-By Mike Shields

Microsoft is taking its fervent quest to catch search advertising dominator Google to another level—as the software company announced an innovative program that will essentially pay people to use its search engine.

During a keynote address on Wednesday (May 21) at Microsoft’s advance08 conference at its Redmond, Wash. campus, outgoing chairman Bill Gates unveiled Live Search cashback, a new product designed specifically for ecommerce advertisers that the company hopes will fundamentally alter the search advertising business model. Using the newly launched product, searchers can now sift through 10 million product offers from 700 plus partner merchants, comparing pricing and also weighing how much cash credit they are eligible to receive for making a purchase.

For advertisers, instead of bidding on search ads via a cost-per-click basis, as is the industry norm, they can use cashback to pay for ads only when users make a purchase (a cost-per acquisition arrangement). Microsoft then agrees to pay a portion of these advertisers’ fees to consumers who establish a cashback account. “We’re going to take a portion of the money we collect from advertisers and redirect that,” explained Gates. That approach “will introduce we believe some new dynamics in the marketplace.”

Among the initial cashback partners are Overstock.com, Zappos.com, Barnes & Noble, eBay, Sears, Canon and adidas. Gates said that Microsoft has received overwhelming positive feedback from all the partners,” a few of which were featured in video testimonials played during his speech. Overstock.com CEO Patrick Byrne called cashback “absolutely brilliant.”

Clearly, with the cash incentive tactic, Microsoft is hoping cashback is brilliant enough to ultimately bring new users to its search product, regardless of whether it acquires or partners with Yahoo (which is the continued subject of speculation). Despite heavy investment and praise from advertisers, the software giant has rarely been able to crack the 10 percent share threshold. According to the latest figures from Nielsen Online, MSN Search’s share came in at 9.7 percent in April, versus Google’s hefty 62 percent share.

During Gates’ presentation, titled Changing the Game in Search and Advertising, he spoke about the opportunity presented by improving the search and shopping experience, which he claims generates a huge percentage of the total search ad dollars, but is often “more frustrating for consumers.”

With cashback, “consumers and advertisers getting a lot more value,” he explained. Currently, according to Gates, a disproportionate amount of value goes to search vendors (such as Google). He compared that dynamic to other media such as TV, where consumers are accustomed to more of a value exchange from advertisers – which Microsoft wants to bring to search.

“A few years from now, you may look back and say, ‘this is when search started to get a fair bit more competitive,’” he said. Indeed, Gates was frank, even playful about the competitive position the software giant finds itself in the search business.

“We’re really an underdog,” he said, with his next line inducing laughter among the advance08 attendees. “I must say it’s kind of fun to be an underdog. It’s neat.”