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The concept of paying cash back for shopping is far from revolutionary:
Ebates.com pioneered it way back in 1999. Frequent flier programs operate on a similar model, but with points per dollar, rather than on a percentage cash back basis. There are Web sites all over the Internet that pass on a portion of their sales commission to the buyer. I've reviewed these types of programs on my Web site, http://www.compareRewards.com, for 7 years.

Microsoft purchased the underlying technology for Live Search from a small startup company called Jellyfish.com late last year. What made Jellyfish unique was that it integrated product-level data from its merchants into a comparison shopping engine, which (after taking into consideration the portion of its commission it chose to rebate to the buyer) ranked each product by its final price after cash back.

Merchants contracted directly with Jellyfish, avoiding the "middleman" of the affiliate programs that other shopping rewards programs use. This enabled Jellyfish to provide higher cash back rates, and in addition, they could negotiate rates on a per-item basis as well as across-the-board.

For example, a merchant could offer 3% Jellyfish cash back on all items, but could bump it to 10% on a particularly hot tech item or on an overstocked product.

When Microsoft bought Jellyfish to incorporate into Live Search, it maintained this model, but combined it with web-wide search results.

While I share your skepticism about the long-term viability of Live Search Cashback, it's for different reasons.

The prestige of the Microsoft name has resulted in higher Live Search cashback rates for its participating merchants since it purchased Jellyfish.com. However, if you go directly to the Cashback.Live.com website, you'll notice quite a number of big-name retailers missing from their "100's of stores." Where are Kohls, JCPenney, Macys, and Old Navy? What about Office Depot and Staples? Hallmark and FTD? Radio Shack, Dell, Gateway, or (no big shock) Apple?

These are nowhere to be found. I would assume that the direct-contracting model is probably to blame, because these big-name merchants and more are readily available at any one of a hundred other online shopping rebate programs that use affiliate networks.

Maybe the prestige of being Microsoft isn't enough for all of the major retailers to alter their affiliate practices.

Another area where Live Search Cashback is weak is in its lack of merchant coupon codes, which most of their competitors do offer. The savvy online shoppers who use rewards programs are looking for the very best deal. If they can find a sale, use a coupon, and get cash back on top of it, they're going to buy -- and they'll probably use a credit card that offers points, cash back, or frequent flier miles to do it! Once again, this is an area where Live Search Cashback is weak.

Holding cash back until a merchant's return period has passed is a standard practice of shopping rewards programs. There are people who would attempt to take advantage of faster rebate processing by returning their purchase and keeping the rebate. When a purchase is returned, the rebate program's commission is reversed, and they'd have to eat the loss (or try to somehow recover the money from the buyer/returner). Live Search's 60 days is about average, with some programs only paying quarterly (like Ebates) and only a few allowing members to shop and cash out their rebate in 2 to 3 days (like QuickRewards.net and DotRebates).

So, Live Search Search offers great rates on some big-name retailers while not rewarding for others at all, they fail to provide coupon codes, and they offer only average waiting periods for returns. These are the main concerns I have about the program's longevity.

The internet has provided consumers with an extensive amount of information they can use to make purchasing decisions and yes, they may cherry-pick (whether that's switching from one retailer to another for a lower price, or switching from one shopping rewards program to another to get a higher rebate). Marketers need to accept this as a reality of the internet age and focus on developing programs that encourage repeat use of their brand (whether it's a retailer or an online shopping rewards program). Consumers are going to use cashback sites, and their importance to the marketing mix is even greater in a sluggish economy like this. Garner loyalty to your brand by providing future-purchase incentives, prestige members-only perks, and customized recommendations based on prior purchase history. Be your customer's best friend...and they'll come back again and again.

Thank you for the thought-provoking article.

Rebecca Ford
Owner
CompareRewards.com
Baton Rouge, LA