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Microsoft Scores Some Points

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Microsoft's (Nasdaq: MSFT  ) Xbox 360 has been the hot console in recent months, but Mr. Softy isn't going to rest on his laurels.

The world's leading software maker is rolling out Xbox Live Rewards, the platform's first loyalty rewards program.

Gamers who renew their Xbox memberships, shop in its web-based marketplace, and take short surveys are awarded points that they can use as virtual currency to buy downloads. There's even a payoff for those who activate their Netflix (Nasdaq: NFLX  ) streaming account through the console.

Microsoft is no stranger to incentivizing users. It launched a shopping loyalty program to drum up buyer traffic to its search engine two year ago. It discontinued the program this summer.

There's nothing wrong with giving users financial incentives to stick around. Many of the web's most popular websites do it.

  • OpenTable (Nasdaq: OPEN  ) rewards frequent diners using its web-based reservation platform with points that can be eventually redeemed for eatery gift certificates.
  • United Online's (Nasdaq: UNTD  ) distributes gift cards for members that shop through its affiliate links and take surveys.
  • Groupon, the social coupon site holding Google's (Nasdaq: GOOG  ) attention, encourages referrals by offering $10 bounties, a practice that was successfully rolled out by eBay's (Nasdaq: EBAY  ) PayPal during its formative years.

Cynics will argue that services and sites worth using don't need to offer carrots, but this is a sticky tactic that has been successfully deployed since the S&H Green Stamps took off in the 1930s.

Microsoft doesn't need to roll out this program. It was outselling Sony (NYSE: SNE  ) and Nintendo (OTC BB: NTDOY.PK) for four months, before the Wii climbed back in October. It wouldn't be a surprise to see Microsoft regain the lead when November data comes out in two weeks. It managed to sell 2.5 million of its new Kinect motion-based controllers last month, and no one makes a $150 accessory investment unless they plan to buy a few Kinect games in the near future.

However, Microsoft's move to introduce its first loyalty program at a time when it's hitting on all cylinders is encouraging. It shows that the software giant isn't just coasting. It's playing to win.

What do you think of loyalty programs? Share your thoughts in the comment box below.

Google and Microsoft are Motley Fool Inside Value picks. Google and OpenTable are Motley Fool Rule Breakers choices. Netflix and Nintendo are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is waiting before making the leap to motion-based controllers. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, and its illuminating in any level of lighting.

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