How Microsoft Could Kill Google on the Web

It's wrong to consider Microsoft (MSFT) down and out in the race for the Internet just because it walked away from the Yahoo (YHOO) bid. I think that was a good decision because it saved $40+ billion and avoided a multi-year company integration that would have likely failed to produce anything on a par with Google's (GOOG) properties anyway.

When we look at Microsoft history, what is it that has consistently put it on top? Innovation? No. Most of its products are obvious knock-offs not as well-done as the original. Customer loyalty? No. Almost everybody hates the company, but it's hard to get a day of work done without using one of its products. Computer users are loyal to Microsoft the way North Koreans are loyal to Kim Jong Il. What choice do they have?

The way Microsoft has won in the past was by copying the creator of a popular product category, then outspending and outmaneuvering that creator. Think Lotus 1-2-3 being trumped by Excel, WordPerfect by Word, Netscape Navigator by Internet Explorer, and the Apple (AAPL) OS by Windows (but that story isn't over yet). Microsoft has managed to work its way into home gaming against Sony (SNE), a tough competitor, as the Xbox grows in popularity against the PlayStation. It could do so because it has a nearly bottomless bank account.

If Microsoft taps the power of that bank account with the old Bill Gates kind of smarts instead of the ever-more-disappointing Steve Ballmer kind of smarts, it seems to me that it would be able to damage Google tremendously in one fell swoop. Are you ready? Here it is:

Offer free advertising.

Remember, advertising is all of Google's revenue. That's all it does, which is fine and not without precedent. It's like saying the only way Krispy Kreme (KKD) makes money is by selling doughnuts and the only way ExxonMobil (XOM) makes money is by selling oil. That's their business. Google's business is selling ads.

The difference is that nobody can take all of Krispy Kreme's doughnut lovers away by offering free doughnuts at a different store, nor can anybody take all of ExxonMobil's customers away by offering free oil. Why? Because no company can afford to give away doughnuts or oil. Microsoft, on the other hand, can afford to give away advertising.

For now, it has a fabulous income from its hard-drive based software franchises Windows and Office. Google has no other income streams beyond advertising. Microsoft can bankroll its online efforts with its software business, make Live.com better, put more content up, and otherwise increase page views.

At this moment, Live.com and MSN.com are ranked 4 and 5 in Alexa's Global Top 500 websites, behind only Yahoo.com, Google.com, and YouTube.com. Microsoft gets more traffic than MySpace, Wikipedia, Facebook, and everywhere else online except for Yahoo and Google. So, it's not like Microsoft is a no-show on the Internet. It's third in the world.

That's why from day one advertisers would be there. For free, why not? I'd put ads up. I'd stop campaigns in other places, try the free ads at Microsoft, and see what impact it had on my business. It's possible that free ads at Microsoft would not create enough business to be better than paid ads at Google, but I'd sure give them a shot. So would millions of others.

Google's revenue would plunge, people would use Microsoft's properties more, even if just to see their own ads showing up, and mind share and maybe even actual market share would increase. If enough traffic came from the effort -- and presumably other marketing efforts run in parallel -- then Microsoft could later begin charging modest fees or look into other ways to monetize all those advertisers.

Giving away a competitor's product is a classic way for a dominant company to win. To Microsoft, advertising is not important yet. To Google, it's everything.

If I were in charge of Microsoft, I'd press my advantage.

Comments

[urstruly]

won't work. advertisers go to where the traffic is. Google is a verb and Microsoft is past tense. The only reason why Microsoft tried to buy yahoo was because they realized that advertisers go where the largest ad network reach is and that is google. #1 in search and #1 in publisher network. Yahoo was a step to get them the reach

[urstruly]

Also, that will be self-destructive 'cause google is giving away microsoft apps for ads and that is the direction cloud computing is heading

[SILENT ACE]

what you must be kidding think about the whole idea there 3rd in the world in most visted web sites that they own and if they had free ad space i would sure as hell put ads there and most people with half a brain would do the same. microsofts the only one with pockets deep enough they might just be able to take out google

[uselessnanhai]

while its true that MSFT has re-introduced ideas from other firms/areas, I do not believe it could provide free advertising as a competitor to GOOG. i think it's pretty good idea at the first glance, except it kinda misses the point of advertising. advertising exists so companies can gain more visibility relative to their competitors. if it is free, then everyone gains equal visibility.

if there are searches for chairs, how do you determine who is the top ranking return? do you alternate? if it's free and everyone signs up, will you be alternating through 500,000 different ads? that would make it utterly pointless.

inherently, advertising cannot be offered free to firms. what you do is make everyone equals and advertising is the exact opposite of that.

-------

also, i disagree with urstruly. advertisers do not necessarily go where the largest reach is. obviously, you want high GRP (gross rating points) or reach, but you would also want to target. MSFT would have no problem at all competing against GOOG in some areas and those footholds will quickly lead to larger gains. the ad network/reach is not the issue.

[YITBOSGP]

I think that is a very good idea. I've always loved the "get them addicted and then start charging them business model". That's the kind of strategy that could make Microsoft the verb and Google past tense. I'm not sure that's necissarily a good thing because I'm a Google shareholder based in part on your recommendation. But if we see that on the horizon that would be a reason to switch out of Google and into Microsoft.

PS I loved your Neatest Little Guide to Stock Market Investing, I've have recommended it to several people over the years and will continue to do so. It's the best book on Investing I've read.

[Rdurant]

I have been saying this for years, I agree 100%. PLUS, I would go one step further, I would offer the Search Users chances to win prizes and cash by using Microsoft search services. This would entice more people to search on their search engine, which would therefore entice more people advertises to list, and wipe googles model down the drain.

I wonder why Microsoft doesn't do it? I want to write Gates and Ballmer, it is such a no brainer to me, why can't they see it also????

[joegul]

you forgot one thing. The quality of search engine...Google and Yahoo have the best search engine and it is free...Everyone will log on to search and they will see all those ads.

So MSFT should be concentrating on its search engine (or Buy Yahoo). Buying Yahoo works better. You think MSFT folks are stupid people to offer Yahoo 40 billion. Think again

[CrossProfit]

The idea isn't bad (nor is it original) except the above version needs to be refined.

MSFT would have to select the top 50 in each category (first define the category based on search habits) and charge the 'selected' companies a flat fee (which could be up to half or a fraction of the GOOG fee).

This way, the search would provide ads by companies that have a good track record on both products and customer service, removing one of the main pitfalls of the internet.

In return, the selected companies would provide content to its audience, thus enhancing the number of page views as it is in their interest that their targeted audience sees their add as often as possible. In other words, let the companies build the traffic and MSFT provide the platform and rules of engagement.

The rules could include a stepped system within the selected 50 of each search category whereby the company providing better content (resulting in higher traffic and retention) climbs the ladder - so to speak.

If MSFT waits too long to counterattack, GOOG will be encroaching on the MSFT cash cow base and it will be all over sooner rather than later. It is just a matter of time before the battle is on MSFT's turf. In other words, MSFT is better off fighting this battle on GOOG's turf, hence we agree in principle with the author.

The reverse holds true for GOOG.
(MSFT or GOOG can obtain details via email through website - att: Saul Sterman.)

CrossProfit

[User 190520]

This would be sound reasoning, but classical economics tells us this will be a problem simply due to supply and demand.

Consider This:

Supply - the number of ads that can fit on one user's screen.
Demand - if it's free, certainly more than a screenful.
Result - huge demand for ad space doesn't give each advertiser the kind of exposure it's looking for. They're probably going to go back to Google where they can bid for their top spot.

Secondarily, if Microsoft begins charging for its ads to solve problem #1, it probably has an antitrust problem on its hands. As we all know authorities worldwide are not so friendly toward MSFT.

[pk de cville]

Sorry. Can't see how this half baked idea comes close to working.

Free means msft becomes a new socialist regime: Who will run the ad acceptance dept? The free mkt (Google) is perfectly matched to the job of choosing the ads that run.

Google has patented a great ad auction system. They have millions of servers to speed search queries to the universe. And, FWIW, Google appears to be an ingenious engineering company w/ attention to public opinion. People don't have a problem bringing their business to Google ("Don't be evil." works!).

Msft is a convicted monopolist with a long folk history of thuggery and malodorous conduct. There are many in the population who have a problem with helping msft succeed (C'est moi, for instance.).

So, if msft is going to compete here, I say they just need to get back to their labs and build a better mouse trap (and that, my friend, is something they haven't done in many years (See the msft 5 year charts.)).

[hollowman]

This is just one of the worst thought out ideas I've ever seen - were you smoking something funny?

Two important reasons this won't work

1) Advertisers go were the eyeballs are. The Superbowl demands a price of over $2.5mil for a 30 second ad, and they are always sold out. No matter how many advertisers sign up with MSN, you can't force a user to use their search engine.

2) You may entice small "Mom & Pop" companies to switch, but where is the incentive for a larger company? All this would do is allow a company to advertise in two places for the same price.

However, if the point is to lose money, this is certainly a great strategy.

[perki]

Well, a radio station in town with a 10% listener market share gives away all of the advertising, but that hasn't changed the income of the top stations in the market. Have you really thought this through?

[SilentGoogleGuy]

MSFT may be worried about GOOG in the search arena.

But MSFT shouldn't worry about GOOG in the much larger enterprise market.

GOOG has K-Mart level customer service and support while MSFT has 40,000 loyal resellers and 100M registered users of MSFT products just in North America that give customers Nordstrom level service.

If GOOG cannot both improve customer service and support while spreading revenue across multiple product lines, it will always be the one trick pony.

[urstruly]

I've seen all the posts above but I still don't believe it will work. Advertiser's go where the audience is. The Audience are in search, vertical websites, web publisher pages and very soon cloud apps or free software.
- Search - Google is a verb and so advertisers would want to be where the audience is. Microsoft cannot be a search verb by simply offering free ads to advertisers. Advertisers understand that they need to pay for eyeballs and not for ghost towns.
- vertical websites and publishers - Google has the greatest reach of publishers.
- free stuff - Google is offering free office software and quickly capturing user base. The model of offering free stuff to consumers at the expense of advertisers have always worked.

[rct]

They are offering it almost free, their ads are much cheaper than Google, but who's looking? That's because their search engine is horrendous. A lot of the searches turn out to be spam, for example, just because they put too much emphasis on the keyword in the URL.

[SingHash]

1. With free ads, MSFT is certain to provoke further antitrust ire -- in Europe and Korea if not in America. Even without its shameful record of corporate abuse, regulators simply wouldn't countenance such a ploy to leverage one monopoly into another.

2. Would you watch a television show during which the station was airing free ads? I'm not an economist, but I think this qualifies as an example of "the tragedy of the commons". I think (hope!) that most people go to the internet for _content_, so lowering the barriers to entry for non-content seems to be counter-productive.

[User 182675]

This was a superb troll!

[Patrick in NC]

The problem is that right now no one clicks on the Microsoft ads.

I run a business where we advertise on both Microsoft and Google using almost the same keywords. The ROI is about the same on both (dollars in advertising spent to produce a dollar of revenue), but I spend thousands on Google ads each month (anywhere from $3000 - $5000), and about $10/month on Microsoft. Giving me that $10/month for free isn't going to stop me from giving my thousands to Google every month. If Microsoft was able to give me the same ROI and charge me thousands a month, I would gladly take it. Right now I've maxed out the Google spending, because if I bid more, I reduce my ROI.

As an aside, I stopped my Yahoo ads several years ago, because their 10 cent minimum bid meant that I simply could not make my money back on their advertising. I was grandfathered in at 3 and 4 cents from the old Goto.com / Overture.com days, but they sent me an email telling me that they were going to automatically convert my bids to 10 cents, so I angrily canceled my entire account. Now they've removed the 10 cent minimum, but I still haven't returned to Yahoo, because I'm still pissed off.

Microsoft needs more traffic, pure and simple. You would think all those PhDs in Microsoft Research could duplicate Google's algorithm, but I think the difference is that the Google employees are on a mission and the Microsoft employees are kinda tired. Back in the days when Microsoft stock was going up, you could pay less than the going rate for programmers, but those days are over, and Google's pay and perks are much better than Microsoft's, so they get the better people. One of the smartest people I know (he got his PhD in Math in his mid-20's) left Microsoft Research a long time ago, and is now working for Google. Multiply this scenario by thousands, and I think you get to the heart of the problem.

[User 190669]

Man, I can't believe you get paid to write this stuff. Giving away free ads would no more hurt GOOG than a free auction site would hurt EBAY. I'm an advertiser- if MSFT offered free ads, I would run my ads in BOTH places. Even if free advertising works well for me, why would I cut back my ad spend on Google if I'm getting sales? Because I don't want more business? IMO, buying YHOO is akin to trying to win yesterday's war, a war that is already lost. It would make more sense if MSFT bought EBAY, atleast they would get Paypal. By inserting themselves into every internet transaction, MSFT would have much better opportunity to ward off GOOG, if not on the front end of ecommerce, then it would be on the back end.

[blah-blah]

Normally I wince when I see a tech article from you. It's usually filled with inaccuracies and myths(as is this one) but I must admit your idea is brilliant.

If GOOG can give MSFT's competetive products away for free, why not the reverse. It's a classic tactic similar to the way Netscape was wiped out.

I would probably make it incredibly cheap instead of free so it could be raised a little later.

[blah-blah]

User 190669 makes a very good point but I think a very cheap price instead of free would avert a lot of that. Also despite the complaint, considering MSFT has really nothing to lose - why not go for it anyways?

Unlike trying to compete with Windows or Office, the costs of competeting with free ads would be minimal compared to buying Yahoo. They already have a system in place, it just needs to be scaled.

[Pietro]

Won't work, free advertising would bring on more advertisers than users could tolerate on a per page view. This would drive away customers away and so to keep them, a restricted amount of advertising would have to be implemented. This can only be administered by pay-for-space approach, So we are back to paid advertising.

[webDeveloper]

This author really doesn't know what he's talking about. Even if MS gave away advertising, the ad revenues for Google would be virtually uneffected unless they can change the user numbers. You can give away bilboard space on the north pole, but nobody would care. Yahoo carved out a nitch by offering something besides search (pop-news, coolness factor, etc.). That's the only way to get a foothold. Google has perfected creating relivant results and that is going to keep them in the game no matter what.

[thesoy]

Impossible. Advertizing on google is a silent auction. The company that comes first in any search, is the company that has the highest ‘per-click’ bid. You pay for position on the internet, and because consumers have a short attention span, consumers typically only look at the first couple choices in a search. How would you organize the advertizing positions if it was free? Would Adam’s Hammers, Billy Lumber, Chris’s Screwdrivers come 5 pages before the local advertizing of a Home Depot?

Position is the most important thing on the internet. Companies pay big bucks to get the consumer that looks for 2 to 3 minutes for what they need.

Offering free advertising on the internet is like putting huge 100 ft. bill board in the middle of the Sherra Desert…yes, you’re advertising, but it is completely ineffective and useless.

[chush.net]

Utter nonsense.

[thesoy]

The people at Microsoft are geniuses…do you think they explored this idea already or has Jason Kelly suddenly discovered the breakthrough idea that is going to revolutionize internet advertising forever!?!? I bet they were in the backroom saying, ‘hmmm, we can spend 40 billion to seriously compete with Google market share…or we can go with this Jason Kelly idea about offering advertising on the internet for free…ok, lets not buy Yahoo!’

[Pigs In Space]

The best idea I have heard is the one that says msft should give away prizes to users for making web searches, they have the money to create hell of a PR storm for live.com and what is more.... they could make it a global giveaway - Go on msft! do the biggest give-away ever on Live.com and lets get some balance out there before google takes over the world and we all have to have Chairman Mao style portraits of Brin and Page above the fireplace.

[cjcook3]

Isn't a search engine in itself basically "Free Advertising." By offering free advertising, you have in affect created a Search Engine. Buy offering paid advertising is how people get to be put at the top, which is what one must PAY for to be separated from those on the bottom. The law of Supply and Demand

[rana]

the basic idea of giving ads for free is good, but the people here ask good questions. how we can limit the number of advertisers, how we get good content, etc...
i think MSFT should attack the problem from the user side. if they wil answer the users wishs the advertisers will come. GOOG has a better search engine, this is the first area that needs to be tackled. if this isn't solved the advertisers may come ut the users are the key.
MSFT should go for search social network. the search engine will be based on real data that is passed between users relating to thier search and not on algorithmes that are far from accurate and make most people confused about how to do a deep search with more than one word.
this way they will bring the users as soldiers in this war. there will be always social networks on different searches, based on shared interest and they will bring thier friends to the sites of interest. by letting users download a small program this can be done on the fly whileyou work and even enhence other apps functionality.
the important thing is to go from the users side. this is what always works when we make the first step in a war that involves different players. if we offer bad product for free it won't bring long term customers.

[socialista]

What I don't understand is why an advertiser won't continue to place ads on google? it is CPC after all and if advertiser see ROI at Google it should continue to spend. So MSFT gets more ad inventory is a given but conversion is still a question.
From a user's perspective it's all about relevancy and if the core search technology isn't as good then I would still stay at google

[usvi carpenter]

so instead of money
i get someone to break some arms so my ad will pop up first.
try again mr kelly....this article is insane