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Microsoft Swallows Jellyfish For Live Search

The acquisition is expected to enhance Microsoft's online search products with Jellyfish's social shopping search service and "Value Per Action" compensation.

Microsoft on Monday said that it had acquired, a social shopping search service, for an undisclosed sum.

"We want to welcome some new folks to the Live Search family -- we recently purchased a company called, based in Madison, Wis.," said Microsoft said on its Live Search blog. "Jellyfish has done some really innovative work in comparative shopping engines."

Microsoft, says Jellyfish CEO Brian Wiegand, "is investing heavily in shopping and commerce and I think this is a key part of their strategy moving forward."

Since June 2006, Jellyfish has offered an e-commerce search service based on a variant on pay-per-action advertising, which is where advertisers pay the online ad service when a consumer performs a specific action, such as buying a product.

Jellyfish's version of pay per action, which it calls "Value Per Action (VPA)," splits the advertiser's fee with the customer, in effect compensating that person for his or her attention.

"Instead of charging fees when you click, we charge our advertisers only when you actually buy, and we share at least half of this fee back to you as cash back," the company explains on its Web site. "In other words, we connect you directly to the value of the advertising. Instead of measuring how much money WE make when you click, we measure how much value the advertiser is willing to pay YOU for your sale."

The result, Jellyfish insists, is that advertisers change from being an annoyance to a benefactor for consumers.

Last November, Jellyfish began testing event-driven VPA shopping under the name Smack Shopping. Smack Shopping is a kind of reverse-auction shopping game. Merchants compete for buyers by offering increasing discounts on specific products. Participating potential customers must then decide when the discount becomes sufficient to buy the item, knowing that the supply of discounted items is limited. Holding out for too great a discount leaves would-be buyers empty-handed.

Smack Shopping, says Wiegand, came about as a way to guarantee sales to advertisers, who preferred to know that they'd be selling say 10 or 50 iPod Shuffles at a given time rather than waiting for shoppers to search for items and buy them on their own schedule.

Nonetheless, Wiegand believes the value-per-action model remains applicable to search-driven (as opposed to event-driven) e-commerce.

"I think Microsoft looks at both of the businesses as unique opportunities," he said. "We had something we thought was really disruptive and new and interesting. And whoever would come up with the next version of the next ad model would reap a lot of benefits. We were just lacking customers. That was the big issue. And that's why this relationship creates some real synergies."

If Microsoft does implement value-per-action advertising throughout Live Search, it could put pressure on Google. Suddenly, merchants would have a way to guarantee sales from a given marketing budget and wouldn't have to worry about click fraud (which Google insists isn't a significant issue). And consumers would be getting paid half of the ad cost for buying items through Live Search.

Pay-per-click ads offer no such certainty: a click-though to a merchant's site doesn't guarantee a sale. With Microsoft using the Jellyfish VPA model, Google's pay-per-click ads could become less attractive as a means of managing marketing costs. And consumers don't get compensated for their attention when they shop through Google.

Google began running a limited beta test for pay-per action ads in March, but it has yet to make PPA ads available to all its advertisers.

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