I'd expect that Cash Back's ability to provide truly low-balling results will improve once heavy discounters (such as Amazon) join the party.

It's All About the Data

Microsoft has never lacked for search targeting technologies, only for the audience against which to apply them. Users signing up for Cash Back must fill out a form listing a real name, real address, real zip code, and real phone number before he/she becomes eligible for Cash Back payments. In effect, Microsoft is rapidly assembling a tremendously valuable asset in the form of a list of bona fide Web buyers. This list will serve as the raw material against which Microsoft's impressive range of targeting technologies can be applied in the future. Having real, not proxy information on these people, including their purchase records, will give it real meat against which to apply its very interesting BT and other targeting technologies against. This could give it a very powerful leg up when it comes time to offering advertisers (esp. e-tailers) exquisitely targeted audience segments in the future.

Fireworks to Come?

I'm still waiting for Microsoft to "pull the marketing trigger" on Cash Back, in the sense that there's much more that Microsoft can do to promote/recruit for the service. The service lists some 10 million products now, but Microsoft appears to only be buying a handful of keywords on Google (what better way to achieve instant scale?). I expect that we may soon see a very interesting battle emerging if/when MSFT decides to buy thousands of product-related keywords on Google (essentially using Google's strength against it). Will Google allow it? Would it be illegal for them to prohibit it? This battle has just begun.
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Steve Baldwin is editor-in-chief at Didit, an agency for search engine marketing and auctioned media management based in New York. You can reach Steve at

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