Thursday, May 22, 2008

Microsoft's Plan [C]: Cash for Consumer Search and Loyalty

Microsoft's Plan (A) was to buy Yahoo. They could not agree on a price. That is shelved--at least for now.

Microsoft's Plan (B) is to get a part of Yahoo. They seem to be in discussions and Carl Icahn may provide support if the price is right from his point of view.
Now we see Microsoft's next move--Plan[C]--give consumers cold, cash incentives to search through Microsoft Live. Moreover, it gives the advertisers an opportunity to improve the return on their advertising with charges based on cost-per-acquisition. At one level, Microsoft's approach builds off its core strengths and experience--orchestrate two complementary networks. Windows and Office succeeded because they both created two interconnected networks of application developers and consumers (users). Microsoft advertising also seeks to interconnect two complementary networks--advertisers (sellers) and consumers (buyers).

At another level, there is a big difference. Windows and Office created huge stickiness and consumers were locked-in to these platforms with successive versions of Wintel architecture roadmap. It is not the case with search. There is little lock-in unless the cash incentives are so vastly different from what they may get from other sources (why would not Google respond to match this offer with their superior algorithms and insights>). Even, Google seems to have only a small percentage of its users who search when logged with their unique ids. Can Microsoft succeed in this area based on cash-back incentives?

By wanting to play with cash rebates based on transactions, they are signaling an ambition to be a major player in the cut-throat world of ecommerce and compete more directly against Google (which has its Checkout service). . And, they may need strong partnerships with eBay and Amazon if they are to reduce the friction in commerce and still make a decent return to their hungry shareholders.

Plan[C] may well succeed if they can build off successful loyalty programs (Airline and Credit-card companies are best-in-class examples now). If Microsoft creates a new currency that can be used to buy products and go on vacations, they may succeed but again, they need to link up with those credit card companies that have already created stickiness with the consumers. Will a major relationship with Visa/MasterCard be in the works? or possible link with eBay?
What will Google's next move be?
I find these moves interesting because they illuminate the complex challenges of crafting winning strategies in a network-era.

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