Microsoft’s latest attempt to compete with Google in the internet search market will involve the software giant in paying consumers who buy items they find through its search service.

Microsoft has announced plans to create a service called Live Search cashback, for which it will join forces with retail partners, such as eBay, Barnes & Noble.com and Sears, promising to offer customers “ad-funded cash rebates”.

The launch of the new service is part of a wider move from Microsoft to attract more people to its internet search service.

The announcement of the new service follows the software group’s recent attempt to compete with Google by trying to acquire Yahoo!. Microsoft lags behind both groups in the internet search space and has been trying to fight off Google’s dominance.

Although the service will be launched in the United States, sources close to the company said that it would be introduced to countries such as Britain if it proved a success.

Microsoft said that the Live Search cashback portfolio will include more than 10 million products from more than 700 merchants, including at least 13 of the top 40 US-based retailers.

Bill Gates, Microsoft’s chairman and co-founder, announced the initiative yesterday at the group’s advance08 conference in Redmond, Washington. He said: “We believe search can offer much more value to consumers and advertisers than it does today and we see Live Search cashback as an important opportunity to deliver additional value. Live Search cashback will help advertisers drive more online sales while giving consumers a new way to stretch their dollars.”

According to industry data, online retail in the United States is projected to grow to $335 billion by 2010. Today, 68 per cent of all those retail transactions begin at a search engine.

Microsoft said that participating merchants will pay Microsoft a fee each time a purchase is made, although it refused to reveal what percentage of the retail price this will be or how this will be passed on to the consumer.

To use the service, customers will be required to provide personal details, such as billing information, and cashback is likely to be paid by cheque, by a deposit to a current account or through eBay’s PayPal service.

Sir Martin Sorrell, chief executive of the advertising giant WPP, whose company is one of Microsoft’s partners for the new service, said: “Our business is to connect consumers with brands in the most effective and efficient ways. Microsoft’s Live Search cashback creates a real incentive for consumers to connect with our clients.”

The technology is based on a system used by Jellyfish, the shopping and auction service, which Microsoft acquired in September 2007.

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