Recent Context

Microsoft announced last week that it is making what it called a major paradigm shift towards openness and APIs. The company will monetize commercial use of those APIs, but it claimed that pricing would not be prohibitive.

I didn't think a whole lot about the Microsoft announcement until I heard the latest episode of the Newsgang podcast (skip to second half for this part of the discussion) where Steve Gillmor made an argument similar to the one I make here. Gillmor argued that Google is loosing credibility fast around privacy and user data concerns, leading to a big opportunity for Microsoft or someone else.

Specifically, Gillmor has been calling out Google for weeks over its failure to reply to user complaints about GMail contacts being ported into Google Reader as friends whose shared items are served up to you automatically. On face it seems like a small issue, perhaps, but Gillmor says that the company's refusal to respond to this important-in-principal infraction of the contract with users is reminiscent of Nixon's early handling of Watergate's discovery. I didn't understand for weeks why he was making this argument, but now I think I do.

This is really a story about how anyone could beat Google by focusing on creating a trustworthy environment in online services. Microsoft has a particular opportunity to do so, especially if it buys Yahoo! The following are my thoughts, so don't blame them too much on Gilmor.

The Plan

Here's four steps Microsoft could take to overcome Google in the fast-approaching era of user data online.

1. Offer great services.

Who says Microsoft can't compete with the anemic Google Office services and a host of web apps that are little more than "good enough" today?

Yahoo! Mail already rivals GMail, Upcoming is a great social calendar that could be expanded upon, everyone loves Flickr (just don't kill it) and Live.com is a good search engine that could fill the gap if people grow displeased with the Google brand and experience. Virtual Earth and Live Maps are good products and there's plenty of market share already among traditional Microsoft services. Office Live is a Rich Internet Application waiting to happen, throw in some Silverlight and the cross platform/RIA snazzieness just won't quit.

2. Buy Super bowl ads selling Microsoft services as the "banking experience" of the emerging era.

Seriously, if Microsoft puts privacy and consumer data protection at the center of their promotional efforts that would work wonders to grow the above services. Tell people they can get business-level security for their documents, photos, email and search history. They use Microsoft at work and would happily choose continuity of trust over the one-hit search-wonder from Mountain View. Other than search, Google's flagship product today is YouTube. Do people want to perform their basic operations, quickly moving online, in the house of YouTube? No.

Mass market consumers trust Microsoft, are used to giving them money and would be happy to get their online "wow" and day-to-day safe computing in a one-stop shopping experience. Tell them that virus control is all centralized on servers in Redmond instead of blowing in the winds of porn on their local browsers and they'll jump at the opportunity.

The unspoken understanding is that "the other Guys" (Google) cut their teeth in the insecure Wild West of the Web's early days and still haven't grown up. How hard would it be to paint Google as an irresponsible greenhorn that may have blazed the trail for online services but can't be trusted to take good care of your vital data assets? It wouldn't be hard at all.

3. Monetize those services

Everyone buying ads is waiting for Google to get beat, or at least face a strong challenger. No one wants to buy Google print or radio ads - those products are going nowhere. Microsoft could make a tidy sum just growing their own (Overture+AdCenter) ad revenues against the above services.

Don't just let Yahoo! Mail read peoples' emails and run directly contextual ads, tell people that their data is analyzed in anonymous aggregate - or just in-house by the trusted Microsoft brand.

Beyond traditional advertising, Microsoft could make a killing from offering appropriate product and service recommendations based on user data. As Dr. Rick Hangartner, Chief Scientist at recommendation engine MyStrands, wrote in a post for the ages last year - sophisticated recommendation engines are going to make a big impact in the near-term future because "...while search engines help you find things you know you are looking for, discovery helps you find the rest."

At every appropriate pause in the aforementioned high-quality service experiences, Microsoft can make a recommendation, or up-sell, based on the data they acquired through a trust-based relationship with users.

4. Pay the users interest

Banking is the key metaphor in questions of user control over data. When users give up temporary control over their data to an institution (a service provider) they have to have an acceptable amount of knowledge regarding what's being done with it, faith that it is being used in their interests (at least short term, investment in ecological imbalance be damned to follow the metaphor) and tangible, if small rewards for allowing said service provider to hold in trust and use their data.

Money is being made with user data, user data can be withdrawn and spent like cash at other service providers and so users deserve some small compensation like interest as a result. Free software, premium services after a certain period of use, outright cash - whatever the case may be.

Crazy? Google's got an army of users buying, selling and publishing their ads on user-owned real estate in exchange for a relatively small portion of the revenue in question. I don't think the above scenario is crazy at all.

Or cut that last step out if you'd like. I think steps one through three could come together on their own and paying users interest may be the weakest link here - but I don't think it's that weak. I think the banking metaphor is going to be a compelling one for mass market users, too.

Conclusion

All of the above could happen. Crazier things have happened. If not Microsoft, someone else could do the same thing. Google can't rest easily on its laurels and improved respect for the huge mass of user data it's beginning to collect will prove essential for the company's long term viability.