Microsoft recently announced Live cashback, a program that rewards those who search on their Live search engine and consequently buy a product from one of several hundred merchants affiliated with the program. It’s fairly straightforward. Merchants are in essence placing cost-per-action (aka pay-per-action) advertisements for which they only pay Microsoft if there is a sale. They do not pay for a visitor clicking or merely viewing their advertisement. Of that pay-per-action fee, Microsoft is only retaining a small amount, instead passing the bulk of the money collected back to the consumer.

Microsoft’s Desperate Position

My initial response was that this was a desperation move on the heels of a thwarted acquisition attempt of Google. Most of the negative commentary on Live search is based on the premise that because Microsoft lost out on its Yahoo acquisition attempt that they are now relegated to having to pay customers to use their Live search engine. And, to be clear, there is something desperate about Microsoft’s situation in search. They’ve been at this for quite some time now and their progress has been underwhelming. As it currently stands, here’s the lay of the land:

Search Market Share – April, 2008 – ComScore
1. Google: 61.6%
2. Yahoo: 20.4%
3. Microsoft: 9.1%
4. AOL: 4.6%
5. ASK: 4.3%

But, insofar as Live cashback itself, it may be a response to a desperate situation, but the program shouldn’t be cast in a negative light solely because it is a response to a difficult challenge for Microsoft.

Live Cashback and consumers

If the average Joe can get a few percent of what they spend back when making a purchase (assuming they know Live cashback exists), I’d argue they’d at the very least consider it. Will they actually do it? That I cannot predict. If users do make that switch over to Live, even if only when in a purchasing mindset, the needle moves in Microsoft’s favor on the back of a clear value proposition.

Live Cashback and advertisers

The other side of the coin is the advertisers. Over on Google, merchants place AdWords ads for which they pay when the ad is merely clicked upon. With Microsoft’s cashback program, the advertiser is getting a guaranteed ROI. They are only paying when a sale is made. The advertising investment has no risk.

A few participating merchants and their that caught my eye include Zappos.com (9% Cashback), Barnes & Noble (6% Live Cashback), and Footlocker (15% Live Cashback).

Will Cashback ultimately work?

For the program to ultimately work, consumers have to find value when they try the service. That requires having as many merchants as possible participating, and preferably those who are already top shopping destinations online. For merchants to want to participate, they’ll want to see search volume, which is what Microsoft doesn’t have an impressive inventory of.

Who knows. Microsoft Live Cashback could be dead-on and drive a self-perpetuating cycle of increased search traffic enticing merchants which in-turn drives more search traffic. If everything is spot on, that cycle will still move slowly. One thing that Google has online that Microsoft does not is incredible brand affinity. And, even if there is a perfect storm for Microsoft, thinking that Google will stand by and watch it all happen without doing something to slow or reverse such a cycle down is naive.

Could Cashback just fail? Absolutely.

For Microsoft, having a larger search inventory would be a great place to start. Yahoo anyone?

Related posts:

1. Microsoft to Google: Our lawyer thinks your lawyer is wrong
2. Google pay-per-action for AdWords
3. Google: Microsoft’s Yahoo bid bad for innovation, consumers, Internet

The new ads are for Google AdSense for content sites. AdSense publishers can decide if they want to participate in the program or not. Participants will be able to review details of the advertisements which will appear on their site and decide if the ads are appropriate for their site or not.

One would assume that the amount paid for an actual conversion will be far higher than what one gets for a click under the current PPC model-especially as the amount will be able to be determined by the Advertiser, setting up a affiliate-like relationship, brokered by Google.

The program introduces new challenges for those managing a web site with the ads. With PPC, the user had little control over what went on their site and only had to rely on ad copy driving a click. Now, they’ll have to consider if the web site the user will visit as a result of a click has the potential of closing the deal.

Update: Google’s Inside AdWords blog has a post specifically about the Pay-Per-Action beta.

Related posts:

1. AdWords testing increased relevance for advertisers
2. Live cashback a desperate move?
3. Making money how?