REDMOND, Washington (Reuters) - Microsoft Corp said on Wednesday it launched a new “cashback” search service that pays users a rebate for buying products they found through the company’s Windows Live search engine.

Microsoft Corp Chairman Bill Gates speaks during a news conference in Tokyo May 7, 2008. REUTERS/Yuriko Nakao

Live Search cashback is the latest attempt by the world’s largest software maker to draw users to its online search engine, which is a distant third behind market leader Google Inc and Yahoo Inc.

“This is giving you a reason why you should use a particular search engine,” Microsoft Chairman Bill Gates said at the company’s Advance 08 advertising conference.

Microsoft sees online search as a critical component to establishing an online advertising powerhouse. By placing text-based ads next to results from its ubiquitous search engine, Google has become the leader in Web advertising.

A product search on Windows Live will call up links to online retailers offering that item. The user who buys that item from the retailer’s site will get 2 percent to 30 percent of the purchase price back as a rebate.

Consumers would have to sign up for a free Windows Live cashback account to participate in the program. Rebates would be issued after a 60-day waiting period to make sure there are no returned products.

Microsoft’s Gates said it will partner with more than 700 retailers including eBay Inc, Barnes & Noble, Sears and Home Depot Inc.

Redmond, Washington-based Microsoft will offer advertisers a cost-per-acquisition model of payment, meaning that they only pay for ads that lead to purchases. The current cost-per-click model charges advertisers for every click on a sponsored link associated with certain keywords.

“If you knew the user and watched their behavior you could do a lot better for them in terms of taking them directly to the information or presentation they want. Search can be dramatically better,” said Gates.

“We think we’re entering a period where there’ll be quite a bit of change (in search).”

The company’s effort to gain more market share in Web search led to its unsolicited offer to buy Yahoo Inc earlier this year. It withdrew a sweetened $47.5 billion offer a few weeks ago, but said on Sunday it had re-approached Yahoo with an alternative deal.

A source familiar with the talks said Microsoft had offered to buy Yahoo’s search business and take a minority stake in the rest of the company after selling off its Asian assets. Microsoft executives did not address the Yahoo issue directly at the conference.

Microsoft also launched Live Search Farecast, based on the airfare-predicting technology that the company bought in April through its acquisition of travel site Farecast. Microsoft also said it will consider cash rebates for flights booked through the search.

Shares of Microsoft fell 51 cents, or 1.77 percent, to $28.25 on Nasdaq.