Google Executives Defend Potential Yahoo Search Deal, Microsoft Releases “Proxy Directors” And Looks Beyond Search And “The Last Click”

Yesterday before Google’s annual meeting of shareholders, Google CEO Eric Schmidt and co-founders Sergey Brin and Larry Page fielded questions from reporters on a range of subjects, including a potential paid search deal with Yahoo and its anti-trust implications. Their argument was that a future paid search deal could be set up in a way to allay such concerns, currently being explored by the US Justice Department. And because of the auction structure of the model, there are no price-fixing implications, Brin said. Schmidt simultaneously reiterated his desire that Google and Yahoo work together but said there was no deal to announce at the moment.

The Google-Yahoo paid search test and potential deal was cited in Microsoft CEO Steve Ballmer’s letter withdrawing the bid for Yahoo as one of the reasons. Google said at the meeting yesterday that the company reached out to help give Yahoo “choices.” “They were under hostile attack and we want to make sure they have as many options as possible,” Brin is quoted as saying.

Hostile would seem to be a fitting word to characterize the mutual attitudes of Microsoft and Google. Google executives reminded reporters at the shareholder meeting of the irony of Microsoft’s anti-trust position on the potential Google-Yahoo paid search deal, given the software company’s own historical troubles with the Justice Department.

In addition to the discussion of Yahoo and Microsoft, the trio talked in vague terms about forthcoming ad innovations on YouTube and about mobile platform Android very generally. There was also some discussion about display advertising and Google’s relative weakness in that area.

The online display market is one that Microsoft appears to be increasingly focused on in its ongoing battle with Google, as it walks away from the Yahoo deal. Yesterday, the company released its slate of alternative Yahoo directors, indicating it was formally closing the door on the hostile takeover option.

Representatives of Microsoft’s Atlas Division (a Google-DoubleClick competitor) are now on tour promoting a conceptual and analytical model called “engagement mapping” that tries to bring more visibility to online advertising and conversions. It’s designed to more accurately reflect the contribution of ads that consumers are exposed to throughout their path across the Internet and expand conversion metrics beyond “the last click” — which is often at Google.

On the one hand, this conceptual framework is correct and tries to bring more transparency to user behavior and the relative efficacy of advertising throughout the consumer purchase cycle. On the other hand, it’s a forceful argument that Google, and by implication search more generally, is getting too much credit from advertisers when display ads are doing much of the work toward conversions.

Display is an area where Microsoft feels it can go head to head with Google and potentially win. However, DoubleClick reportedly has developed a similar model and analytical approach, which tries to show a more complete picture of ad exposures and their relative effectiveness. I heard yesterday, however, from one agency that has been exposed to both toolsets that the Atlas approach is better calibrated to what agencies want and the DoubleClick approach has too much complexity.

Yet Google, for its part, is moving aggressively into display advertising to capture some of the next big wave of advertiser dollars as they migrate online. The acquisition of DoubleClick, the development of Google Gadget Ads, the inclusion of display advertising (video) in Google search results, and the hints at new YouTube advertising are strong indications that Google isn’t about to cede this market to Microsoft — or even Yahoo.