Microsoft’s Sneakerphone

Microsoft’s effort to bribe/reward/cajole ecommerce search business away from Google with customer rebates is the product of dubious business economics. It’s a trap: a customer acquisition cost that becomes a habit hard to break. It’s just like premiums given by magazines to get you to subscribe. When I was at Time Inc. in the ’80s, Sports Illustrated had a big hit on its hands — or so they thought — with the Sneakerphone, free with your subscription. Time and other of the company’s magazines followed with clocks and other geegaws. In the end, though, they found that people weren’t subscribing to the magazines; they wanted the Sneakerphone and when it came time to renew, because they already had what they wanted, they canceled — and renewals are where magazines begin to see a return from their marketing to acquire subscribers. Advertisers eventually realized that they weren’t talking to readers; the magazines were the premium. The Sneakerphone turned out to be a very expensive problem. It took painful effort for Time Inc. to ween itself and its subscribers from the expectation of freebies with subscriptions.

Microsoft’s fees are a marketing cost, pure and simple. The company could pay to advertise it search or it can pay consumers to search. I’m glad to see money going into the pockets of consumers — the internet dividend strikes again. But I doubt that these economics are sustainable; this is just an effort to poke Google in the kidneys and I doubt that the giant will even notice. This is akin to Mark Cuban’s sillyass idea to pay/bribe/reward/cajole advertisers into leaving Google.

Michael Arrington has a well-done analysis of the Microsoft gambit. He concludes that it could increase Microsoft’s share of valuable commerce search:

A year ago Microsoft basically did a trial run of Live Search CashBack with Live Search Club, which lured searchers to Microsoft with offered of prizes to users for using Live Search. Microsoft went from 10.3% to 13.2% market share in a month, a nearly 30% rise. Live Search CashBack, which gives a much more straightforward payout to users, should see significantly better results.

But earlier in his post, I think he defeated that argument when he said, quite rightly:

This is a winner-take-most market: Having 9% of search doesn’t mean Microsoft has 9% of search marketing dollars. Far from it – publishers go to Google to partner on ads, which means advertisers must go there to get inventory, and a very healthy auction system pushes up prices. So not only does Microsoft (and Yahoo, and everyone else) have much fewer queries than Google, they are also generating much less revenue per query as well.

Right. So Microsoft pays heavily to raise it share but still doesn’t get critical mass. Then let’s say that Cuban gets on the board of Yahoo and convinces them to follow his plan and they lower their profit margin by paying advertisers, forcing Microsoft to do likewise. And what will they be left with? A warehouse filled with sneakerphones.

Is there a way to defeat the Google beast at search? Not this way. How about the Mahalo or Wikio method? I’m not sure about them either. They all have to try to change what is already a well-ingrained consumer habit and a critical mass of advertiser participation. Does this mean that search is Google’s forever? Well, I still don’t see anything to topple them — certainly not Microsoft’s plan. It has been tried before. Remember I barely did.

  • Sneakerphones! I remember those.

    You should write another post on the sneakerphone problems, but in this one analyze how PBS stations have trapped themselves with their own version of this.

    I don’t know about all the stations, but at mine we’ve become totally dependent upon the sneakerphone buyers to support regular viewing. We’re trapped.

    What happened to Time when they dropped the gimmicks? How long did it take to recover?

  • Mel Erwin

    Come on Jeff, the sneaker phone wasn’t so bad. I still have mine, and the football phone too and the great NFL Football Follies Videocassette.

    But why pick on the poor sneaker phone? What about price discounts, free swimsuit issues and the years of magazine premiums and special offers that preceded the sneaker phone. And what about Sweepstakes: “Jeff Jarvis, you are our million dollar winner, if you hold the winning sweepstakes number”

    And, while I kind of liked that free Entertainment Weekly music CD…I really loved my first issues of the new magazine that came with it. Would I have tried the unknown EW without the incentive? I don’t know, maybe not. But I’m glad I did subscribe. Now, if I could just find my Fortune desk diary.

  • John,
    Yes, where’s my totebag phone?
    On PBS, I sense another issue: premiums affecting programming. Why else would PBS run Yanni et al except to raise money from people who want the “free” CDs, no?

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