Word comes of Microsoft's bid to acquire Greenfield Online, the owner of Ciao.com, a popular European comparison shopping site, for US$486 million, cash. (Some may associate Greenfield with its Internet survey business, but the announcement made it clear that Greenfield will sell those assets to an unnamed buyer, as Microsoft is interested only in the shopping site.) Microsoft's commentary included an interesting comment from Tami Reller, Corporate Vice President & CFO for Windows and Online Services: "The team at Ciao has built a passionate consumer community based on intuitive technology and extensive merchant relationships that we believe will deliver incremental benefit to the Microsoft Live Search platform." Puzzled about the connection between comparison shopping and Microsoft's Live Search aspirations? Then you probably haven't been following Microsoft's Live Search cashback promotion. Launched in the U.S. in May, the program seeks to attract more visitors to Microsoft's search pages with the promise of rebates on transactions initiated from Live Search results pages.
TechCrunch, which was initially fairly bullish on the concept, now notes that the program has "failed to move the market share needle" according to comScore U.S. search data. Non-U.S. market figures are no more encouraging: According to comScore, Google has held a 75% share of non-U.S. search traffic since last year, while Yahoo's non-U.S. share dropped from 33% to 25% and Microsoft's from 31% to 20%. Moreover, of the three, only Microsoft's non-U.S. search traffic numbers actually declined, by about 17%. (Where did all the traffic go? Check out Baidu.com, whose traffic more than doubled and whose share went from 12% to 19% over the same period - jolted, of course, by a pre-Olympic spike in July.
In addition to comparison shopping, Microsoft announced its intention to shore up certain vertical search categories, such as travel and healthcare, in an overall attempt to focus on the most monetizable areas of search. We can infer that its strategy in these areas is also likely to include tangible incentives to try to attract searchers and advertisers with economic benefits. The big question remains, will it work?
This question is clouded a bit by ambiguity around objectives. If the only measure of success is to "move the needle" on search traffic in a compelling, long-term way, the answer is "probably not": The track record for sales promotion indicates it can be highly effective at increasing short-term sales volume, but rarely at changing longer-term market share. What's more, the problem with the approach has been its tendency to erode long-term margins by undercutting value perceptions, often for not just a single brand but an entire category as competitors respond to pressure to match discounts and price wars result. But here's where Microsoft may have a subtler objective. Eroding the value perception and margins of the search advertising and e-commerce ecosystem by challenging its competition to match its price incentives could change the game to one in which search dominance is less of a decisive economic advantage. This kind of thinking would not be new to Microsoft, but its application to an established market the size of search from such a trailing position is - to use a popular term - audacious.
In the meantime, some consumers will surely benefit from bargain hunting in their choice of search engines, and some vertical online retailers will surely benefit from Microsoft's largess.
Disclaimer:
Greenfield Online is a portfolio company of various venture capital funds in which S.I. Venture Associates, LLC, which is owned by Gartner, has an investment. Gartner does not have any influence over the business or operation of the portfolio companies, or the investment decisions made by these venture capital funds. Gartner research is produced independently by the Company's analysts, without the influence, review or approval of our investors, shareholders or directors. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity" on our website, http://www.gartner.com/it/about/omb_guide.jsp.
