Microsoft’s new business model for Search.
Posted by adesigar on May 21st, 2008Microsoft today released a brilliant new business model for search. After reading the views and comments of a lot of opinions I find that the business model is misunderstood by many. Here is a link to one such misunderstood article by Henry Blodget
His first reason why this wont work is
“1 million $1 clicks generate $1 million of revenue for Google, but even if Microsoft gives 50% cash back on each click, that’s only 50 cents per user per transaction. If you’re buying a $5 item, 50 cents is a nice refund, but if you’re buying, say, a $25 item, it’s chump change. “
What Microsoft is proposing is competely different. Microsoft is saying to advertisers, dont pay us for clicks, pay us when you SELL something. Microsoft will then share their revenue with the buyer similar to Cashback programs from Credit Card companies. This cashback amount isnt a percentage of click, its a percentage of the price of the item sold. If microsoft offers cashback of 3 to 5% on most of their items they could save consumers hundereds of dollars a year by switching from other search engines to Microsoft. Here is an example of Circuit city is offering 13% cashback or $11.70 on a $90 camera Samsung S860 Digital Camer. You can see an excerpt from the Microsoft press release.
Participating merchants choose to pay Microsoft a CPA fee each time a customer completes a sale through Live Search cashback. The fee is a percentage of the retail price, and when that transaction is complete, Microsoft returns that fee to the consumer in the form of a cash rebate.
Take a look at Microsoft list of stores shows hundereds of stores offering cashback offers on thousands of products and we can simply ignore the second reason which was “The program only covers “participating” retailers and “participating” products, at least initially. Finally whether or not Google or Yahoo fight back with a similar plan is pure speculation. Lets see how they respond. If they do follow Microsoft’s lead and offer cash back it will cut into profits and it will take them some time to come up with the platform to offer this service.
This is a leap (not just a step) in the right direction for Microsoft in the search business.
Full Disclosure : I own shares of Microsoft.
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