It’s wrong to consider Microsoft down and out in the race for the Internet just because it walked away from the Yahoo 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 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 OS by Windows (but that story isn’t over yet). Microsoft has managed to work its way into home gaming against Sony, 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 makes money is by selling doughnuts and the only way ExxonMobil 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.
Look insideThe Kelly Letter
Your email is never published nor shared. Required fields are marked *
You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>