Can Money Buy Microsoft Love?
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Written By Reprise Media | December 9, 2005 | Share This
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Like many in this industry, I’ve been giving a lot of thought to the different ways MSN can pose a legitimate threat to the dominance of Google and Yahoo in the years ahead.
While there are undoubtedly numerous others, here are four different approaches they could take (or have already taken).
Evolve the Marketplace
There’s no disputing that paid search has been on a tear for the past few years. The few lines of text that have been served across billions of search results pages are largely responsible for the resurgence we’ve seen in interactive advertising. But while those ads are now being served across content pages and in RSS feeds, there’s been relatively little evolution in the way search marketing is bought and sold - we’ve been talking about clicks, CPCs, match types, etc. for years. This has stood in stark contrast to the many developments we’ve seen on the consumer end of the search process. That experience now includes desktop search, mobile search, book search, blog search, just to name a few.
While MSN should have had the foresight to enter this market years ago, they have undoubtedly benefited from observing the mistakes that Yahoo and Google have made in the past. Beyond that, the fact that MSN doesn’t have to rush into the market at this stage has allowed them to think about improvements that can be made to the search marketing process as it exists today. As a result, in addition to the standard features we’ve seen from existing paid search providers, MSN’s adCenter includes both behavioral (day-parting) and demographic targeting - something no other engine currently offers.
Because the system is still in beta, the jury is still out on its overall effectiveness. But there’s no doubt that if the targeting is accurate enough to justify the incremental bids it requires, advertisers will begin to shift some percentage of their search budgets to MSN. If nothing else, MSN’s entry into the market is going to drive innovation. Google and Yahoo! can no longer afford to be complacent.
Cut Into Competitor Distribution
We’ve all heard the rumors about MSN’s attempts to replace Google as AOL’s paid/algorithmic search partner and that would certainly be a step in the right direction. Distribution across AOL represented 10% of Google’s third quarter revenues, so this could represent a significant hit to Google’s financials.
What’s been largely overlooked (and what our Product Director, Prashant Desai, likes to point out), however, is that a possible AOL shift to MSN search could release the latent value of the AOL user base through the integration of MSN demographic targeting capabilities mentioned above. The partners would reap incremental revenue from AOL’s existing user base of 112MM unique visitors to its web properties. As a result, the pairing could ultimately create some of the most valuable traffic in the market - traffic that is free from the equivalent of spam sites.
It’s also worth noting that Microsoft has somewhere in the neighborhood of $37.5B in cash on hand and they continue to generate something like $13.5B in free cash flow each year. If they want to increase their distribution with quality traffic that is currently owned by either Google or Yahoo, they can simply guarantee revenue to some of those potential partners. Google has used generous revenue shares to accomplish a similar goal in the past, but MSN is in a position to guarantee those syndication partners more money than they’re currently making from either of the “Big Two.”
Share the Wealth - With Users? “Chairman Bill Gates took a swipe a Google, suggesting that Microsoft’s search products may eventually give users software programs or even cash after they click on an advertisement. ‘When you use a search engine, if somebody is making lot of money from advertisers, they ought to share it with you,’ Gates said in an interview on the business news channel NDTV Profit.” Now, I should mention that this is the first I’ve heard of such an approach. And I’m not sure of how accurately what Gates said is being represented, so I don’t want to be too critical of it. Overall, I’m in agreement that users should decide if they want to share their data and in the event that they consent to share their attention with advertisers, they gain some benefit from doing so (something our friends are Root Markets are hard at work on). But it seems to me that “rewarding” users with software, cash, or anything else just for clicking on an ad will completely undermine the integrity of MSN’s auction (does AllAdvantage ring any bells with anyone? They proved that paying people to view ads was equally as ineffective as paying people to click). Advertiser bids are dictated not by click-through rate, but by their ability to convert users once they have clicked on an ad. If MSN incentivizes users to click when they have no intention of following-through on a transaction, advertisers are going to be forced to drop their bids or simply move their dollars to a different engine altogether - and that wouldn’t be in the best interest of users, advertisers, or most specifically, MSN. Not to mention the fact that this would really turn click fraud into the issue many advertisers already suspect it is. A New Way: Rewarding Advertisers & Agencies I’ve made a point in the past of how “traditional interactive” agencies have been frustrated in the past by a lack of “volume discounts” and price breaks within the search markets. After all, that’s one of the main ways they’ve historically been able to gain an advantage over their competitors. So, if MSN is so anxious to give a share of the billions of dollars in their war chest back to those who help make them money, why not simply offer discounts to SEM’s and agencies?
While scanning yesterday’s news, I came across the following
So, what can MSN do to “give back to the community?”
Discounting the value of an individual click obviously wouldn’t be possible because it would throw the market completely out of whack. But if an SEM received a “credit” - say, 5% - off of their total spend with MSN at the end of each month, I’m sure they’d see many more dollars flow their way. The SEM could then decide if it made sense to keep the all the money they were given back, share it with their clients on a percentage basis, etc.
Targeting SEMs and agencies in such a manner would be in line with the approach MSN has taken to building out adCenter. Given the bells and whistles associated with that platform, it’s clear that they’re giving much more attention to the more sophisticated advertisers (i.e. largest spenders) than they are the SME market.
We at Reprise Media have an obligation to spend our clients’ budget wherever it proves to be most profitable. With that in mind, we would never choose to spend money with an engine that was going to offer us a discount if the dollars would prove to be more effective somewhere else. But all else being equal, we’d be looking to capture our little slice of the Microsoft empire.
Peter Hershberg is Managing Partner of Reprise Media.
Topics: Microsoft |
Agency kickbacks. I don’t know. I think it is a slippery slope. Traditional ad buys do this, of course. Radio, TV, print. But, as someone with clients that pay me to advertise for them, I’d rather be paid for my time OR an upfront percentage of the spend, that the client is aware of.
I do see value in making it easier for the average content creating consumer to generate affiliate fees from the content that they create. Whether that’s a clickstream, a bookmark, an uploaded photo or a blog post, I think it is fair that the creator’s get a piece of that.
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