Update: Microsoft unwraps search engine reward program

Microsoft launched a comparative shopping feature in its Live Search engine on Wednesday. The service offers consumers a rebate on purchases made through the site, a scheme that could lure shoppers from Google and Yahoo.

The idea for Microsoft's "Live Search cashback" came from a Web site called Jellyfish.com, which Microsoft bought for an undisclosed amount last year.

Products found during a search eligible for a rebate are denoted with a gold coin icon with a U.S. dollar sign in the center. The rebate is based on a percentage of the purchase price and is determined by the advertiser.

For example, a search for a 4GB flash memory SD card from SanDisk showed a rebate of $2.12 offered by a retailer for a card priced at $52.99.

So far, the cashback option will only be available to U.S. citizens. Shoppers must set up a Microsoft cashback account, where the rebate money is held. When the amount reaches $5, Microsoft will either mail a check or transfer the money to a PayPal account or bank account. The rebate money is not released until 60 days after the purchase date in case the item is returned.

The cashback program offers an advantage for advertisers in that they only have to pay when they sell an item, known as a "pay per action" fee. It also avoids the problem of click fraud, where bogus clicks on an ad drive up marketing costs.

With the U.S. economy slowing, Microsoft's cashback program may be more appealing to advertisers with smaller budgets who only want to pay for completed transactions rather than for click-throughs from Google ads, said Mike Davis, senior analyst for Ovum in London.

"The Microsoft bit will potentially be more attractive to people with less money to spend," Davis said.

The cashback feature also thrusts Microsoft into an online retail market where it could potentially affect businesses such as eBay and Amazon.com, Davis said.

Persuading people to change search engines isn't easy, since people tend to stick with the one they're most comfortable with, said Alex Burmaster, an Internet analyst with Nielsen Online. For many people, that's been Google.

But it's a step in the right direction for Microsoft despite a consensus that Google will most likely dominate the search market for at least the next two years, Burmaster said.

"I think Microsoft should be applauded for doing this," Burmaster said.

The cashback site is one way Microsoft is trying to draw interest in its Live Search engine, which ranks a distant third place compared to Google and Yahoo.

Google was used 58.4 percent of the time by Web surfers in December 2007, according to data released by Comscore, which tracks the search engine market. Yahoo held a 22.9 percent share, with Microsoft at 9.8 percent.

Last week, Comscore said the number of visitors to Google's Web properties surpassed Yahoo for the first time in April, at 141 million. Yahoo's sites came in a close second with 140.6 million visitors with Microsoft's Web sites coming in third at 121.2 million visitors.

Microsoft's desire to boost of the popularity of its search engine also seems to be at the heart of its contentious discussions to acquire Yahoo. As of late, Microsoft is reportedly interested in buying assets related to Yahoo's search engine.