You have to hand it to Microsoft (NASDAQ:MSFT). It’s often dismissed as a tech industry dinosaur — coasting on the fumes of a declining PC industry — but the company keeps fighting to stay relevant.
While Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) continue their relentless domination of the growing mobile market, Microsoft has been just as determined to keep fighting. Releases in the past six months alone include a new tablet-inspired Windows 8, Windows Phone 8 and a subscription-based Office, and a new Xbox video game console is on the way. MSFT has even gone so far as to step outside its comfort zone and compete against its hardware OEMs by building and releasing the Surface tablets.
So it probably should come as no surprise that Microsoft is launching a big push with Outlook.com — the web-based email service that competes against Google’s Gmail and Yahoo’s (NASDAQ:YHOO) Yahoo Mail — that includes a three-month Outlook.com promotional campaign costing between $30 million and $90 million.
What’s the big deal about Outlook.com? And besides … doesn’t Microsoft already have web email covered with Hotmail?
Last things first.
Yes, Microsoft owns Hotmail, a web email service it paid $400 million for back in 1998. According to Microsoft, Hotmail has 300 million users, so it’s still a significant presence. But Hotmail is old and has developed a questionable reputation over the years, especially as newer competitors like Gmail arrived. “Hotmail sucks” is a common theme for blogs, message boards and YouTube videos, so the company felt it was time to retire the brand.
Microsoft released Outlook.com as a beta service last July. It has since accumulated 60 million users; with the launch, Microsoft is looking to transition Hotmail users to Outlook.com in the coming months. That would put Outlook.com in the same league as Gmail and Yahoo Mail, which have 425 million and 281 million users, respectively.
So, What’s the Big Deal?
One big prize in email is data, which is used to sell advertising. The more targeted the advertising and the more users, the more valuable it is — and that’s why companies are willing to provide web email service for free.
Google is aggressive in how it scrapes user data in Gmail, allowing it to charge a premium for targeted advertising. Microsoft also is selling advertising in Outlook, but it’s using a broader approach, selling ads based on the generalized demographic data users enter when they create their account. Microsoft is leveraging this difference in a campaign against Gmail, including the Scroogled website it uses to expose Google’s methods using attack-ad-style wording:
“THINK GOOGLE RESPECTS YOUR PRIVACY? THINK AGAIN. Google goes through every Gmail that’s sent or received, looking for keywords so they can target Gmail users with paid ads. And there’s no way to opt out of this invasion of your privacy. Outlook.com is different—we don’t go through your email to sell ads.”
Those are fighting words.
Besides direct ad revenue, the big three are hoping email customers will use their search engines — the big online revenue driver.
Microsoft is subtle, intelligently displaying Bing functions (like mapping and search) depending on the contents of email — for example, if the user is viewing an email that contains an address, Outlook.com will display a Bing Map button. Yahoo also has a search web button (which is Bing-powered) on its web mail interface.
Google goes for the hammer approach, prominently displaying a web search bar at the top of the Gmail window. It doesn’t matter what the user has chosen as their default search engine, Google Search still makes it front and center when logged into Gmail.
Of course, Google brings in over $100 million a day in search advertising revenue … and Microsoft would love to take some of that.
In November, comScore (NASDAQ:SCOR) ranked Google sites No. 1 in U.S. searches at nearly 67% in market share, while Microsoft sites were at 16.2%, Yahoo sites were at 12.1% and the remaining sub-5% of the U.S. search market left to other engines like AOL (NYSE:AOL). Thus, if Microsoft wants to grow Bing’s market share significantly and start making money — it has lost $10 billion on Bing in five years, an effort Business Insider refers to as “throwing money down a rat hole” — it has to take customers from Google and/or Yahoo (YHOO keeps the majority of Bing-generated ad revenue from its sites).
Microsoft is really bringing the fight to Google, countering the GoogleDrive effect by offering integrated, free web-based versions of its Word, Excel and PowerPoint software for Outlook.com users, as well as 7 GB of free cloud-based storage on its SkyDrive.
It’s also including hooks from Facebook (NASDAQ:FB) and Twitter, incorporating social media feeds in the Outlook.com Inbox and enabling features like Facebook chat.
Hotmail just wasn’t getting the job done. Microsoft has a much better chance to out-Google Google with the more modern, connected, minimalist and less intrusive Outlook.com.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.