- Mike Shields, Mediaweek

REDMOND, WASH. During last week's advance08, Microsoft's annual gathering of advertisers and agency executives, officials ignored the headlines and the chatter, barely even uttering the word Yahoo!. Instead, they touted a search-advertising innovation they believe will boost Microsoft's floundering position in the Google-dominated space, while emphasizing strength in the mobile and gaming segments.

The new search product, Live Search Cashback, most intrigued digital buyers during what many considered a buzz-light event on the software giant's campus here. Microsoft has signed 700 merchants -- peddling 10 million products -- to run low-risk, cost-per-acquisition search ads. And in a move soon-to-retire chairman Bill Gates hopes will alter the category's fundamental business model, Microsoft will cut a check to users who click on those ads and make purchases.

"I think years from now, you may look back and say, 'Wow. You know, search started to get a fair bit more competitive,'" Gates said.

Things are not so competitive now, of course, with Microsoft's share of search at less than 10 percent, versus Google's 60 percent. Most advertisers gave Cashback at least a puncher's chance to change that, while crediting Microsoft for trying to stir things up.

"They have been very frank about the fact that they've been working very hard and put money into it and it hasn't moved the needle," said Ellen Siminoff, chairman of search agency Efficient Frontier. "This is not a bad direction for them to go."

Rob Norman, CEO of GroupM Interaction, which is participating in the launch, said Cashback's impact ultimately will be judged on whether it wins Microsoft converts.

"What I'm most interested in is whether it will drive query volume," Norman said. "The whole product is pretty impressive. My sense is consumers who visit MSN search and maybe hadn't in six months or so will be pretty surprised with what they find. The problem is, the other guys got the verb" -- that is, "to Google."

Sources said Microsoft had explored rebranding its search product, seeking some sort of Google-esque or Hulu-ish potential verb before ultimately retreating to the fledgling "Live" brand.

Although the search wars once again stole the spotlight, Microsoft also used advance08 to tout its growing portfolio of partnerships and assets that touch nearly ever aspect of the digital-ad business, now grouped under the new corporate moniker Microsoft Advertising. Among segments taking center stage were mobile and gaming, with attendees encouraged to visit various exhibits highlighting both, including a Guitar Hero station.

On the mobile front, Brian Arbogast, Microsoft's corporate vp, mobile services, said that in this nascent stage for the medium, the company is pushing communication tools -- it announced its first mobile ads on Hotmail and Windows Messenger -- while striking software deals with handset manufacturers.

"That's key to getting scale," Arbogast said. "It's early, early days, and there is no real leader in mobile advertising."

Microsoft believes it's already a leader on another front, as the gamer-centric entertainment/social hub Xbox Live has soared from 6 million to 12 million users in the past year and has landed big brands including Nissan and Doritos.

That platform is an "awesome differentiator for us," said Mark Kroese, general manager of Microsoft's advertising business group. "This is one of the places where we don't have a great competitor. We are innovating and leading here."

Although the same cannot be said for search, that is a story the company is committed to rewriting in the near future -- with or without Yahoo!.