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Microsoft Dangles Rebates for Web Shoppers

By Peter Whoriskey
Washington Post Staff Writer
Thursday, May 22, 2008

Attention shoppers: There may be bargains available at Microsoft's search engine.

In an attempt to undercut Google's standing as the most popular guide to the Web, Microsoft announced yesterday that it was offering cash incentives for people who use the company's often-overlooked search engine.

Live Search Cashback offers discounts to consumers who do their Internet shopping using the Microsoft engine. Typing "video cameras" into Live Search and then selecting a model, for example, a user can see merchants offering discounts from 2 to 9 percent.

In a speech announcing the rebates, Microsoft Chairman Bill Gates predicted that the program would attract more consumers to Microsoft's search engine and potentially change the economics of Internet search.

"I think years from now you may look back and say, "Wow, search started to get a fair bit more competitive,' " he said.

Microsoft is engaged in an epic struggle to catch up to Google, a relative upstart that has gained a preeminent role in Internet services.

The source of Google's fortune is its search engine, which earns money by placing ads around the search results. Of the $20 billion spent on Internet advertising last year, about 40 percent was spent on advertisements accompanying search results. Google has garnered the lion's share of that money, and its mastery of the field has powered its rapid ascent. As a result, Google essentially operates as an Internet guide for most users.

Microsoft's competing search engine, known as Live Search, lags far behind the market shares of Google and even Yahoo.

The rebate plan is a reflection of the company's desire to reinvigorate it, but analysts were split on whether the program could provide Live Search with a significant boost.

"It's definitely unique at the moment, and it will definitely cause people to take another look at Microsoft," said Danny Sullivan, editor in chief of SearchEngineLand.com, an industry publication. "But I don't think there's any guarantee that this is a game changer."

He added that the process to enroll for rebates was "awkward and confusing."

The software maker has offered similar incentives for people to use its search engine but not on the scale revealed yesterday. For example, Microsoft offered large companies software and services credits for every employee who used Live Search in the workplace.

But other analysts said the incentive could lead flocks of consumers to Live Search for the bargains.

"Retail history has shown that consumers react favorably to coupons, rebates and sales," according to a report from IDC analysts Rachel Happe and Susan Feldman. "Our bet is that the next time you look for a product online you'll check out Live.com to see if you can get it for less on Live."

The IDC analysts also said that Microsoft's move portended "a reduction in margins for search advertising."

The program is part of Microsoft's plan to "innovate and disrupt" in the search industry, according to a memo Sunday from Microsoft executive Kevin Johnson, and, indeed, if elements of the cash-back plan are adopted more widely in the industry, it would change the Internet advertising business in fundamental ways.

The company's cash-back program includes more than 10 million products from more than 700 merchants, Microsoft said. Microsoft also announced a service to make it easier for searchers to find the best travel deals on the Web.

While most search advertisers pay each time a user clicks on their ad, participating merchants will pay Microsoft a fee each time a customer completes a sale through Live Search Cashback. The fee will be a percentage of the retail price, and when the purchase is complete, Microsoft will return the fee to the consumer in the form of a cash rebate, the company said. The rebates to the customer, in effect, come from the advertisers.

"Our goal is to make Live Search the most rewarding commercial search destination on the Web," Gates said.

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