But with its new Bing search engine’s market share already on an upward trajectory, perhaps things will be different this time. That’s obviously Microsoft’s (MSFT) hope, because the company is rolling out yet another traffic-boosting gimmick. It’s called Bing Rewards, and it’s pretty much what you’d expect from the name: An airline-style search loyalty program.

Here’s the pitch from Bing General Manager Danielle Tiedt: “Similar to other loyalty programs (grocery stores, frequent traveler programs, credit cards and more) Bing Rewards is a great way to get rewarded for doing what you love to do online—searching, exploring, and discovering. And while you can redeem credits for cool stuff, you can also use your earned credits to give back–allowing you to donate your credits to education charities.”

Sounds pretty good, right–particularly if you’re already a Bing user? But the program does have a few catches. To be eiligible to participate, you’ve got to be running Internet Explorer 7 or above with the Bing Bar on a Windows machine. You must also have a Windows Live ID.

Early gains do not guarantee a long-term increase in search market share, and thanks to its experience with Live Search and Live Search Cashback, Microsoft (MSFT) knows this better than anyone. That said, Redmond’s new search engine, Bing, does seem to be making some solid progress.

For example, a comScore (SCOR) report said earlier this week that Microsoft’s share of the search market has risen to 11.1 percent from 9.1 percent since Bing’s debut.

And now market researcher Hitwise reports that Bing is among the top 20 most popular Web sites in the U.S. and among the top 10 in Canada (click on chart below).

“In the U.S., Bing ranked 17th among all Web sites out of over 450,000 Web sites, up from 5120 the week before the official launch when the Web site was merely a placeholder,” Heather Dougherty, Director of Research at Hitwise, wrote in a blog post. “Within the Search Engines category, Bing ranked 4th out of the search engines tracked by Hitwise…In Canada, Bing hit the top 10 among all Web sites during the first week of launch and captured 1% of all Canadian Internet visits last week. Bing also ranked 3rd last week in terms of the market share of visits within the Search Engines category behind Google Canada and Google.”

Not bad. Of course, early successes like these are driven as much by marketing as by technological prowess and positive user experience. And right now, Bing’s got some major marketing dollars behind it. But those will only last for so long.

And as Google (GOOG) CEO Eric Schmidt likes to point out, you really can’t expect to buy your way into the search market. “You don’t just buy it with ads,” Schmidt told Fox Business earlier this week. “You earn it, and you earn it customer by customer, search by search, answer by answer.”

BoomTown really does hope that in some secret airport hangar right now Microsoft CEO Steve Ballmer and Yahoo CEO Jerry Yang are meeting, in order to hammer out a fair search deal that will benefit them both.

I’d even insist that Yahoo’s noisiest board member, activist shareholder Carl Icahn, be there too, to make sure all sides were copacetic and there would be no last-minute switcheroos and backstabbings.

Because, long ago in galaxy far, far away, what is now going on between Microsoft (MSFT) and Yahoo (YHOO) would have seemed inane.

I am talking about this past January, of course, when the idea of the pair doing some kind of partnership together to fight off the aggressive march of Google (GOOG) would have been been easy to imagine and perhaps even to pull off by the pair of star-crossed tech companies.

Instead, they have been bickering and puffing their insufficient-to-the-task chests out at each other to little true effect. Meanwhile, back at the organic ranch, Google racks up more share of the search market by the minute and aims to do the same in mobile and video.

And while everyone is suffering in this economic meltdown, including Google, it’s clear that it’s better to be ready to rumble when it inevitably ends than it is to be still dithering over a deal that seems also inevitable but never seems to take shape.

The latest development in the story has been Microsoft’s hiring of a well-regarded former Yahoo search and online monetization star named Qi Lu. It was a great get by Microsoft, coming after another recent important hire of another Yahoo search exec, Sean Suchter.

And there are more to come, many sources tell me, as Microsoft puts the pressure on Yahoo by sucking the talent right out of the place.

Not a bad idea, especially if Microsoft is intent on spending big-time to strengthen its online bench to battle Google.

While he grabbed talent, Ballmer extended a bit of a wilted olive branch to Yahoo in an interview with The Wall Street Journal after the Lu hiring (thanks for nothing, Frank!).

Said Ballmer:

We’re fully prepared to compete without any partnership with Yahoo. We don’t need to act. Would it be advantageous for both of us to make a deal? Look, the fundamental basis for doing the search deal with Yahoo has to do with critical mass in the advertising marketplace. It doesn’t have to do with technology, or any of these other things, it really is a market phenomenon. Together we would have more advertisers….which means we’d have more relevant ads on our page. We’d have higher monetization levels possible in front of us because there would be more people bidding on more key words. Most importantly, Google would have perhaps a real credible competitor sooner.”

And the hiring if Lu and Suchter would surely help in an integration, as Ballmer also said in the Journal interview.

Microsoft needs all the muscle it can get because its money-losing efforts so far have not added up to much in the way of share or innovative influence. (And no, I will not ever admit Live Search Cashback is innovative or massively effective.)

The problem is that buying talent is just a tactic–a nice bit of thuggish mugging Microsoft has long been so adept at, to be sure–as one way to force Yahoo into a deal.

But it is not a strategy and in the end, does not give Microsoft what it needs, which is a serious stake in the game. By that, I mean real share, from 20 to 30 percent.

One person close to the situation said it perfectly to me recently: “Microsoft can hire every Yahoo engineer in the place and that still wouldn’t mean it would get to the kind of market share it needs to have to truly compete.”

Ballmer, of course, is now apparently in one of his famously stubborn moods, telling many people (who have recounted his sentiments to me) that he has tried and tried again, does not know who at Yahoo has the power to get a deal done and that he will only do a deal when Yahoo comes to Microsoft ready to go.

He is right about the first two. As to the third, I am perplexed why he would wait even a second and is instead–for once in his life–acting patient. Again, it kind of makes sense tactically, I guess, to drive a better deal.

But, if it is to work well and be a long-term successful partnership, Microsoft has to give Yahoo a decent deal anyway, right?

And what happened to the Ballmer who scared me a little bit when he almost jumped out of his seat at his most recent appearance at the sixth D: All Things conference, loudly declaring that Microsoft keeps “coming and coming and COMING!!!”

Where’d that guy go?

Instead you get this waiting-to-be-asked-to-the-prom stuff from Ballmer in the Journal interview:

I think good ideas are usually better done quickly than slowly, so it would probably be better for both us, and certainly for Yahoo, if we were to do it sooner than later. But at the end of the day, that would have [to] be something Yahoo would be as interested in as I have expressed our interest.”

As for Yahoo, I am not sure what to say, except its options are running out fast.

While its efforts at innovating search are promising–Yahoo’s BOSS (Build Your Own Search Service) this week showed nice traction, with 10 million queries a day for the customized search products–it is still not enough in the face of Google’s power and Microsoft’s financial heft.

But, according to sources and also several people Yang and Yahoo Chairman Roy Bostock have spoken to recently, there is still a debate among directors as to whether a search sale or partnership with Microsoft should be struck.

I think that’s why Icahn has been so mouthy of late in the press about the importance of doing a search deal. If it were all lined up and ready to go, he’d be as silent as a church mouse.

“Carl likes to agitate any way he can and now that he is a director, he has to be more careful,” said one person who knows him well. “This talking it up is his way of trying to push it through, since he still does not have board support.”

According to numerous sources, in fact, Yahoo leadership is worried about the leverage it would have in doing a deal with Microsoft, and some think a merger with AOL needs to be completed first.

Actually, if Yahoo did manage to do a search deal of almost any kind with Microsoft first, the impact would surely lift its stock–even now–and give it the valuation needed to complete the AOL deal.

That’s definitely the feeling now at AOL owner Time Warner (TWX), said many sources, which dearly would prefer that Yahoo strike a Microsoft search deal first, get its stock closer to a decent level, appoint a new Yahoo CEO and deliver a clearer idea of its path before Time Warner commits to selling its online assets to Yahoo.

“Yahoo has trouble making decisions,” said one source there, who acknowledges AOL’s own weaknesses readily. “So we’re not entirely confident in placing our fate with them.”

Indeed, clarity is always a preferred state, and many I talked to think that getting there would be easier than either Yahoo or Microsoft thinks.

“It really could be done quickly if they would only stop plotting all the chess moves and do something,” said one source. “This is not a game.”

No, it is definitely not, because a game is supposed to be fun, and watching this unfold is anything but that.

It’s not even a game, according to Ballmer in the Journal interview, at the very end.

Tellingly, he compared the struggle with Yahoo to an old cliché of a story about outrunning a bear (it used to be an AOL exec favorite too, so I know it well):

I don’t know if you know the old story about the two guys out in the woods who see a bear, and one guy says, boy, we’d better really run fast, or that bear is going to get us. We’ve got to run faster than the bear does. And the other guy says, no, I’ve just got to run faster than you do. In this economy, maybe that’s the right way to think about it.”

Years ago, Ballmer said almost exactly the same thing to me and others present about distant No. 3 Microsoft not necessarily having to catch No. 1 (Google) if it could chase and knock off No. 2 (Yahoo) and grab that spot instead.

Strap on your sneakers, Yahoo.

Please see this disclosure related to me and Google.

Incidentally, June, as Todd Bishop notes over at The Seattle Post Intelligencer, happens to be the last month in Microsoft’s fiscal year, which means it’s also the end of the period in which Microsoft executive bonuses are calculated.

So is this the way Microsoft (MSFT) intends to try to best Google (GOOG)?

Pay consumers to search? Pay computer companies to put its search in their hardware?

Ah, Dale Carnegie’s big-bag-of- money tactic!

What’s next? Giving out dollars in Internet cafes for folks to stop using Google’s simple box?

In any case, it will be interesting to see if using Microsoft’s copious cash reserves–more now if it does not complete a transaction to buy Yahoo (YHOO) for upward of $40 billion–to goose its prospects will be successful.

I doubt it, as these kind of deals have come and then have quickly gone in the Internet space, as companies seek ways to get users to look over their wares using every trick in the book.

What works, of course, is making a product consumers want to use and over and over again without resorting to payoffs and fixed deals.

But, so far, with only a tiny (and declining) 9.1% of the search market to Google’s huge (and rising) 61.5%, making a better mousetrap has not worked for Microsoft.

Thus, cue the giant incoming truckload of cheese.

So, it was probably a forgone conclusion for Microsoft to make a deal with the world’s largest personal computer maker, Hewlett-Packard (HPQ), to put a toolbar that uses Microsoft’s Live Search on its upcoming PCs in the United States and Canada, starting in 2009, as was announced yesterday.

Live Search will also be the default search engine in the browsers installed on the new PCs. In the deal, Microsoft replaces Yahoo, which had previously been touted by HP.

And, while Microsoft did not give details about the agreement, I think it would be safe to say the software giant paid a pretty penny for the privilege in a pay-to-play deal format that is as old as the Internet.

Years ago, MSN and AOL (TWX) would compete in similar money contests to get their services on desktops. And, of course, Microsoft got into a lot of trouble over the way it tried to get the Netscape browser off of them.

But, one would also assume it is saving up its pennies for a similar deal with Dell (DELL), where Google now gets top rank on its PCs until 2009, after forking over a pile of its own cash.

This comes after Microsoft’s announcement last month that it would initiate a cash-back program for consumers who buy goods using its search. Called Live Search Cashback, it is a little like a loyalty program mixed with a rebate program.

And a lot like trying to buy your way into a market when you have found your technology is not getting you the kind of traction you need.

Unfortunately for Microsoft, which is showing some nice competitive spirit, these efforts are not likely to yield the results it needs to keep up with–let alone catch–Google or even get into the No. 2 spot currently occupied by Yahoo.

As BoomTown wrote yesterday, there is only one way to do that–buy Yahoo–and that deal remains stillborn.

Please see this disclosure related to me and Google.

Dear Friends; Please do not take this for a junk letter. Bill Gates sharing his fortune. If you ignore this, You will repent later. … When you forward this email to friends, Microsoft can and will track it (If you are a Microsoft Windows user) For a two weeks time period.

For every person that you forward this email to, Microsoft will pay you $245.00. For every person that you sent it to that forwards it on, Microsoft will pay you $243.00 and for every third person that receives it, You will be paid $241.00. Within two weeks, Microsoft will contact you for your address and then send you a check.”

–Excerpt from the Microsoft giveaway hoax

My God … Bill Gates really is sharing his fortune. But not with folks who help out with that infamous Microsoft email “beta test.” He’s sharing it with consumers who use Microsoft’s Live Search engine to find and purchase products online.

Today, Microsoft (MSFT) will announce “Live Search Cashback,” a sort of search-engine loyalty program that rewards users with rebates on certain purchases of products found through Microsoft’s live.com Web search. “We want to earn your loyalty and reward it with cashback savings for your everyday online shopping,” Microsoft enthuses on the Cashback site. “We are ‘The Search That Pays You Back!’”

Cringe.

Like Microsoft’s hostile bid for Yahoo (YHOO), this new service is yet another effort to bolster its laggard search service, which has long been a very distant third in the search market. Question is, will it work? Gartner (IT) analyst Van Baker says maybe. “Assuming that the rebate amounts are enough to be appealing to people, which it sounds like they are, that definitely could attract a fair number of consumers,” Baker told the Seattle Post Intelligencer. “But what they may do is just go to that site when they’re thinking about buying something, and use Google the rest of the time.”