Buying customers – can it work?

Interesting post in NYT this week (It seems NYT is focusing more on Technology of late…Anybody else noticed that?) about how Microsoft is trying to get customers for search by creating direct financial incentives:

(Picture from NYT)

SIX months ago, Microsoft stood in front of the world and rather bravely stated the question on everyone else’s mind: Why on earth does the world need another search engine?

It cast the competition — read: Google — as eggheads whose “complicated mathematical equations” retrieve all too many results, which overwhelm the average user.

But Microsoft deserves credit for trying to compete on the basis of the intrinsic quality of the search experience. The tag line for this campaign was: “Algorithm. Meet Humanity.”

This by itself is pretty funny…Microsoft competing by innovating in the area of usability (after following Apple for so long)…But it gets more interesting:

In that matchup, algorithm wins. Google had a 50 percent share of searches in the United States in October 2006, while Yahoo had 24 percent, and Microsoft, 9 percent, according to Nielsen/NetRatings. The most recent data, for February of this year, show that Microsoft had climbed a bit, to a 9.6 percent share, but that Google had jumped much farther ahead, to 56 percent. (Yahoo’s executives had something to ponder, too: its share slipped by three points.)

Watching your principal competitor widen its lead with organic growth, unaided by advertising, makes you receptive to trying something else — anything else. Microsoft has decided that the search business needs a sort of “frequent flier” rewards program to attract and hold on to users: Microsoft Service Credits for Web Search.

John Battelle broke the story last month on his Searchblog. Adam Sohn, director of global sales and marketing for Windows Live, confirmed that Microsoft would pay large companies $2 to $10 a user annually — the more searches, the larger the bounty earned — in credits that can be used for Microsoft products and training services.

Microsoft is seeking 30 companies, each with at least 5,000 PCs, who are willing to sign up and install on employees’ computers a small program — a “browser helper object” — that will count the number of searches performed with Microsoft Live Search.

With this approach Microsoft is trying to get traction for its search products by leveraging their power center in the enterprises. It makes sense, sort of…although the devil really is in the details as pointed out by Prof. Lederman:

Mara Lederman, an assistant professor of strategic management at the University of Toronto who has closely studied the airlines’ programs, said one feature that has been essential to their popularity among business travelers is that customers earn the rewards but do not pay for the product — their employers do.

“If the fare for your preferred airline is $100 more, you don’t care because you don’t pay,” she said. “You just want the points because you want to take the family to Hawaii.”

Airlines have benefited from another feature: frequent-flier awards are more alluring than they deserve to be. The frequent-flier programs give away only empty seats, which is why the actual cost of the rewards is exceedingly cheap. (That’s also why it’s hard to redeem your miles for any flight that doesn’t leave at 5:30 a.m. on a Tuesday.) “Microsoft does not seem to understand this,” Professor Lederman said.

In the case of search, who pays isn’t an issue because the price is zero. But under Microsoft’s program, Professor Lederman said, “there’s no reward going directly to the individual carrying out the search.” She predicted that employers would have to take an active role, offering monetary incentives or applying administrative pressure, in order to obtain the desired outcome of full participation of the work force.

Even if the enterprises shared the financial bounty with the end-users, to provide them with the incentives to use Microsoft search, this kind of money can have a corrupting influence. I remember working at a large company that decided to pay employees for taking certain online training courses. Very soon, a few smart engineers developed a tool to take the tests associated with each course and soon people were finishing 30 courses in a day…Needless to say the financial incentives were gone in a quarter.

Another thing corporations might be able to do is to lock out other search engine like ones from Google and Yahoo! or even make MSN search the default. This might force more employees to use MSN search but on the flip side, such measures might make employees unhappy. Also the corporation might incur additional costs in terms of productivity loss with a brand new search engine.

Overall, my personal opinion is that the way the plan is setup, its unlikely to work. Let’s wait and see.

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