Microsoft's (Nasdaq: MSFT) been doing a lot of acquisitive fishing lately, so it's only fair that it should be the one to bag a Jellyfish.com. The Inside Value pick announced that it acquired the comparative-shopping website in a Live Search blog entry yesterday.

I poked at Jellyfish.com when it launched in the summer of 2006. It offered many of the same product-related search features you'd find on similar sites, like CNET Networks' (Nasdaq: CNET) MySimon.com, or Google (Nasdaq: GOOG) Products -- the site formerly known as "Froogle." But unlike its predecessors, Jellyfish is a comparison-shopping website that eats like a loyalty program.

"Jellyfish is the ONLY shopping engine to directly share $ with you," explains the site. "As a Jellyfish member, you'll receive automatic savings on everything you buy. Think of us as a search engine for shopping, except we share at least half of every $1 we earn when you shop. I bet your search engine has never done that!"

In other words, the Jellyfish model is more in the mold of the free loyalty marketing program available through sites like United Online's (Nasdaq: UNTD) MyPoints.com. There, shoppers earn gift certificates by shopping at the site's revenue-sharing partners.

In Jellyfish's plan, users get a cut of any commission due to Jellyfish for the referral, in the form of a cash-back rebate the following month.

The myth behind money for nothing
Giving money away seems like a no-brainer way to draw an audience and lose venture-capital funding. In reality, it often fails on both fronts. IAC/InterActiveCorp's (Nasdaq: IACI) iWon.com has positioned itself as a search engine with prizes, yet it has never posed a threat to the most popular portals, including IAC's own Ask.com.

Sure, it works sometimes. Electronic Arts (Nasdaq: ERTS) is doing just fine with its Pogo.com casual games hub, which rewards players with chances at regular cash drawings. Before it got taken to the cleaners by the major labels, the original MP3.com signed up more than 180,000 artists who were drawn to the site's "payback for playback" promotion, generating pocket change based on free downloads delivered.

Then again, maybe Pogo and MP3.com were destined to be first-mover stars anyway. The carrots were either not necessary, or a brilliant tactic to keep penny-pinching rivals at bay.

When it comes to comparative shopping, the jury's still out on the carrot. Jellyfish has been around for nearly 16 months now and this is the first time the company has found its way into the Fool.com pages since my original article in June 2006.

"We think the technology has some interesting potential applications as we continue to invest heavily in shopping and commerce as a key component of Live Search," reads Microsoft's blogged explanation for the purchase.

So it's hard to say if the site will stay afloat in its current form or if it's going to be the technological backbone of something even bigger at Microsoft.

Shopping and searching should be buddies
Why can't Mr. Softy just run Jellyfish in its original form, using its marketing muscle to draw a bigger crowd? Well, it may appear to be a conflict of interest to non-Jellyfish sponsors who are active advertising clients for the company.

Shopping and search engines seem to be a match made in heaven, but keep in mind that Google bumped Froogle from its landing page last year, before going on to kill the brand altogether by renaming it Google Products. Yahoo! (Nasdaq: YHOO) offers Yahoo! Shopping, though the comparative-shopping engine almost feels secondary to the company's true goal of getting small merchants to sign up and be listed by the site's e-commerce services.

Shopping and search aren't perfectly matched, interlocking puzzle pieces. I wouldn't be surprised to see the Jellyfish purchase morph into something else. A year from now, don't be surprised to find a MSN search product that rewards users with free Zune tunes, or a paid-search program where referred users get special pricing. Just because iWon hasn't won, that doesn't mean Microsoft's next buy will be iLost.

Source: Motley Fool