Microsoft To Offer Cash Back To Search Engine Users In Effort To Fight Google

Update: Live stream of Bill Gates keynote and Live Search Cashback press release is here.

Update 2: Our complete analysis of Live Search Cashback is here.

Microsoft will announce a new search advertising model tomorrow at the Advance08 Conference in Redmond, Washington – some parts of the site are already live on Microsoft now (see screen shots below). The core of the new service will be a new set of 18 new vertical search offerings that will give users cash back on any purchases made from advertisers.

A number of high profile ecommerce sites are participating in the early stages of the program, which is being dubbed “Live Search Cashback” and is based at least partially on technology developed from Jellyfish, a company Microsoft acquired in 2007. A message on the Jellyfish site says the site is down “currently offline to perform necessary service upgrades and enhancements.”

The goal, of course, is to lure high value searches away from Google. Only a small percentage of total searches are highly valuable, usually because advertisers are right on the cusp of selling something to the searcher (searches for books, for example, or mortgages).

Microsoft’s hope is to lure advertisers with a promise to pay only if a purchase is made, unlike Google’s pay-per-click model that carries more risk because a searcher may not complete a transaction. And by offering a percentage of the fee collected from advertisers, Microsoft hopes to convince searchers to take the last mile to a transaction through the search engine, generating more advertising revenue for Microsoft and simultaneously hurting arch-rival Google.

The new product will be announced tomorrow morning by Kevin Johnson, the President of Microsoft’s Platforms & Services Division. We will be live blogging the event.

Farecast, a company they acquired last month, will likely power travel, one of the 18 verticals.

The Yahoo Angle

This fits with Microsoft’s recent re-engagement with Yahoo and a new proposal to take over Yahoo’s search business. Microsoft will look to make a big splash with advertisers right away. By removing risk (moving from CPC to CPA) they will get part of the way there. But Microsoft also needs to offer advertisers enough inventory to make it worth their while – Yahoo search traffic does that.

But even without Yahoo, Microsoft may find a warm reception from advertisers, who currently see a virtual monopoly by Google in the search advertising space. It’s in their best interest to have as many strong players vying for their business as possible, so any competition to Google may be worth their time.

Look for more details tomorrow morning.