Microsoft Still Plugging Away Online

SAN FRANCISCO -- Microsoft's(MSFT Quote) acquisition of a European consumer Web site Friday filled in another piece of the puzzle in an online strategy that has perplexed investors.

Microsoft's agreement to buy Greenfield Online(SRVY Quote) for $486 million, or $17.50 a share in cash, complements its U.S.-based Live Search Cashback program, announced in May. Greenfield owns Ciao.com, a European price-comparison, shopping and consumer-reviews site.

Shares of Microsoft were down 42 cents, or 1.5%, to $27.52.

Adding Ciao.com to Live Search will tie into Microsoft's overall search strategy, says Matt Rosoff, analyst with Directions on Microsoft. The company recently said it would improve its ability to answer search queries for products to buy online and advance its competitive position in Europe.

The Redmond, Wash. company's efforts to grow its search-advertising business and stagnant search market share have frustrated investors, especially since Microsoft's failure to come to terms with Yahoo!(YHOO Quote) on a buyout deal.

The acquisition "makes sense," Rosoff says. While Microsoft has a full complement of consumer information for U.S. search queries, Microsoft lags behind Google(GOOG Quote) in Europe in that regard.

In failing to erode Google's search share, Microsoft appears to be taking a strategy it has used before: eroding its competitor's margins.

Especially if tied to Cashback, which gives ad-funded cash rebates to Live Search users who buy certain products, the deal "does create some price competition in search advertising," notes Gartner analyst Andrew Frank. "It could deflate margins and give their competitors less of an advantage."

The deal indicates Microsoft still sees "a great deal of synergy and connection between the MSN content business and Live Search," says Frank. "They see opportunities to chip away at the search market competition by ... providing specific tangible economic incentives for consumers."