Wednesday, May 21, 2008

More on Live cashback

The key question to ask here is who is paying for the cashback. If we assume that its the advertiser, then what's stopping the same advertiser from offering the same deal on Google? If its MSFT paying a significant portion of this cash back, then I don't see how this is good for the MSFT shareholders because it will be a drain on its cash-flow. If the search share improves it will only be temporary, until this promotion is on. This has been the case in past attempts by MSFT to pay the searchers. Most people will still go to Google for search and some will go to live just for the cashback, only after confirming that the deal is better than what they find on google.

The feature itself is not new. There are tons of sites which already offer price comparison and rebates. The price comparison sites will be fine, because they can just combine their results with the results from live, and tell the consumer about the best deal, which in some cases may end up on live.

Its bad for the advertisers because it will squeeze their margins if they have to foot the bill for the cashback. Its fine for the advertisers as long as MSFT provides the service and foots the cashback bill. The moment this stops, the advertisers will bail. Footing the bill forever is not sustainable for MSFT. Its already losing billions on its online efforts and spending on cashback would make the situation even worse than it already is. Its bad business because the amount of money MSFT loses would be directly proportional to the growth in its search share. Google didn't grow big by losing money dotcom style. In fact they were consistently profitable throughout their brief history.

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