Dec 2, 2008

Microsoft pays customers $180 million to use its search engine

You're the world's largest software company, but you can't get people to start using your search engine as Google becomes more firmly entrenched every passing day. How do you get them to come to your site instead? Microsoft has decided that cold hard cash is the answer, and they have the funds to back it up. Since June, they've been pushing a cashback promotion with its product, discussed in great detail at Fatwallet.

The normal cashback program offered discounts around 2-5% for purchases made from merchants through the site and presumably they helped foot the bill for the cashback. More unusual was the 35% cashback offered on almost any eBay purchase. This led to many sellers touting the cashback in their item descriptions, since it came at no cost to them and increased the amount buyers were willing to bid. I don't see any reason why eBay would pick up the tab for this, so that leaves Microsoft writing a lot of checks. Here's a very rough estimate of how much they've spent on this promotion so far:
  • A search on eBay for "" turns up over 30,000 items with an average price around $500 (items featuring the discount probably skew expensive - not much point in saving 35% on a $20 purchase)
  • With an average 20% discount (it's ranged between 8% and 35% since the summer), that's $100 paid in cashback per item
  • Assume items listed turn over every 3 days, over 6 months that's 60 times sales
  • 60 x 30,000 x $100 = $180 million in cash paid directly to consumers

Granted, this is a back of the envelope calculation. There are certainly items that will qualify for the cashback that don't feature "" in the description which would increase the amount paid. The average cashback and velocity of sales may also vary from what I've assumed. As if the legitimate users weren't charging enough cashback, I'm sure others have been gaming the system by buying items for resale (gold bullion, gift cards) or setting up fake auctions under multiple accounts.

How many companies have the resources to make almost $200MM in cash payments to entice customers to use something as ephemeral as a search engine? A bank may spend a couple hundred to acquire a new retail customer, but at least they're protected by some switching costs. Has "Helicopter Ben" taken over Microsoft's marketing department? They're is throwing money at this problem, demonstrating the seriousness of their predicament, but I don't see the long term payoff from it.

Well, it's probably still cheaper than buying Yahoo at $31/share ($44B market cap).

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