Early adopters of the service include eBay, Barnes & Noble, Overstock.com, Sears and Zappos.com.
"We believe that 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," said Microsoft chairman Bill Gates.
"Live Search cashback will help advertisers drive more online sales while giving consumers a new way to stretch their dollars."
Microsoft aims to make Live Search the premier search engine for the growing category of queries that help consumers research and purchase goods or services.
The company believes that the opportunity to reach consumers via search advertising is growing.
Research firm eMarketer said that US online retail is projected to grow to $335bn by 2012, and that 68 per cent of all retail transactions begin at a search engine. This translates to 3.7 billion commerce-related queries a month.
The primary choice for advertisers to reach these search customers is the cost-per-click (CPC) model, where merchants pay a fee each time a searcher clicks on their ad, whether or not the potential customer makes a purchase.
The cost-per-action (CPA) model, where advertisers pay only when a customer makes a purchase, or completes a specific transaction, gives advertisers a more precise return on investment, and is currently deployed on a relatively limited basis.
The CPC and CPA search advertising models represent the most targeted advertising approaches available today, but there is still room for improvement.
With Live Search cashback, Microsoft claims to maximise advertising investments and drive more sales by providing consumers with an added incentive to buy, i.e. a cash rebate.
Participating merchants choose to pay Microsoft a CPA fee each time a customer completes a sale through Live Search cashback.
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.
"We are happy to partner with Microsoft on this innovative programme," said John Donahoe, president and chief executive at eBay.
"By combining eBay's marketing expertise and incredible volume and velocity of trade, PayPal's leadership in online payments and Microsoft's cashback programme, we see a great opportunity to deliver more value in the eBay marketplace."
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