Technology reporter, BBC News, Silicon Valley
Cashback is expected to be a US service
Microsoft is offering "cold, hard cash" to persuade users to shop online using its Live Search engine and help the company catch up to rival Google.
The savings range between 2% and 30% on products sold by select retailers through its so-called cashback service.
Microsoft's new site is seen as an attempt to convince advertisers it can combat Google's increasing share of the online ad market.
"2008 is the year that search got competitive," said Bill Gates.
Speaking at the company's annual digital ad conference in Redmond, the company chairman laid out details of their latest product and told the audience to expect "big announcements around search to happen every six months".
"The overwhelmingly positive feedback from all the partners confirms there is this opportunity for change," Mr Gates said in his keynote speech at the end of the two-day summit.
Under the cashback service, the software giant promises to pay back a portion of the purchase price of anything shoppers buy online from any of its 700-plus selling partners who are offering more than 10 million products.
Among the big box retailers who have signed up are Barnes & Noble, Sears, Overstock.com, Home Depot, J&R Electronics and a host of others.
Money will be paid either via PayPal, a cheque or into a user's bank. It will only be open to people living in the US.
While "cashback" is being talked up as one way to eat into Google's lead in the online market, Om Malik, founder of GigaOm, is not impressed.
He told BBC news, "This is not going to affect Google. Google is so much better."
"Microsoft is like a bad restaurant - no matter what the incentive, you don't want to eat there. Their product isn't working and their share of the market proves that."
Google has a 60% share of the online market while Microsoft trails in third after Yahoo with just 10%.
But Greg Sterling, an analyst at SearchEngineLand.com, is not so negative about the new Live Search offering.
"I think it's an interesting idea. The challenge for Google competitors has always been 'are you different enough?'"
"The thing with Google is that people are addicted to it. They are comfortable with it and there have been very few things so far to lure them away. But with a cash incentive tied to products, that might have some success with some people."
So what is in it for advertisers and retailers?
To persuade businesses to sign up to the programme, Microsoft is using an alternative payment model called Cost-Per-Acquisition instead of the Cost-Per-Click approach favoured by Google.
This means advertisers only pay when the ad results in a consumer actually buying something and is less of a risk for the merchant.
It is something that Mike Arrington at TechCrunch says advertisers will be attracted to.
"Microsoft may find a warm reception from advertisers, who currently see a virtual monopoly by Google in the search advertising space. It's in their best interest to have as many strong players vying for their business as possible, so any competition to Google may be worth their time."
Mr Sterling, at SearchEngineLand, told BBC News: "What this does for participating advertisers is eliminate concerns about click fraud and the fact they are only paying when an actual transaction happens."
'Not the worst idea'
While Microsoft might hope Wednesday's announcement shows they can be regarded as a serious contender in the world of search, others say it points to their weakness and how a partnership with the likes of Yahoo is vital.
Talks with Yahoo are said to be back on after Microsoft walked away from the table following their offer to buy the internet portal for $45.7bn.
CNET's Charles Cooper says: "Truth be told, it's not the worst idea. What's the harm in giving it a shot? In a recession consumers are open to bribes or rebates.
"But the reason people use Google is because it works better. Microsoft CEO Steve Ballmer knows this. That's why he still thinks making a move for some of Yahoo's assets makes sense."
In something of a nod to the Yahoo situation, Mr Gates reiterated that Microsoft is a long-term player in the search market.
And he put the best spin possible on the fact the company is lagging in third place by joking: "It's kind of fun to be an underdog. It's neat."