Beyond Binary

Microsoft said on Wednesday that it has combined its product search engine with its Live Search Cashback, a product that gives users a rebate on certain purchases made directly after using Live Search.

"The new site unifies Live Search Products (the shopping vertical within Live Search) and Cashback to make it easier for you to research, compare products, and save money," Microsoft said in a blog posting.

The move also reflects the fact that on the back end, Microsoft has shifted the underlying engine for Cashback over from technology from its Jellyfish acquisition and onto the primary Live Search platform. The company launched the Cashback effort nearly a year ago in an effort to try and boost its overall slice of the search market as well as within the lucrative commerce segment.

Microsoft's changes to the product search feature come ahead of a broader revamp of Live Search due later this year. Microsoft is currently testing the new search, code-named Kumo, with its own employees. However, as we noted earlier this week, Microsoft still has work to do to grow its search share, even inside its own walls.

Live Search still badly trails both Google and Yahoo in the search market. For March, Microsoft had 10.3 percent of the U.S. search market, according to Nielsen Online, compared with 64.2 percent for Google and 15.8 percent for Yahoo. Also of note, Microsoft's year-over-year search growth was less than 1 percent compared with 16 percent growth for the market as a whole.

Microsoft said that it, in fact, won't be able to restart a Black Friday promotion with HP.com that many were unable to take advantage of because of glitches with the Live Search Cashback program.

In a blog posting on Friday, Microsoft said that, although it is working to give those who ordered products their promised 40 percent discount, those who were not able to place an order are, essentially, out of luck.

"There have been lots of questions on whether the 40 percent off HP promotion on Black Friday will be restarted," Microsoft said in the posting. "While we were hoping to be able to do that, we are sorry to report that it will not be restarted."

A Microsoft representative had indicated earlier this week that the promotion would be restarted, although a statement on Tuesday indicated that might not occur.

While this is bad for bargain hunters, it may end up being worse for Microsoft, which is trying to use the Live Search Cashback program as a way to build awareness and loyalty for its search product.

Microsoft is still trying to sort things out following a glitch on Friday that prevented people from getting a promised 40 percent cash back on purchases made on HP.com via Microsoft's Live Search Cashback program.

A crush of traffic led to a glitch that apparently led to a number of problems. Some shoppers were credited with only 3 percent cash back, rather than the promised 40 percent. Microsoft has said all those who made purchases through Live Search during the Black Friday promotion would get the higher rebate.

But some folks were unable to make their purchase at all on Friday. A Microsoft spokesperson told CNET News in a statement Monday that the HP promotion would be restarted in the coming days. However, that statement appears to have been premature.

In a blog post late on Tuesday, the software maker offered a much more vague statement.

"We're working actively to determine next steps for any specific HP promotions," according to the post, which was attributed to Rajat Taneja, Microsoft's general manager of worldwide commercial search. "We regret that we don't have more specific details at this time, but we can point customers to other Live Search cashback merchants with great deals on HP products, including eBay, which is currently offering 20 percent cashback."

The glitch was an unfortunate blow to Microsoft, shifting what could have been a banner day for Live Search cashback into another online black eye for the company.

Microsoft on Monday apologized for glitches on its Live Search Cashback site, which frustrated online shoppers looking to scoop up Black Friday deals.

Amid heavy volume on Friday, consumers encountered a range of problems from site sluggishness to seeing the wrong amount of cash back show up in their accounts.

The problem was particularly acute with shoppers who were looking to take advantage of a promotion with Hewlett-Packard that offered buyers a 40 percent discount when visiting HP.com through Microsoft's Live Search Cashback. Some shoppers, however, reported seeing only a 3 percent cash back amount posted to their account.

"We deeply regret customer inconvenience with respect to the outage," Microsoft said in a statement provided to CNET News. "The spike in traffic in combination with a technical glitch led to the outage. The promotion will restart in the next day or so. Again, we apologize for our customers' inconvenience."

A Microsoft representative said the company is in the process of going back to make sure the proper cash back amount is credited.

Live Search Cashback was launched in May as a way for Microsoft to try to boost its share of commerce-related search queries. Instead of taking in revenue on a pay-per-click model, Microsoft gets advertisers to agree to pay in the form of a certain percentage of any resulting sale. For now, anyway, Microsoft is giving that entire amount back to consumers as "cash back."

Separately, Microsoft said on Monday that some users will be able to get cash back instantly on eBay purchases, as opposed to having to wait the 60 days that is standard on Live Cashback.

Microsoft's latest effort to get people to use its search service is something called SearchPerks, which gives people points for using the search engine that can later be redeemed for prizes.

Users who agree to download a small program to track their usage get one "ticket" per day for every Live Search query, up to 25 per day. The program runs through April, at which point users can "cash in" the tickets that they get and trade them in for prizes or donate them to a charity.

It's the latest in a series of financial incentive-related projects from Redmond, joining such efforts as Live Search Club, Search and Give, and Live Search Cashback, a program Microsoft introduced in May.

The latest project doesn't just require one to use Microsoft's search engine, however. At least for now, it also requires Microsoft's browser (Internet Explorer 6.0 or higher) as well as a Windows PC. Microsoft said those latter restrictions are not necessarily permanent.

"At this time, SearchPerks is a limited promotion, though we remain open to expending availability of the promotion to different browsers and operating systems based on consumer interest," Microsoft said.

There's also the broader question of what it says about Live Search overall that Microsoft has to keep coming up with gimmicks to get people to try it. Not to mention the fact that Microsoft has continued to struggle to make inroads on Google in overall share, promotions notwithstanding. According to figures recently released by ComScore, Google increased its share of the U.S. search market in August--it's at 63 percent--while Yahoo and Microsoft both slipped a bit, to 19.6 percent and 8.3 percent respectively.

In an interview, Live Search Senior Director Frederick Savoye said that the new business models, as Microsoft likes to refer to these programs, are just one part of a three-prong strategy that includes continued improvements in core search as well as in vertical search, or "simplifying key tasks" in Microsoft parlance.

Microsoft has seen mixed results with its incentive programs. Live Search Club, for example, gave Microsoft an initial boost, but its gains appear to be directly tied to its level of incentives. With Live Search Cashback, Microsoft said it has seen some advertisers boost their Live Search spend. eBay, in particular, is spending 50 percent more on Live Search thanks to Cashback, which Microsoft says offers significantly higher conversion rates than traditional search.

As I made the usual morning slog through my in-box Monday, I was about to skip past a news release touting a back-to-school promotion for Live Search Cashback, when I noticed one of the featured deals was on a ThinkPad tablet PC from electronic shoe retailer Zappos.com.

(Credit: Converse)

Thinking for sure it was a typo, I went to harass the person who sent me the release. The funny thing is, it really is Zappos selling that tablet computer. I missed it when Zappos expanded from high heels to high tech.

While the departure sounds strange, Zappos certainly wouldn't be the first online retailer to go well beyond its initial category. As we all know, Amazon was the world's largest bookstore before it moved into groceries, sporting goods, and basically anything they can put in a box (and even a few things that don't need a box).

The key was Amazon had a logistics system that worked better than anyone else's. I have no idea how efficient Zappos system is, since I still buy my shoes the old-fashioned way. However, my co-workers tell me they are amazingly fast at getting your order to you and, well, they do have cool robots.

As for that Live Search Cashback promotion, some of the participants, like Zappos, are offering double their usual cash-back percentage during August to those who place their order after going through Microsoft's site.

I was listening in on a conference call this morning where the folks from Search Engine Watch lavished praise on Microsoft's Live Search Cashback program.

"I think it is potentially a game changer," said Search Engine Watch's Kevin Heisler, speaking on a call organized by investment bank Collins Stewart. "It's really I think a brilliant move by Microsoft, Bill Gates, and his team."

Later in the call, Heisler went a step further, suggesting that the program could even be bigger than the government's economic stimulus program, in which most taxpayers are receiving a $600 check.

"Microsoft has potential to make an even bigger impact on the economy if this takes off," he said.

Hmm. That seems like a very bold prediction, especially since there is still so much that is unclear about the program. First and foremost, how does Microsoft make money at this?

As I noted early on, Microsoft is giving back to consumers 100 percent of the money it gets from advertisers once a sale is made. So, for now, Microsoft's plan is to benefit indirectly from the program--ideally by grabbing searchers and advertisers that are currently going to rivals.

But after talking further with people involved in the program, Microsoft apparently doesn't see that as a permanent promise. The company may at some point change that, taking a cut from the rebate and thereby creating an entirely different business proposition for itself.

REDMOND, Wash.--I'm not sure how much Microsoft's Live Search Cashback program will help Microsoft take share from Google, but I do find my brain grinding over the business model implications.

As I noted earlier, the economics are based on the same broad model as affiliate programs that pay referrers a cut on sales that they directly feed to the site. In this case the referrer (Microsoft) is shuttling all that money to the consumer. It's the same model bargain-hunting sites like Fatwallet.com use, although those sites typically keep some of the money to pay the bills.

But, where Microsoft is changing things a bit, is by moving this approach to search advertising. Essentially, advertisers can get placement by offering to pay Microsoft a cut of the sale as opposed to paying per click.

Here's where it gets interesting. In order to place a value on that ad, Microsoft has a team inside the company that figures out how much the new ads are worth to Microsoft and bids a cost-per-click amount against traditional buyers that use Microsoft's AdCenter.

But how does Microsoft do that? If it were keeping a percentage of the cut, I could understand it. It would assess a conversion rate for each advertiser and estimate what that translates to on a per-click basis. In this case, though, Microsoft is returning 100 percent of its cut to consumers. So the value to Microsoft is essentially the goodwill and loyalty that its offer generates--something that seems to me hard to put a value on vis a vis a pay-per-click ad.

It's also worth noting that although Microsoft is giving all of its revenue per search for the Cashback results to its users, it is not having to put money upfront or lose money on each sale, either.

Those retailers who are taking part in the program spoke fondly of it on Wednesday, saying it was a no-brainer that let them pay a percentage of the sale--something they basically try to do all along but using other, less precise methods.

They just pick a percentage they are willing to pay and offer that amount up to Microsoft's search users. The only tricky one is eBay, which sells much of its stuff through an auction--so it doesn't normally know the final price, unlike traditional retailers.

To deal with that, eBay plans for now to limit its participation to a subset of its Buy It Now fixed-price items.

"With auctions, it does get a little tricky," said Matt Ackley, eBay's vice president of Internet marketing and advertising. The company also has to figure out how to adjust the model to work for a site that sells items for less than $1 as well as cars and houses for thousands.

The question I have, though, is how those advertisers that are NOT part of Cashback will feel, essentially having to bid not only against other pay-per-click ads, but also against the somewhat intangible value that Microsoft itself places on the Cashback ads.

Any pay-per-click advertisers care to drop me a note? (I'm at INA dot FRIED at CNET dot COM).

Bill Gates makes lemonade at Advance 08 conference, saying, "It's kind of fun to be the underdog."

(Credit: Ina Fried/CNET News.com)

Update 11:30 a.m. PDT: Added more details about the cash back program and comments from Overstock.com CEO.

REDMOND, Wash.--Microsoft still wants to be all things to more people in search, but, in the short term the company would settle for just getting people when they want to buy stuff.

The company's big search news, as previously noted, is a program that gives customers cash back when they use Microsoft's Live Search as the starting point when making a purchase.

"The one you'll see us particularly invest in in a major way is a deep focus on commerce," Chairman Bill Gates said on Wednesday at the company's Advance 08 advertising conference. "Commerce represents about a third of all searches, but a dominant share of the revenue."

Gates said that, although the program is just beginning, the company has signed up more than 700 merchants representing about 10 million products.

"The overwhelmingly positive feedback from all the partners confirms there is this opportunity for change," Gates said.

The cash back Live Search program is based on the Jellyfish.com acquisition from last year. Although other sites have offered cash back to shoppers, Microsoft is building it into the search process itself, a process it is counting on to boost the popularity of such efforts beyond hard-core bargain hunters.

In video messages, the chief executives of Zappos.com and Overstock.com praised the move.

"It takes so much of the risk off the plate of the advertisers," Overstock CEO Patrick Byrne said in a video message, before appearing onstage with Gates. Byrne and a handful of partners were trotted out briefly, but did not speak before walking off again. "I hope they got the picture. If not, we will stage it again later," Gates said.

The move comes as Microsoft continues to badly trail Google and Yahoo in overall search. The company has used financial rewards in the past to gain users, although such efforts have also been short-lived gains that largely disappeared once the incentives went away.

Gates reiterated that Microsoft is a long-term player in the search market and tried to put the best face he could on being a distant third in the business.

"It's kind of fun to be an underdog," he said. "It's neat."