Can Microsoft Make Search-Engine-Specific Pricing Work?

Microsoft's announcement this week that it would offer rebates for purchases made through its search engine is shaking the E-Commerce world. But the very lengthy list of gotchas—including making consumers wait potentially 11 weeks after purchases before seeing the rebate checks—is raising questions about whether this approach will work.

The idea of offering consumers financial bribes if they use a particular search engine has been tried before, without success. But Microsoft's entry into this field—the latest in a series of Redmond gambits to try and breathe life into its search engine—is different from earlier efforts.

First, most earlier efforts involved a small chance at getting something, such as sweepstakes or some kind of a lottery contest. Although the Microsoft attempt would certainly not promise a rebate on every product, it would offer rebates on products from some very major retailers and manufacturers—including eBay, Barnes &,, Sears,, Circuit City, Foot Locker, Home Depot and Hewlett-Packard—which will likely translate into a large number of rebate-friendly products. Microsoft said the site "includes more than 10 million product offers from more than 700 merchants, including more than 13 of the top 40 U.S. retailers."

Microsoft's plan is called Microsoft Live Search cashback and it has a lot of requirements. First, the search must be done in the cashback section of Microsoft Live Search. That action alone will limit the search results, which would weaken—in theory—the usefulness of those results.

Secondly, it will require a lot of patience on the part of consumers, a trait that American search-engine consumers have never been known to display in abundance. Unlike an instant discount, the Microsoft plan will have retailers paying the rebate price to Microsoft, which would then send a rebate check or giftcard to the consumer. But it will take a very long time to do so.

How long? When Microsoft announced the program, it's statement said "The fee is a percentage of the retail price, and when that transaction is complete, Microsoft returns that fee to the consumer in the form of a cash rebate." Hardly. From a timing perspective, that's far from reality.

After the transaction is completed, the merchant is supposed to contact Microsoft. (One of the exclusions in the fineprint is that the consumer isn't entitled to any rebate—regardless of what the site might say—if the retailer, for any reason, doesn't report the purchase to Microsoft. With the incentive of not having to pay the rebate, how many merchants might somehow misfile the rebate paperwork?)

Once the retailer eventually contacts Microsoft, the world's largest software company is giving itself seven days to set the consumer's account as "pending." Here's the part that will go over best with impatient consumers: After the seven days has run out, which itself is after the retailer has gotten around to alerting Microsoft, "the purchase will stay in pending status for a period of 60 days to account for returns, refunds, fraud and other processing issues."

So assuming the retailer takes one week to alert Microsoft, that's 10 weeks before the paperwork process starts. So a holiday purchase made on, let's say, December 22, might not get processed until March. And Microsoft has made no promises about how long it would take to issue rebates once the final 60-day period runs out, not to mention how checks would be sent, which could add another week to the process.

There are more issues. The consumer must stay on Live Search's cashback area. One of the fineprint details is that a consumer is no longer eligible for the rebate if the consumer "opens the store's web site in a different web browser." Presumably, that means opening another window, as opposed to using some browser other than IE. That would be a bit much even for Microsoft.

The rebates are also nixed if a consumer's browser is not configured to accept cookies and if "the purchase is not completed in the same web browsing session (not to exceed 24 hours) initiated by clicking on the eligible advertisement or listing."

Despite the rather leisurely speed which Microsoft is promising to pay consumers, Microsoft is not inclined to be especially patient itself. If a consumer's purchases yield a rebate worth less than $5, the process won't kick in. It will wait until at least $5 is accumulated.

But that consumer shouldn't wait too long. If a consumer doesn't buy anything within one year from within the cashback area, Microsoft says that it may close the account, meaning that "accrued but unredeemed" rebates "will be returned to Microsoft."

But after all of these delays and rules, how much of a rebate is at issue here? The rebate, which can be paid as a check, bank account deposit, or PayPal credit, will be decided by each retailer, "giving them full control over where they stand on price versus the competition," said Justin Osmer, a Microsoft senior product manager overseeing Live Search. "On average, most of the stuff will be from 2-10 percent."

Technically, Microsoft considers the retail payments to be cost-per-click (CPC) advertising, which Microsoft says it eventually turns into the rebate payments.

With those kinds of payment delays, that's a pretty big range. There's a decent argument that if most of the rebates are close to 10 percent, it has a very different success scenario than if most are closer to the 2 percent mark.

A quick scan of the cashback retail offers shows an even broader range than Osmer predicted; several sites are offering discounts of more than 10 percent, with a few as high as 20 percent. But the major retailers were generally much lower, with Home Depot at 3 percent, Sears at 2 percent to 7 percent, Circuit City at 3 percent to 5 percent, Barnes and Noble at 6 percent and FAO Schwarz at 10 percent. Footlocker was an exception among the majors, offering 15 percent.

Then there's the exclusivity issue. If Home Depot, for example, is offering 2 percent off a particular item for Microsoft, wouldn't there likely be pressure—over time—for it to also offer such discounts to others, both in-store and eventually online?

The benefit exists when consumers perceive a benefit to using this method of purchase that they couldn't get any other way. Is that perception likely to hold? And will it be enough when there is such a lengthy delay between the purchase and the rebate?

This is not solely a search strategy. If a consumer searches on Microsoft and then buys from the site directly or at that chain's store, the purchase is not eligible for a rebate.

If this was more of an immediate gratification situation—such as if the consumer makes a purchase and then sees the price instantly reduced because of the selected search engine—it would likely have a much better chance of having an impact.