Microsoft has invested heavily in Live Search and seen its search relevance and results improve but so far not its market share. The company believes its core search results are as good as what you’ll find on Google or Yahoo. But its share is flat-to-declining, depending on which of the metrics services you choose to consult (Nielsen most recently found Live Search had dipped below 10 percent). The frustrations surrounding these investments (and improvements) in search without commensurate market share growth is part of what is driving Microsoft’s quest for Yahoo or, now, at least its search business.
But Redmond is also taking a long term view. The company sees search changing over time. It sees the core technologies changing, consumer expectations growing and changing, and the economic model of search changing. On the latter two points, Microsoft is introducing a program today that it calls “Live Search Cashback.” This marries consumer incentives (hence the name: “cash back”) with a cost-per-action (CPA) model for advertisers.
In roughly October of last year, Microsoft bought Jellyfish, a comparison shopping site with a unique reverse auction business model that offers consumers deals and cash back on products and charges marketers a fee on those products actually purchased, using a CPA model, rather PPC. Here’s what the Live Search team said at the time of the acquisition: “We think the technology has some interesting potential applications as we continue to invest heavily in shopping and commerce as a key component of Live Search.” Live Search Cashback is built on the Jellyfish concept (and system) of offering consumers incentives from merchants and charging those merchants for a small piece of the transaction. While Google has experimented with CPA in AdSense this is the first time a CPA model makes its way into paid search advertising (more on the ad model below.) Microsoft says it has more than 720 merchants, building on Jellyfish, already participating in the program.
As an example of how it works, say users conduct a product search for a “Zune”:
They see advertisers with a corresponding icon that indicates they’re participating in the program:
This program only applies to paid results and the “cashback” icons should drive improved CTRs. But merchants aren’t charged on that basis — only upon a transaction.
Once users click the ad/link, they’re taken to a merchant-level page or, in this case a Zune product page:
As you click on an individual product, you’re required to sign in and then taken to the merchant’s site to purchase the product:
The cashback incentives are stored in the system and later paid to the end user by Microsoft. Payment can be through PayPal or a check sent to the user or the money directly deposited into an individual’s bank account. There’s a roughly 60-day delay between the purchase and delivery of rebates to prevent fraud.
Microsoft was widely criticized when, a couple of years ago, it floated the idea of sharing paid search ad revenues with users as a way to create incentives to use Live Search. But this is that very idea, more elegantly packaged and presented. It’s coherent in a way that the earlier idea wasn’t because it’s tied directly to products and commercial search.
What this does for participating advertisers is eliminate concerns about click fraud and, according to Microsoft, the “need for complicated analytics.”
Microsoft believes the program will attract and engage users. The company then thinks it can acclimate and, to some degree, habituate users to Live Search. Indeed, Redmond believes that “Cashback loyalists will drive more queries.”
One of the reasons that Google has been so successful is that considerable “inertia” has built up around its usage. People are comfortable and familiar with Google and the way it works with little incentive to change their behavior. Live Search Cashback may help create sufficient incentives and “escape velocity” for some to break away from their Google habit and try Live Search. We’ll have to see.
It will also be interesting to see what Google and Yahoo’s responses will be. Will they emulate or imitate aspects of the program? Like Ask with Ask 3D interface, Microsoft can be a risk-taker by introducing a CPA model because it’s not putting gobs of PPC revenue at risk in the way that Google would be if it did something similar.
While there may be some adjustment to the program, advertisers will likely appreciate it for the elimination of potential click fraud and the fact they’re only paying when an actual transaction occurs. Microsoft didn’t elaborate on next steps for Cashback but it could expand into other areas, such as travel or offline purchases.