Microsoft Live Search CashBack: Cold, Hard Truth on Cold, Hard Cash-- by Nate Winter

Microsoft has announced Live Search CashBack—an ecommerce rebate program that will drive its next big initiative in search advertising. Instead of search advertising’s traditional pay-per-click model, marketers who participate in CashBack decide on a pay-per-sale rate for each of their products sold through Microsoft’s Live search. However, instead of keeping the money itself, Microsoft will pass the full pay-per-sale amount on to the customer in the form of a rebate. Thus, products with higher rebates will make attractive options for buyers looking to save money and only Microsoft's Live Search will offer it.

While this is a revolutionary idea for search, it’s based on a tried-and-true brick-and-mortar commerce model of manufacturers and sales distributors. In some ways Microsoft's CashBack program turns Live Search into a high-volume online retailer, similar to Amazon.com, except Live Search will send interested buyers to the marketer's site to complete their transactions. And for providing this service, Microsoft profits nothing.

The prevailing speculation is that CashBack is an attempt for Microsoft to better compete with Google and Yahoo! in the search space. Statistics from ComScore Networks show that Google accounts for roughly 60% of all searches in the U.S. Yahoo’s share is about 20% and Microsoft’s is around 10%. What's more, Google gains share month to month at the expense of both Yahoo! and Microsoft. Microsoft’s ill-fated attempt to acquire Yahoo! earlier this year was its first dramatic strategy for taking on Google. CashBack appears to be plan B.

Will CashBack Succeed?

Usability
Without a doubt, Microsoft’s CashBack will attract searchers to Live Search. But in order for those searchers to become repeat purchasers, it MUST be easy. Already, the user will have to create a CashBack account and most likely an account with the online retailer—these two steps alone could be a tall order for infrequent e-shoppers or purchases that promise only a minimal rebate.

And the transaction coordination between CashBack, the e-tailer, and the buyer had better be seamless. CashBack will have to be versatile enough to successfully interface with all of the ecommerce softwares used by today's e-tailers. Otherwise there will be an army of disgruntled consumers burned by CashBack and unsure of whom to contact about a glitch. The blogosphere will make a highly visible home for a CashBack Backlash™.

Participation
The way consumers perceive CashBack will depend largely on marketer participation and how generous their rebates are. Microsoft needs multiple, big name marketers in the most popular shopping categories to make the program seem legitimate to new users. Only with the participation of name brands and high-demand products can CashBack drive prices down through competition and ultimately woo buyers.

The Business Model
In this period before CashBack launches, the profitability of the business model poses the biggest question mark. Ads through Live Search CashBack initiate transactions that save consumers money and yield more sales for marketers. And Microsoft will turn no profit on the sales. Even if marketers must pay to participate in CashBack, the fees can't be much if Microsoft hopes to attract marketers en masse.

A business model in which Microsoft makes no profit doesn't sound like the Microsoft so many know and hate, which is an immediate cause for suspicion. This kind of benevolence sounds more like Google, and with good reason.

CashBack appears to be Microsoft’s answer to the vast number of Google products that are free to users. There is a key difference, though. Many of Google’s free products are non-commercial in nature, which allows Google to embed text ads within the product interfaces in an uncompromising way. CashBack, on the other hand, is a purely commercial product already based on advertising, which means there is no other way for advertising or sponsorship to monetize it without cannibalization.

It begs the question: if not on the ads, where will Microsoft make money? The most likely answer is pay-per-click search ads.

While CashBack applies only to ecommerce searches, the publicity and promotion behind the new program will increase traffic to Live search across all search categories, at least for a short time. Microsoft has to be hoping that CashBack will make Live search the default search engine for users who currently prefer Google or Yahoo. This increase in overall traffic, if steady, could drive more pay-per-click advertising in non-ecommerce search categories, which would help Microsoft offset the cost of CashBack. If the traffic increases to Live Search are only temporary or don't extend beyond ecommerce, Microsoft could be sunk.

If CashBack doesn't turn profit somehow, Microsoft might be forced to retain part of the pay-per-sale amount for itself. However, doing so could cause rebate dollar amounts to decrease, making a CashBack Backlash™ from both marketers and consumers a real possibility.

It also remains to be seen how profitable CashBack's full rebates will prove to be for marketers. Substantial rebates will requires high sales volumes to compensate for reduced profit margins. Furthermore, online retailers who also rely on brick-and-mortar locations could see their in-store sales erode as a result of sales through CashBack at prices their stores can't match.

Prediction
This is a tall order for Microsoft. Live Search CashBack has to be easy to use, offer high-demand products with solid rebates, and somehow turn a profit. Between these three crucial factors, something will go wrong and the blogosphere will bury it in bad reviews.

Frankly, the whole thing reeks of desperation. At its wit's end, Microsoft must resort to paying consumers to use its search engine. While this is a potentially powerful offer, Microsoft must follow through on it while also offering all the other features that have made Google and Yahoo! the search leaders. Perhaps that is the tallest order of all.

-- Nate Winter