John Battelle calls it well: MSN's new deal to pay the users of its search engine is less about paying it's users. It's more about having tighter relationships with vertical sellers. By making the ad network cost per action (cpa), as opposed to Google's cost per click (CPC), they're creating a system that every retailer should participate in. There's no risk and little complexity. You offer to pay what you can afford in order to outbid your competitor.

I agree with Greg Yardley, that the simple act of paying users presents as much potential risk of losing the perception of impartiality and trust - as it does potential rewards of gaining loyalty for the search engine.

However, there's a whole other demographic that LOVES cash back, coupons and all other "discounting" methods that make them think they're getting a deal. As long as the cash back program sticks to "tangible products" and not services that require trust, I think MSN is in safe territory.

But, this move is less about gaining short term market share. It's more about getting rich data about profit margins from retailers, and at some point: lead generation companies.

Then, Microsoft will pick off vertical after vertical, creating vertical search engines for products, services, etc. Said well here:

Microsoft is in a tough spot. They've gone on record to say they want to compete against Google. They're not really going to get there with horizontal search so they've got a strategy to go vertical search. So they're assembling the Microsoft Office of vertical search. You'll see them buy a real estate site, a job site, a travel site, and weave that together into a search volume competitor to Google.

This closes the window for companies sucking off of Google's SEO and ppc tit to establish vertical service businesses as middle men between businesses needing clients and online media companies selling eyeballs and clicks. At some point, Google, Yahoo and MSN will make it simple and obvious enough for every business to do what they want: just pay a % of their margins for new business - directly to one of the big 3.

In the meanwhile, there's a lot of money to be made as middle men. But, it's a fragile balance. The reason that it is possible is because Google insists on the separation of ads from content in order to maintain impartiality and therefore, trust with users. Will MSN challenge that? Will they maintain (err establish) trust with it's users? It might if it serves a better search result.