Microsoft just announced that it’s giving cash rebates to consumers who use its search engine to find and buy products. That’s good news for consumers and advertisers and is just the direction the search-based advertising business should be going. Here’s why.

Today there’s no price competition among search providers for keywords—advertisers bid for keywords on each search platforms and pay what it takes to get the sales that platform can send it. All the profit just piles up for the search engines—one reason why Google seems to be such a cash machine—unless there is some other way they can spend it in competition with each other. Google spends some of the money from ad sales on improving its technology but it has a lot left over. To inject real competition in this business, the search platforms have to compete with each other for searchers. That will give some of the money back to the people who are generating the profits from the advertisers; and it will help the advertisers by making searchers even more motivated than they are now.

In fact, this is how many other two-sided businesses work. Take credit cards. Card issuers get interchange fees (about 2% or so of the sale) when cardholders use their cards to pay at merchants. They compete that money away in large part by offering rewards—lots of them. So long as there is competition among search engines, that’s probably how search will evolve too.

This strategy is not entirely new. Yahoo, working with a new company by the name of FreeCause, has taken this concept to an interesting new level: subsidizing search in exchange for contributions to charitable organizations. FreeCause has created an interesting new platform for monetizing search using a combination of distribution strategies that bank (literally) on the fact that searchers will be more inclined to search (using Yahoo) if they know that each search deposits some money into a cause that they care about. FreeCause’s first foray into this arena is with the Susan G. Komen Foundation and has some 4 million “members” via established social networking platforms like Facebook and MySpace and several hundred thousand “CauseBars” installed that make it easy for searchers to search and messages from Komen to be offered up. The end result is a bunch of new searchers that Yahoo would not have ordinarily had and searchers who are motivated to make Yahoo their one stop (or first stop) search engine since each time they do, they are making a charitable contribution to a cause they care about. FreeCause is getting the attention of lots of national philanthropic organizations eager to tap into this powerful fund raising engine and some enterprising organizations who are beginning to see the strong relationship between social responsibility and capturing the desktop via an innovative browser bar.