Retail News Update

Microsoft Corp. is offering cash rebates when people make purchases after using its search engine as the software maker begins to reveal how it plans to take on Google Inc. following the failure of its $47.5 billion bid for Yahoo.

Analysts and investors have been eagerly awaiting details about “Plan C” after Microsoft acknowledged that its Plan A of going solo was troubled but also withdrew its Plan B — acquiring Yahoo — because Yahoo executives sought more money.

Under the cash program revealed Wednesday, Web shoppers who sign up for an account and buy items found using Microsoft’s Live Search cashback site will receive a percentage of the purchase price deposited into their account.

When the total reaches $5, the shoppers can redeem their “cold, hard cash” via eBay Inc.’s PayPal. Microsoft said the rebates are funded with a portion of the money it collects from advertisers.

So far, more than 700 merchants, including Home Depot and Zappos.com, have listed products on the site.

Microsoft Chairman Bill Gates said in a speech that he believes the cashback program will boost the number of people using Live Search for shopping, at least. More grandly, he predicted it will change the economics of the search advertising market as advertisers shift from paying for click on links to paying for concrete actions, like completing a purchase.

The online advertising market overall has begun to move in that direction with advertisers under increased pressure to deliver results from their spending. Historically, search ads that have made companies like Google Inc. successful are typically sold by the click, which itself was seen as revolutionary compared with the traditional method of paying for ads by the number of viewers.

“It’s exciting. I think years from now you may look back and say, ‘Wow, search started to get a fair bit more competitive,’ and you can look back to that announcement,” Gates said.

“By giving money directly back to the consumer, Microsoft hopes to change the balance of power,” wrote IDC research analysts Caroline Dangson and Susan Feldman. They predicted that if Microsoft’s effort is successful, advertisers will sink the bulk of their advertising into such rebate programs.

This isn’t the first time Microsoft has resorted to buying search traffic. The software maker has tried offering large companies software and services credits for every employee who used Microsoft’s search engine at work.

Microsoft also developed a collection of free games last year that triggered a Web search with every play. Players could rack up points and exchange them for prizes, including software, Xbox consoles and Zune media players.

The tactic — more common among fledgling or niche search engines trying to make a splash — may not make much of a difference, if the past efforts are any indication. The corporate bounty program remains in pilot phase and the games only temporarily boosted its search share.

Danny Sullivan, editor of the search news site SearchEngineLand.com, said in a recent interview that he recommended Microsoft pay people to use Live Search — as an April Fool’s joke. Microsoft, however, is under very serious pressure to come up with a way to boost search market share.

In the absence of a coherent Plan C, Microsoft is said to have revived talks with Yahoo Inc. about a more limited search and advertising deal, but executives barely mentioned the Y-word during the two-day annual conference for advertisers and ad agencies at its headquarters in Redmond.

Gates’ closing keynote left the impression that improving its own search engine over the coming years is, in fact, its Plan C. Live Search cashback is a “good illustration of what we’ll be doing,” Gates said. “We’re about having the best search, the best results … but also, some of these innovations in the business model will help excite that and drive that.”

Also on Wednesday, Kevin Johnson, president of Microsoft’s platforms and services division, said Microsoft does not currently have its eye on buying any single company, and that it plans to build its digital advertising business in-house, helped by past acquisitions.

The Web site describing the Live Search cashback program is up and details were reported Wednesday in the Seattle Post-Intelligencer and The Wall Street Journal.