Microsoft to offer money for search engine use

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.

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.

(Reporting by Bruce Rutledge, writing by Daisuke Wakabayashi in Los Angeles, editing by Maureen Bavdek, Richard Chang)

American to charge $15 for 1st checked bag

FORT WORTH, Texas - American Airlines will start charging $15 for the first checked bag, cut domestic flights and lay off workers — probably in the thousands — as the nation's largest carrier grapples with record-high fuel prices.

American plans to cut domestic flight capacity by 11 percent to 12 percent in the fourth quarter, after the peak summer season is over. The carrier was previously planning a 4.6 percent cut.

Shares of American parent AMR Corp. tumbled 24 percent, down $1.98 to $6.22, as oil prices shot past $130 per barrel for the first time, signaling even more trouble for the nation's airlines.

American said rising oil prices have increased its expected annual fuel costs by nearly $3 billion since the start of the year.

In a further sign of the problems facing the industry, Southwest Airlines Co., the only major U.S. carrier to post a profit in the first quarter, won't earn as much for the rest of 2008 as it did a year earlier, its chief executive warned.

American said Wednesday that the fee for the first checked bag starts June 15, and it will raise other fees for services ranging from reservation help to oversized bags. Those fees could cost between $5 to $50.

United Airlines, the nation's No. 2 carrier, is "seriously studying" imposing its own fee on first bags, spokeswoman Robin Urbanski said. Delta Air Lines, the third-largest, has no current plans for a fee but is considering all options, spokeswoman Betsy Talton said. AirTran Airways and Northwest Airlines said they were weighing their response.

Last month, American joined other carriers in charging $25 for a second bag checked by passengers. The major airlines have also raised fares about a dozen times in recent months.

The first-bag fee will be charged to everyone except people who belong to elite levels of its frequent flyer program, those who bought full-fare tickets, and those traveling overseas.

Chairman and Chief Executive Gerard J. Arpey said he expects the fees will raise "several hundred million dollars" for American.

Arpey said American was reducing flights and charging more fees to adapt to "the current reality of slow economic growth and high oil prices." He said the fees would also get customers to pay for services they want.

Arpey didn't put a figure on the layoffs, but when asked whether he expected them to be in the thousands, he replied, "I would think so."

International flights are more profitable, even with costly fuel, so they are largely untouched by Wednesday's announcement. Overall, American will cut global capacity by 7 to 8 percent.

Arpey said he wanted to cut overhead and costs by the same 7 to 8 percent, but he declined to comment whether layoffs would equal a similar percentage of the work force. American has 82,000 employees, while regional affiliate American Eagle has 13,000. Both are owned by AMR Corp.

American expects to retire 45 to 50 planes, most of them gas-guzzling MD-80 aircraft. Those were the planes grounded for faulty wiring last month. American Eagle will also retire 30 to 35 jets, he said.

Even before news of the new fees and layoffs, Lehman Brothers lowered its earnings outlook for nearly all major U.S. carriers, and Soleil Securities cut its rating on AMR stock to "sell." Soleil also downgraded Continental Airlines Inc. to "hold" and United parent UAL Corp. to "sell."

American announced its changes as AMR shareholders attended their annual meeting. During the meeting and outside on the street, hundreds of uniformed pilots and flight attendants protested against stock bonuses for management.

Southwest shareholders met a few miles away, and the mood was festive despite the somber backdrop of industry problems. Shareholders gave a celebratory farewell to co-founder Herb Kelleher, who was presiding over his last meeting as chairman.

CEO Gary C. Kelly, who added the title of chairman on Wednesday, said he expects Southwest to remain profitable, as it has in every quarter since early 1991, but not as profitable as it was in the second, third and fourth quarters of last year.

"I would love for Southwest to grow modestly next year and in 2010, but at this point we're not making any announcements," he added.

Southwest shares fell 57 cents, or 4.4 percent, to $12.43 on Wednesday.