Savvy consumers limit market bundling success

With consumers becoming more savvy in their technology choices, market bundling tie-ups, in which a particular technology is used as the default option in paired products, is not a guaranteed success, said an analyst.

John Brand, Hydrasight's research director, said in an e-mail interview that such bundling partnerships have likely increased in recent years. However, most "probably don't ever become successful and simply don't last", he noted.

According to Brand, product bundling can potentially influence a user's decision as well as turn off the consumer. "Consumers can be quite savvy and they certainly know what they want. They also rely very heavily on the advice and experience of others.

"Even when product packaging is done well, the power of social networks and subject matter interest groups can undermine the commercial relationship simply by word of mouth," explained Brand.

When tie-ups work well, it is typically because "consumers are making a conscious decision not to make a conscious decision about the products and services they wish to use", he added.

Citing AVG's antivirus products as an example, Brand said users often prefer them over bundled commercial products on new computers as they have the perception that AVG products are better or cheaper. On the other hand, few users actively make decisions about the fonts they choose to use in their word processing programs and are "more than comfortable" using the default options.

Google has been an example of market bundling for some time--it has an agreement with the Mozilla Foundation where Google's search is the default engine for the Firefox browser. According to Mozilla CEO John Lilly, the search leader contributed "="" title="Mozilla CEO: Chrome was inevitable -- Wednesday, Sep. 03, 2008">US$56 of the US$66 million Mozilla earned in 2006. Apple's Safari browser also uses Google as its default search.

Earlier this month, Microsoft's CEO Steve Ballmer announced a partnership with Hewlett-Packard that would make Microsoft's Bing search engine, as well as its MSN homepage, as the default user choice in HP computers globally.

In an e-mail to ZDNet Asia, a Singapore-based spokesperson for Microsoft said the three-year relationship will see the Bing search engine, Bing toolbar and MSN homepage included in the default settings in "several models of HP PCs--both in the consumer and commercial space--in over 40 countries across the world".

While she declined to estimate the Redmond company's increase in search market share as a result of the tie-up, she said: "We remain focused on long-term growth and will continue working hard to deliver the best search experience for our customers."

Hydrasight's Brand also pointed out that it was arguable if such deals are successful. Hard drives, for instance, bundle third-party software as a value-add, but "consumers rarely buy a hard drive on the basis of the backup software that's included, and even rarer still, would make a conscious decision about buying backup software because it supported a specific hard drive brand."

He added that bundling Bing as the default search engine is "unlikely to have any long-term effect" on consumer behavior.

"Bundling enterprise search products, on the other hand, may just sway businesses to take the default option simply because there is a perception that it is easier to manage or to have 'one throat to choke'," he noted. "This has certainly been the case for Internet Explorer in the enterprise."

Ovum's senior analyst Mike Davis estimates that Bing could derive up to 50 million new users with the deal as HP has about 20 percent share of the PC market, or about 257 million units in 2009. Bing, with a market share of about 10 percent, will also be further boosted by the Microsoft-Yahoo search deal. The additional increase in traffic "will establish a highly-competitive duopoly which should be beneficial to users", he added.

Will antitrust concerns be flagged?
London-based Davis noted that antitrust worries may surface when a particular vendor, with a significant share of the market, is involved in a bundling deal, noted Davis. Microsoft, for instance, provoked objections from the European Union for the bundling of its Internet Explorer browser with the Windows 7 operating system. The software giant later proposed to offer users a "ballot screen" to install competing browsers from the Web.

In the case of the Microsoft-HP partnership to make Bing the default search engine, the Palo Alto company's estimated 20 percent market share may not be such a cause for concern, he added. "Given the commodity nature of the PC market, I don't think HP will ever be in an antitrust [case]. But if Microsoft [also] made [additional] deals with Acer [whose market share is] 13.5 percent, or Dell [which has a share of] 11.5 percent…then the regulators might be taking a closer look."

Microsoft's spokesperson did not indicate if the Redmond giant would forge similar partnerships with other vendors.