Google executives reportedly met in the U.K. this week to discuss how to respond if Microsoft decided to revive its bid for Yahoo. Had they known that Microsoft on Wednesday would start offering cash rebates to searchers who buy products found using Microsoft's Live Search, they'd have been able to discuss a more pressing threat than the possible purchase of Yahoo.Last year, Microsoft bought Jellyfish.com, a company that made its name by sharing the wealth of Internet advertising. Jellyfish.com was able to offer those using its e-commerce search engine very competitive prices because it gave half of the ad dollars paid by its e-commerce partners back to online customers.

This is a form of cost-per-action advertising -- the advertiser pays for a specific action, such as a sale, rather than for a click. Cost-per-action ads are generally less profitable than cost-per-click ads for search engines like Google and for publishing partners.

One reason is that not all advertisers want to buy cost-per-action ads. Another reason is that cost-per-action ads don't pay when an online shopper is just looking, which happens quite a bit.

In the model Microsoft has just rolled out, the cash-back rebate, set by the merchant, goes directly to the consumer.

The fact that Google hasn't said much about its cost-per-action beta test since June 2007 suggests that the testing isn't going all that well. Cost-per-action advertising "does not appear to have been eagerly embraced by publishers, in part because the process is cumbersome and not automated as with AdSense," said Internet marketing consultant Mark J. Welch in the Google Groups AdWords Help Forum last November.

If cost-per-action ads did generate more revenue than cost-per-click ads, you can be sure Google would have rolled them out years ago.

Regardless, now is the time for Google to redouble its effort to make pay-per-action ads work and to come up with incentives to match those offered by Microsoft. If Microsoft's Live Search cash-back scheme goes unchallenged, Google risks losing a lot of e-commerce business. After all, as a company selling goods online, why would one pay for clicks, which may or may not lead to a sale, when one could buy guaranteed sales?

Unlike Jellyfish when it was on its own, Microsoft has the reach and funds to promote cost-per-action ads as an alternative to cost-per-click ads. And if Microsoft can do that, Google had better be prepared.

Google got where it is by breaking Microsoft's business model. Now it needs to make sure that Microsoft isn't in a position to return the favor.