Microsoft just made an interesting move: offering cashback to consumers who buy goods via it’s search engine. On the surface, that’s pretty clever - because searches for products are some of the most lucrative, and generate a disproportionate share of search revenue.
So has Redmond just outsmarted the Googleplex by essentially subsidizing consumers to search?
Not so fast. There’s a big problem with Microsoft’s big idea: adverse selection. Those sellers who are willing to discount the most heavily are the most likely to be selling lemons. Though the market seems biased in favour of consumers, from an economic point of view, it’s actually biased against them. Anyone can offer a discounted price, especially on the www - but can they deliver on time, will they refund damaged goods, how painless will the transaction really be?
The real problem in a world of hyperfragmented sellers isn’t finding information about prices: it’s finding information about sellers. There’s a simpler word for that: relevance. Those dynamics mean that, over time, Microsoft’s closed marketplace is likely to fill up with less and less reputable buyers - it runs the risk of becoming a kind of vipers’ den for consumers.
Because Microsoft’s solution doesn’t address that problem, it’s likely that the market it’s trying to launch will be dominated by adverse selection. Google is the master of markets - and if there were value to created via refunds and rebates, it’s a simple enough tactic that they would have likely tried it before.
But there’s a deeper truth here. The single most fundamental challenge facing the media industry is reinventing brands, for the simple reason that branded ads are the highest value form of communication, and brands are the key source of advantage media and marketing create for corporations. Without next-generation brands, there is no next-generation media industry: all media is just a commodity if industrial-era brands and the promises they make continue to become irrelevant to consumers.
Paying consumers for interacting with us isn’t just destructive, naked price competition: it’s damaging because it actively stops Microsoft - and all of us - from rethinking what brands must become if they are to thrive again in a world of cheap information.
Side payments to consumers create the opposite of authentic, enduring loyalty: antagonistic, opportunistic transactions between producers and consumers. If Microsoft really wanted to challenge Google, it would be better off solving the problem of next-generation branding, rethinking relationships - not simple transactions - between consumers and producers, and helping define a new basis for loyalty, trust, and love.
Commoditizing brands further is, in other words, a strategic error. Because in that race to the bottom, no one wins - least of all Microsoft. Consider for a second that Microsoft earns little from this new service. What’s a bigger share of a lower and lower value search industry worth? That is, perhaps not a game worth playing.
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