Posts about microsoft

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.

Fightin’ words from Google

At Google’s blog today, David Drummond, the company’s chief legal officer and senior VP for development, comes out with phasers set to kill against the Microsoft bid for Yahoo. A week ago in Europe, I ended up at a small dinner and a few other events with Drummond. He’s a serious guy with a stoney glare. I’ll bet he could stare down Steve Ballmer in a contest.

Implicit in Drummond’s and Google’s argument is that Microsoft is a closed company in the open internet. He contends that Google is the better agent of that openness. It sounds rather like a presidential debate: Who is the agent of change? Says Drummond:

So Microsoft’s hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It’s about preserving the underlying principles of the Internet: openness and innovation.

Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies — and then leverage its dominance into new, adjacent markets.

Could the acquisition of Yahoo! allow Microsoft — despite its legacy of serious legal and regulatory offenses — to extend unfair practices from browsers and operating systems to the Internet?

One should never underestimate the power of Microsoft. Nonetheless, I think the internet’s openness is precisely what has kept Microsoft from monopolizing it, as some feared. I’d say that the precedent of AOL taking over and then slowly killing Netscape is relevant here: I’ll bet that Microsoft is just as likely to destroy as to exploit what it gets from Yahoo. That is often the history of these takeovers, when a company tries to buy the strategy it doesn’t have: AOL and Netscape, Time Warner and AOL, Yahoo and, and on and on.

And if I were Google, I’d be a bit careful trying to call someone else too big, since some are trying to paint Google as the new overblown boogeyman. In Europe, newspapers are trying to stop Google’s acquisition of Doubleclick for similar reasons (though Reuters says EU approval is likely). Personally, I don’t think regulation is needed in either deal. But Google does:

In addition, Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ email, IM, and web-based services? Policymakers around the world need to ask these questions — and consumers deserve satisfying answers.

This hostile bid was announced on Friday, so there is plenty of time for these questions to be thoroughly addressed. We take Internet openness, choice and innovation seriously. They are the core of our culture. We believe that the interests of Internet users come first — and should come first — as the merits of this proposed acquisition are examined and alternatives explored.

It’s hard to believe that Google is actually scared of Microhoo but is merely using PR and regulation to try to throw some marbles on the ground in front of them. Google does indeed understand the open internet better than either of these young dinos and that is its greatest competitive advantage. In this case, size doesn’t matter. Openness and smarts do.

Microsoft-Yahoo: The deal of the dinos

(Crossposted from Comment is Free, where there are also comments.)

Yahoo, I’ve long argued, is the last old media company, for it operates on the old-media model: It owns or controls content, markets to bring audience in, then bombards us with ads until we leave. Contrast that with Google, which comes to us with its ads and content and tools, all of which I can distribute on my blog. Yahoo, like media before it, is centralized. Google is distributed.

It’s appropriate, then, that Yahoo is being bought by what one could say is the last old technology company, Microsoft. For Microsoft still operates on a model of control: closed in an open era. They will get along well together.

This is not a deal about content. At an entrepreneurial conference in New York this week, OnMedia, a venture capitalist said that the “perceived value of content is approaching zero.” That’s a kick in the kidneys to us content people.

No, this is a deal about audience and advertising. After the big guys consolidated all the ad networks they could — aQuantive to Microsoft, Tacoda to AOL, Doubleclick to Google (the EU willing) — next they’re buying up audience in bulk. That’s what Yahoo is, really. They call it a firehose: people in bulk, us as masses.

The reason this is happening is that advertisers and their agencies are still stupidly treating and buying us as masses — they want everything to operate like the one medium they understand: TV. (This is why, in the U.S., even as television’s audience shrinks, the rates paid for advertising continue to increase — because, oddly, the decrease in audience is creating a market scarcity in commercials’ reach).

This is just as well for Yahoo, which had no strategy, really. They’d gone as far as they could with the old-media model, as exploited by the last CEO, former movie-studio head Terry Semel. Yahoo cofounder Jerry Yang started saying the right things about turning Yahoo into a platform, but it probably would have taken years to turn his culture around. They were too used to operating like a movie studio or publishing house.

Will this be big enough to beat Google? No, because big won’t win in the end. Open will.