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Microsoft Spends To Make

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Cash back incentive central to company's online strategy.

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As the technology world awaits the next salvo in the battle for Yahoo (YHOO), Microsoft (MSFT) is steadily advancing its online strategy.

Microsoft, Time Warner (TWX), Newscorp (NWS), Google (GOOG) and now Carl Icahn are all squabbling over the rights to Yahoo's audience. The glut of potential deals, kicked off earlier this year by Microsoft's unsolicited bid for the Internet search company, is getting harder to keep straight.

But it's possible the bidding war was all just misdirection; an elaborate ploy by Microsoft CEO Steve Balmer to disguise an assault on Google's dominance in online search. Today, with the announcement of a pay-per click offering of its own, Balmer may be showing a bit more of his hand.

The Wall Street Journal reports Microsoft is expected to announce the launch of a new service dubbed "Live Search cashback." The program offers users cash back for items purchased using the company's search service. Microsoft is also partnering with retailers Home Depot (HD), Circuit City (CC) and Barnes and Noble (BKS) to expand the products available for the kickback.

Microsoft is eager to chip away at rival Google's lead in Internet search. According to the Financial Times, around 50% of online ad revenue comes via online searches - a business Google dominates with 70% market share.

Balmer appears specifically focused on targeting the online search business. In addition to the release of the new cash back service, in recent days Microsoft has approached Yahoo with a slimmed takeover plan. The company is interested in purchasing Yahoo's Asian assets along and search business. Many analysts argue that without those two components, Yahoo is barely worth the electrons it's printed on.

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The battle for supremacy in online search highlights a fundamental change in the online landscape. The rate at which American consumers are switching purchases from brick and mortar to click and order has slowed. Meanwhile, international users are increasingly buying online. The quandary then becomes: Grab domestic customers from rivals with new offerings or strategic takeovers, or ditch the flagging American consumer and head abroad.

Microsoft's recent actions indicate its pursuing both courses. Despite the outlook for a slowing global economy and a domestic one that may not recover in the near-term, opportunities abound in parts of the world where online muscles are just starting to be flexed.

According to InternetWorldStats.com, data compiled by Nielson Ratings shows that North America represents just 17.5% of worldwide Internet usage. Asia, meanwhile, accounts for 37.6% and Europe 27.1%. Over the last decade, both regions have seen usage grow at twice the pace of North America. Africa and the Middle East, despite making up a combined 6.6% of all online eyeballs, have seen usage surge over 1000% in the same period. Not to be outdone, Latin American users, which account for almost 7% of the global total, now go online almost 700% more frequently than in 2000.

While Yahoo's suitors vie for headlines and ownership rights, the real battle is taking place overseas. Global growth may wane, assets may deflate and credit will certainly be destroyed in the years to come, but the transformation of real-time consumer to virtual one is a process no credit crunch can halt.

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