May 22, 2008, 12:00 AM

Microsoft pays web shoppers to use its search engine as a starting point

Microsoft unveiled a program this week that allows e-retailers to offer rebates to consumers, which the software giant will refund in cash to shoppers who make a purchase.

Microsoft Corp. has embarked on a campaign to make its Live Search search engine a stronger competitor to Google, starting with a program that offers rebates to consumers who make purchases after searching for a product on Live Search.

“If we’re able to demonstrate a way to reward consumers for their behavior and build up loyalty, that will impact the search engine people use in the space of commerce and over time will impact the search engine people use outside of commerce,” says Brad Goldberg, general manager of Microsoft Live Search, which was launched in 2006 as the successor to Windows Live Search and MSN Search.

The Live Search cashback program was launched yesterday with 700 online retailers offering discounts on 10 million items. For instance, Tiger Direct is offering 5% off of a Canon digital camera and Backcountry.com 12% off on a bicycling jersey. Among the other e-commerce companies participating in the Microsoft program are eBay, Barnes & Noble, Zappos.com, Circuit City, Overstock.com, Home Depot and Sears.

Microsoft will rebate the amount of the discount to consumers once their rebate balances exceed $5, sending it via check, direct deposit to a bank account or to a PayPal account. Microsoft will wait 60 days from the purchase to send rebates to allow for returns and deter fraud.

“We believe search can offer much more value to consumers and advertiser than it does today, and we see Live Search cashback as an important opportunity to deliver additional value,” Microsoft chairman Bill Gates said yesterday in introducing the initiative at a company-sponsored advertising conference. “Our goal is to make Live Search the most rewarding commercial search destination on the web. Live Search cashback will help advertisers drive more online sales while giving consumers a new way to stretch their dollars.”

Gates made clear that this was just the first step in making Live Search a stronger competitor among search engines, with more innovations to come that will make Live Search more useful for web users searching for entertainment, looking for information or browsing.

Microsoft is also going after Google by offering online retailers a cost-per-action model-the retailer only pays if the customer makes a purchase-rather than the cost-per-click model that has made Google rich from collecting payments every time someone clicks on an ad on a Google search results page. Cost per action is easier to measure and avoids the problems of click fraud associated with pay-per-click advertising, Goldberg says.

When someone searches on Live Search for a product available through the Live Search cashback program, a listing will appear in the sponsored links section at the top of the page offering savings on the product and displaying an icon that says “Live Search cashback.” Clicking on the link takes the shopper to a page that shows the available offers on that item. Microsoft built the system on the platform it acquired last fall when it bought Jellyfish, a web site that offered discounts on products from participating retailers.

The cashback program and its new travel discount initiative Live Search Farecast “may give Microsoft an edge in e-commerce search,” says Rachel Happe, an analyst with market research firm IDC. “Live Search cashback may not immediately change behavior, but it gives Microsoft a large stable of e-commerce partners that will be watching results very closely.”

Microsoft has a long way to go to catch search leader Google. Google accounted for 62.0% of U.S. searches in April, while Yahoo had 17.5% and Live Search 9.7%, according to Nielsen Online. The new Microsoft search initiative also comes shortly after the software giant gave up on its bid to acquire Yahoo, which was widely seen as an effort by Microsoft to challenge Google for web dominance.

Microsoft is promoting the cashback program prominently on its web portal, MSN.com, and plans an extensive online marketing effort, including the use of video, Goldberg says.

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