Apologies, Dear Reader. I made a mistake in yesterday’s post, MSFT Live Search Cashback.

Running too quickly, I assumed MSFT was funding the refunds.

Free money promotions are always a win for the stores when the free money comes from somewhere else. — rkgblog

Nope, it is a rev share arrangement

While most search advertisers pay each time a user clicks on their ad, participating merchants will pay Microsoft a fee each time a customer completes a sale through Live Search Cashback. The fee will be a percentage of the retail price, and when the purchase is complete, Microsoft will return the fee to the consumer in the form of a cash rebate, the company said. The rebates to the customer, in effect, come from the advertisers. — washpost

So it is not “free money” to retailers. It is retailer money going to consumers via Live discounting. Sigh.

Sorry for that mistake.

As it makes no difference to consumers who’s footing the bill, I’ll stand by yesterday’s argument — that Microsoft can’t buy user adoption with cash.

Discountistas will finish their transactions at Live to get the discount, but IMHO will stick with their fave search engine for most chores.

Heck, I’ll predict some clever programmer whips up a Firefox plugin to automate that: “Click here to install the Seach On Google Buy From Live FFox button!”

What about the retailer angle?

An industry buddy sent me this email yesterday:

If I only pay a percent of what is sold and that percent leaves a little for me why not let Microsoft advertise my stuff as much as they want. There is little risk on my part. (I know there are lots of other issues, like limited supply, cannibalization of other channels etc.) Still, if I know my advertising cost is never more than a fixed percent of sales that means I can do a LOT of advertising and be guaranteed profitability.

Dave’s right, there’s no risk, but there is the issue of control.

Suppose I go into a restaurant and, when asked for my order, I respond “Bring me something delicious!”

That might work out really well. In a good restaurant with a good waiter, my ambiguity might yield wonderful meal I’d never have thought to order myself.

On the other hand, a misguided waiter might assume that everyone loves liver as much as he does. Or a less-than-scrupulous waiter could bring me the scrod — not because it is delicious, but because nobody else ordered it and it is starting to go bad.

Rev-share is like letting a waiter pick your meal.

By turning over control to the rev-share partner, the retailer focuses on the end (”get my stuff sold”) rather than the means (”here’s what we need to advertise”).

Rev-share partners will naturally push what is easiest to push — your sale items, your loss leaders, your low-margin merchandise. (”I recommend the scrod tonight.”)

So one issue with rev-share advertising is lack of control: the retailer cedes the marketing strategy to a third party who may be working towards a different goal. This issue of control may or may not matter that much.

One other thought.

A downside of MSFT Jellyfish CashBack (indeed of all cash-back programs) is that it trains consumers to shop by price. By doing so, it helps further erode the role of retailer brand in online shopping.

“Never start shopping at Retailer.com,” consumers learn. “Always start at Live.com.”

Search marketing is an incredible advertising channel. Truly game changing, and wonderful for online stores.

(And by now, regardless of you feel about it, search is utterly unavoidable for retailers — you simply have to be in the game, and be playing well.)

I believe in search. I built my business around it. The channel is amazing, but the channel ain’t perfect. One dark cloud on the horizon: search engines atomize retailer brands.

From the American Heritage dictionary

Atomize

1. To reduce to or separate into atoms.
2. To reduce to tiny particles or a fine spray.
3. To break into small fragments.
4. To subject to bombardment with atomic weapons.

SERPs reduce your brand to list of SKU pages, laid out in short vanilla snippets, presented right alongside similar snippets from all your competitors.

Your brand, misted into tiny particles.

Your brand, nuked.

Hmm.

Consumers increasingly regard the search engines as stores.

According to NRF, consumers name “Google” as the ninth most popular e-commerce site online (!) Think about that. All four of the major engines made the list of Top 50 online stores. That, Dear Reader, is disturbing.

Programs like MSFT Cashback only further this troubling trend.

One interesting metric to watch is the fraction of repeat customers who return to your store directly, versus the fraction of repeat customers who come back to you via paid search, affiliate, comparison shopping engines, etc.

Strong online brands have a high rate of direct-to-site return buyers.

Think Amazon, Zappos, Overstock. Many consumers go to them to shop directly, avoiding Google infomediation.

Are you watching your direct-to-site return buyer rate? Are you testing any strategies to improve it?

This ramble is getting long, so I’ll stop before tumbling into another rant about discounting as a promotion strategy. Happy Friday, and a good weekend to everyone out there!

Update: Spot-on post by the illustrious Andrew Goodman on this. Worth checking out over at Microsoft-Google Price War Already Insane-o