How desperate is Microsoft to compete with Google in search? The software behemoth is now giving away prizes every time you use its Live Search engine.

Microsoft (MSFT) launched the rewards promotion called SearchPerks on Wednesday to lure Internet users away from Google. SearchPerks, which runs through April 15, is similar to airlines’ frequent flyer programs. Every time you use Live Search you earn points that can be redeemed for prizes like ringtones, Xbox games, and t-shirts.

Rewarding consumers to search is one way Microsoft hopes it can increase search traffic. The company ran tests on SearchPerks and found that people were three times more likely to use Live Search when they were offered redeemable points than when they weren’t. “People like to engage with us a lot more when they use SearchPerks,” says Frederick Savoye, a senior director on Microsoft’s search team.

Google (GOOG) holds 63% of the U.S. market. Yahoo (YHOO) is second with 19% and Microsoft’s Live Search is a distant third with an 8% share, according to comScore’s figures for August.

The rewards promotion is an experiment to see if Microsoft can build loyalty with Internet users. SearchPerks is limited to the first 250,000 users in the United States that download a web application that records how many searches they do daily on Google, Yahoo or Microsoft.

Savoye says to maintain privacy the widget only tracks the number of searches and not the type of searches people do. SearchPerk users get one “ticket” for every search done on Microsoft, and can receive up to 25 tickets a day.

On April 15, SearchPerk users can cash their tickets for prizes. Microsoft has not yet determined how many points you need to claim the freebies. (However, another Microsoft rewards program, Live Search Club, shows that 105 tickets equals a free downloadable song and 1,000 tickets are needed for 500 frequent flyer miles.)

The program is currently available on Internet Explorer 6 or higher. Savoye says engineers are also developing a version for the Firefox browser.

SearchPerks follows Microsoft’s launch in May of the cashback program that pays consumers when they buy products through Live Search. Savoye says SearchPerks is another piece of Microsoft’s plan to “innovate the [search] business model.”

However, the company’s efforts to build search market share is steadily declining. Microsoft Live Search’s share has dropped 1.5% since the start of the year.

Wrote Collins Stewart Internet analyst Sandeep Aggarwal in a note to clients Tuesday: “Internal initiatives at MSFT need time to lift off and prove their merit, but sooner or later the company will have to face the realities and decide again if a combination with YHOO can speed the process.”