Leveraging the classic business tactic of spending money to make money, Microsoft introduced Live Search cashback, in which the software company will pay consumers who find and purchase products through its Live.com search service.
The effort is designed to help Microsoft close the considerable gap between itself and market leader Google in search advertising. Google currently commands 60 percent of the search market compared to Microsoft's paltry 10 percent, according to market researcher comScore.
The service, launched May 21 at Microsoft's advance08 advertising event, comes as Microsoft is said to be negotiating to buy Yahoo's search business after failing to buy the whole company for $33 per share.
Here's how Live Search cashback works: Some 700 merchants, including eBay, Circuit City, Barnes & Noble.com, Overstock.com and Sears, pay Microsoft a CPA (cost per action) fee each time a customer completes a sale through Live Search cashback. The fee is a percentage of the retail price. When that transaction is complete, Microsoft returns that fee to the consumer in cash.
Customers may sign up for a Live Search cashback account when they make their first purchase and collect ad-funded rebates in their account each time they purchase a product in the Live Search cashback program. Buyers then receive their rebates via check, direct deposit to their bank account or an account with eBay's PayPal e-payment service from Microsoft 60 days after making purchases.
For example, a consumer who purchases a Canon PowerShot A470 Digital Camera from Beach Camera through the Live Search cashback service will pay $109.50. Microsoft has agreed to return customers 2 percent of this transaction fee, which is $2.19, according to the site.
Leveraging Search and eCommerce Have Analysts Bullish
The technology is based on the Jellyfish comparison-shopping site Microsoft bought last October and currently spans more than 10 million products.
Microsoft also introduced Live Search Farecast, which uses predictive technology to recommend the best prices and schedules from several travel sites. Microsoft said it will consider an ad-funded rebate option for this travel service in the future.
With both services, Microsoft is looking to leverage the strong tie between search and e-commerce with this offer at a time when searchers are going online to look for goods and make purchases. EMarketer said 68 percent of online retail transactions begin at a search engine, noting U.S. online retail will hit $335 billion by 2012.
Analysts are bullish on the company's prospects for Live Search cashback. IDC analysts Susan Feldman and Caroline Dangson said in a May 21 research note that Microsoft hopes to disrupt the existing search advertising value chain by giving money back to consumers.
"By attaching advertising to rebates, advertisers will want to apportion the lion's share of their ad spend to customer rebates in order to ensure conversion," they wrote. "[The service] may not immediately change behavior, but it gives Microsoft a large stable of e-commerce partners that will be watching results very closely. If it is successful, it will help push consumers to Live Search."
Stickiness Is a Gamble
Longer term, Microsoft could gain advantages over Google and Yahoo by giving consumers an account to receive and cash out rewards because they will be able to track and collect information on consumer preferences and behavior, they said.
Microsoft Watch's Joe Wilcox also applauded the services in a May 21 post, favoring it as an alternative to Microsoft buying Yahoo or at least its search business.
"It's a much better way for Microsoft to buy search share -- giving money back to existing or potential customers rather than to Yahoo shareholders. Microsoft will spend a whole lot less, too," he wrote.
However, Wilcox broached an interesting question about what happens if the service takes a left turn. "To whom belongs the customer service problem if the purchase doesn't show up in the buyer's Live Search cashback account? Retailers don't want buyer's remorse, but they'll get some if the process doesn't work right."