Microsoft's Jellyfish Buy Is No Stinger

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How It Works

Jellyfish's main service lets consumers browse through products, then lists the merchants that sell them. Retailers, including Target, Best Buy, and Home Depot (HD) agree to pay Jellyfish a commission for selling a certain number of products. Jellyfish then refunds some of that money to consumers, effectively lowering a product's price, according to Wiegand. Jellyfish also hosts daily Smack Shopping auctions—a smack is a group of jellyfish—in which the price of a product gets progressively lower, and consumers vie to buy items before the stock runs out. Jellyfish sells about $5 million a year in merchandise through auctions, Wiegand says. He declined to quantify sales of products through the comparison-shopping service or Jellyfish's revenue from either operation.

By snaring Jellyfish, Microsoft could "chip a little niche" from Google's dominant share of Internet ad spending, says David Hallerman, a senior analyst at researcher eMarketer. "But it's not a game changer," he says. eMarketer predicts Google will account for 27.4% of the $21.7 billion that U.S. advertisers will spend on the Web in 2007. Yahoo's (YHOO) estimated share of the market is 16.3%, and Microsoft is expected to bring in 6.1%—even less than Time Warner's (TWX) AOL. Google is also tops in fielding search requests for Web users, handling 56.5% of U.S. Web searches in August, vs. 23.3% for Yahoo and 11.3% for Microsoft, according to market researcher ComScore (SCOR).

To close the gap, Microsoft is trying to differentiate its search engine by spotlighting results that pertain to shopping, health, and entertainment. The company's Live Search technology, launched on Sept. 26, sifts through an expanded index of Web sites in a bid to respond to queries with more relevant results. For example, searches for products will yield results that include reviews, prices, and photos of products (BusinessWeek.com, 9/27/07), as well as links to retailers.

In a blog post announcing the deal, Microsoft says Jellyfish's comparison-shopping technology "has some interesting potential applications as we continue to invest heavily in shopping and commerce as a key component of Live Search." But with Yahoo and even Google also deploying enhanced search capabilities to return more useful snippets of information, Microsoft remains a long way from finding a more relevant role in the online ad market.

Ricadela is a writer for BusinessWeek.com in Silicon Valley .