Microsoft turns to cash to beat back Google

May 21, 2008: 11:58 AM ET

By Yi-Wyn Yen

REDMOND, Wash. – Microsoft chairman Bill Gates on Wednesday unveiled a new game plan to compete with Google, a closely-watched move that comes more than two weeks after the software giant withdrew its blockbuster bid to acquire Yahoo.

Microsoft plans to pay consumers who search and buy products through Microsoft's Live Search engine. Microsoft's attempt to lure search users with "cold, hard cash" -- in Microsoft's own words -- is the company's attempt to convince advertisers that it has a viable strategy to combat Google's ever-growing share of the online ad market.

"We want to deliver the best search results," Gates told a gathering of online advertisers at the Microsoft Conference Center. "This is giving [consumers] a reason to use a particular kind of search and get value back."

Whether Microsoft's new "Live Search cashback" program will draw more users -- and, in turn, more marketers -- remains to be seen, but some advertising executives said they weren't convinced that it will help Microsoft catch up to Google.

"This is a shopping comparison tool that's being rebranded as search," said Jay Jung, president of Adaptive Marketing, referring to sites like Fatwallet.com and Couponmountain.com that offer similar rebates to consumers.

Microsoft (MSFT) said it will pay a certain percentage of the cost of a product that a consumer buys using the company's search engine. Users need to set up an online account and can receive their rebates via a check, direct deposit or PayPal, eBay Inc.'s (eBay) online payment system. Microsoft said it has signed up more than 700 merchants, including eBay, Sears, and Barnes & Noble (BKS) and offers rebates on 10 million products.

To be fair, the company has run similar cashback promotions before -- with promising results. For three months in early 2006, the company offered $1 million in prizes for online users who entered keyword searches on Microsoft's search engine and also ran a rewards program for search users last summer. Microsoft's search market share rose both times during the promotions.

Microsoft rolled out the new cash-back strategy at its annual digital ad conference in Redmond. The two-day summit began Tuesday with Brian McAndrews, the senior vice president of Microsoft's advertising group, focusing on the company's organic growth strategies.

The company so far has done little to impress marketers that it has a breakthrough strategy to compete with Google (GOOG). One ad buyer attending Microsoft's ad conference this week referred to the new plans as "same-old, same-old."

"Yahoo's trying to buy traffic and search share. This is one way to do it," said Standard & Poor's analyst Scott Kessler. "But to what extent are people going to game the system? Say someone conducts a search on Google or Yahoo for a product, and then replicates the search on MSN to get the cash benefit."

Many Wall Street analysts predict that Microsoft will eventually buy Yahoo. The odds of that happening increased significantly last week when activist investor Carl Icahn disclosed he had acquired more than 4% of Yahoo and launched a proxy contest to oust Yahoo's board of directors and engineer a sale to Microsoft. Microsoft's top brass has in recent days signaled its interest in pursuing Yahoo (YHOO) again.

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