It's Search, Stupid

Last week Microsoft announced its plans to offer internet users cash rebates for using its Live Search. These drastic measures are a response to ever-decreasing market share in web search and newly available money to the tune of $50 billion dollars (about half of which Microsoft actually has in cash) due to a failed Yahoo! acquisition.

Why offer cash rebates?

Microsoft must differentiate itself in search because it hasn't had a shred of success playing by Google's rules. April's ComScore statistics show all other major search engines losing market share to Google. Google's share grew to 61.6% from 59.8% in March. Not only is this a huge jump from before, but is also likely understated. (Server statistics from the most popular content websites typically show that Google could handle as many as 90% of US search queries.) So, how does Microsoft differentiate itself? Well, what they could do is try to undermine the AdWords system that offers Google the huge cash flows that are the lifeblood of the company. The AdWords pay-per-click system isn't very intuitive to most people, especially since it is quite prone to click fraud. Even without click fraud, less-than-savvy advertisers (and they do exist) can spend hundreds, if not thousands, of dollars on clicks before realizing that it isn't yielding any sales.

What Microsoft is now proposing is an ad system that charges advertisers only on a sale converted through its Live Search. This "pay-per-action" fee will then be returned in cash to the consumer who made the purchase. (It is now a lot clearer why Microsoft purchased the Madison-based JellyFish.com for $50 million, which pretty much does the same thing.)

Sounds Great! Right?

Yes, it is a great idea for JellyFish, but not for Microsoft. Live Search is about search, not shopping. People go to Google because they want to find things. Sometimes those things are consumer goods, but often they're not. Most people will use the search engine that does the best at finding anything they want. Google has the largest index on the web and can offer decent search results on even the most obscure keyword phrases. This is reassuring to the average internet user, and the simplicity of using one search engine for all searching needs causes most people to default to Google. Microsoft may offer money and cater to a niche search user who wants to look for deals on the web, but that will turn Microsoft into a product search engine, not a search engine. In the short term many users will go to Microsoft for their online purchases, but in the long run Microsoft will cede even more search credibility to Google.

What should Microsoft do?

Instead of relying exclusively on differentiation through ads, Microsoft should concentrate on differentiation through search. In search you need to build the audience first and then worry about monetizing later. (The conventional wisdom being that the advertisers will go where the audience is, and not the other way around.) With Microsoft's current market share, there really isn't much for the company to monetize. In order to augment its audience Microsoft should consider the following:

Spruce up the search results page. Microsoft should offer search that features different media sources more prominently. Google's Universal Search is still not that universal. Most keyword searches yield ten web results. Ask.com is the only search engine that is holding ground against Google and it is likely because of its incorporation of richer media sources to its search results, which works very well for some keyword searches, and thus, for many internet users.

Tout yourself as a "natural language" search engine. Many people still use natural language to search on the internet. However, there's currently no search engine equipped to handle such queries effectively on a large scale. By acquiring a firm like Powerset, which claims to return better "semantic" search results, Microsoft can buy some credibility (and more importantly, differentiating attributes) in the realm of search. Then, by utilizing its existing indexing technology and huge marketing budget, it can bring a viable Google alternative to the marketplace.

Now, with that said, it's not that easy. Maybe Powerset is a bunch of smoke and mirrors. Perhaps Microsoft will fail to attract new users by "junking up" its search results pages. These are both real possibilities. However, one thing that the Microsoft/Yahoo saga has taught us is that Microsoft is desperate for an effective web strategy and they're willing to throw $50 billion around to get it. They have to do something. I just don't think paying people to search is the answer.