In an attempt to undercut Google's dominance of the search engine world, Microsoft last week announced it was offering cash incentives for people who shop through the company's search engines, Live.com and MSN.com. If elements of the cash-back plan are adopted more widely, search engine followers predicted the internet's cost-per-click advertising model could change in fundamental ways.
Live Search cash-back allows searchers to sift through 10 million product offers from 700-plus partner merchants, comparing prices and also weighing how much cash credit they are eligible to receive on purchases. By typing "camcorders" into Live Search and then selecting a model, for instance, a user can see merchants offering discounts from 2.5 to 7 percent.
Among the initial cashback partners are Overstock.com, Zappos.com, Barnes & Noble, eBay, 1-800-Flowers, PetSmart, Sears, Canon and Adidas. Customers are driven to Live Search cashback by Microsoft search engines through a paid ad, or can get there directly at search.live.com.
For advertisers, the big benefit is that they know exactly what their cost per acquisition will be as opposed to a pay per click model where they don't know who's going to be buying.
"You might get 1,000 clicks at $1 per click and not get a single sale," Sean Belnick, CEO of BizChair.com, an office chair retailer told DMnews.com. BizChair.com has been participating in a similar program for the past year through Jellyfish, which Microsoft acquired in October 2007.
Mr. Belnick said, "Essentially, what we've been able to do is figure out what our cost per customer acquisition is and we're able to offer an amount near or equal to that as a cash-back to our customer."
Participating merchants pay Microsoft a fee only when a customer completes a sale through Live Search Cashback. Said Microsoft chairman Bill Gates, chairman, at the launch, "Our goal is to make Live Search the most rewarding commercial search destination on the Web."
Many observers questioned whether the rebate plan would revive dismal traffic rates to Microsoft's search engines. According a Nielsen Online report for April, MSN/Windows Live Search had a 9.7 percent share versus 62 percent for Google and 17.5 percent for Yahoo.
But other analysts said the incentive could lead scores of consumers to Live Search for bargains, and could lead to an overall reduction in margins for search advertising, according to The Washington Times.
"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."
Discussion Questions: What do you think of Microsoft's Live Search cash-back program? Do you think cash rebate programs around search engines have the potential to replace the internet's pay-per-click advertising model?