Just when you thought paid inclusion was finally dead with holdout Yahoo getting out of the space, it’s come back from the most unlikeliest of sources: Google. Below, a look at the experiment plus reexamining the FTC’s guidelines about disclosing paid ads. Does saying “Promoted Videos” on YouTube rather than “Sponsored Videos” meet these?

For those unfamiliar with paid inclusion, it is where advertisers pay to have their listings included within editorial results, rather than being listed separately from them as paid placement search ads. In paid inclusion, there’s also no guarantee that the ads will show in a particular position.

Paid inclusion is a dinosaur left over from the days when you had companies that would sell a search partner only editorial results, leaving it to that partner to outsource with someone else for paid listings. For example, Microsoft once had its search engine using editorial results from Inktomi and paid results from Overture. It is also a remnant from before the days when search ads generated so much revenue that there was no need to deal with “messy” paid inclusion.

Messy? Sure. Yahoo would tell the world how fresh and complete its index was. Yet to site owners, it would pitch paid inclusion as a way to ensure that your pages were getting regularly visited by its spider or not overlooked entirely. It’s also messy to explain to searchers that these paid listings integrated into editorial results aren’t “ads” simply because they weren’t guaranteed to rank.

Paid inclusion is so messy that Google’s founders took an extraordinary step of speaking out against it in their IPO registration document of April 2004 several times. I’ll come back to those statements, but let’s look at what’s happening on Google now

The folks over at Range Online Media spotted new ads that are integrated directly within shopping results. Below are some screenshots they also provided me:

The arrow points to the ads. Here’s another example:

Here’s a close-up of the ad integration:

I can’t see these, when I look at the same pages, such as here. That’s because it’s an experiment that Google confirmed to me is being shown only to a small number of people. These are also separate from the other Google Product Ads rolled out this month to everyone.

I asked about these being paid inclusion. In response, I was sent:

At Google, ads are always labeled to indicate that the information is sponsored. We’re currently running a test in which Product Listing Ads appear on the Google Product Search page when a user clicks to ‘Compare Prices.’ Like the product listings, these ads provide information such as prices and ratings, so when a user sorts the information, the list changes the order of both the listings and the ads. As always, the ads are labeled as advertisements, and this experiment is intended to help us understand whether this is a useful experience for our users. This feature is currently in a limited beta with a small number of U.S.-based advertisers, and as with all tests, we may make changes to our current experiment in the future.

Wow. That made me feel more than ever this was paid inclusion. See, even though there’s an ad label attached to the listings, the fact that they are integrated within editorial results themselves rather than being segregated from them is one sign. In addition, if you can sort the results, then the ads have no guaranteed placement, which again is a core element of paid inclusion.

Now let’s go back to what Google’s founders said about the practice in the IPO papers (I’ve bolded key parts):

Our search results are the best we know how to produce. They are unbiased and objective, and we do not accept payment for them or for inclusion or more frequent updating.

And:

We will do our best to provide the most relevant and useful search results possible, independent of financial incentives. Our search results will be objective and we will not accept payment for inclusion or ranking in them.

And:

Objectivity. We believe it is very important that the results users get from Google are produced with only their interests in mind. We do not accept money for search result ranking or inclusion. We do accept fees for advertising, but it does not influence how we generate our search results. The advertising is clearly marked and separated. This is similar to a newspaper, where the articles are independent of the advertising. Some of our competitors charge web sites for inclusion in their indices or for more frequent updating of pages. Inclusion and frequent updating in our index are open to all sites free of charge. We apply these principles to each of our products and services. We believe it is important for users to have access to the best available information and research, not just the information that someone pays for them to see.

And:

Froogle [the name for Google Product Search back then] enables people to easily find products for sale online…. Most online merchants are also automatically included in Froogle’s index of shopping sites. Because we do not charge merchants for inclusion in Froogle, our users can browse product categories or conduct product searches with confidence that the results we provide are relevant and unbiased. As with many of our products, Froogle displays relevant advertising separately from search results.

At best, Google could excuse the current experiment from being paid inclusion by saying that these advertisers are not being charged to be included. That if they want to be in those listings, that’s free if they put in product feeds. But paid inclusion overall was rarely pitched as a way only to be included. It was pitched as a way to guarantee fast inclusion and constant updates. And the unspoken benefit was that it put you right in the mix of the regular results.

When I spoke further with Google about the move, the company stressed that the ads all have ad disclaimers and that the testing will also look at putting the ads outside the regular results and also may not allow for sorting. What you see above isn’t final, by any measure.

Certainly the ad disclaimer helps, but as long as they’re integrated right in the regular results, with sorting, that’s paid inclusion in my book. It’s also paid inclusion according to the Federal Trade Commission, from its definition in 2002 (again, I’ve bolded the key part):

Paid inclusion can take many forms. Examples of paid inclusion include programs where the only sites listed are those that have paid; where paid sites are intermingled among non-paid sites; and where companies pay to have their Web sites or URLs reviewed more quickly, or for more frequent spidering of their Web sites or URLs, or for the review or inclusion of deeper levels of their Web sites, than is the case with non-paid sites….

In a related matter, I asked why YouTube’s “Promoted Videos” aren’t called “Sponsored Videos,” as they once were. “Sponsored” has been the search industry’s term-of-choice when it comes to indicating what’s an ad. It’s used by Google, Yahoo and Bing, and it was a word the FTC particularly seemed to like when it issued guidelines.

Google emailed me:

Whenever a Promoted Video appears on YouTube, it is marked as a ‘Promoted Video’ to indicate that it is an advertisement. This label is hyperlinked to the YouTube Glossary, which offers more information about the Promoted Videos advertising program.

OK, I knew that. But these were called “Promoted Videos” originally, then changed to “Sponsored Videos,” then changed back to Promoted, which to my ear doesn’t sound as ad-like. So why were they changed?

To that, Google noted a blog post from March saying:

We think “Promoted Videos” more accurately describes this program than “Sponsored Videos,” the original name.

I was also told that “Promoted” was determined to be more descriptive and appropriate.

Determined how? Google wouldn’t share that. So maybe there was some testing done to see if users understood that “Promoted” better explained that these are ads. Or maybe a product team decided “Promoted” got a better clickthrough than “Sponsored” because people did NOT realize these were ads.

Google has massively ramped up where and how it shows ads over the past year. As the company continues to grow, it also has people without a firm history of knowing why ads are separated from search results and why certain words have been used to indicate what’s an ad and what’s not. Calling something “Promoted” that’s an ad in one part of Google while it’s “Sponsored” in another isn’t consistent and generates confusion. Mixing ads into editorial results also potentially generates confusion. Neither makes me feel particular good, but hey, maybe that’s just me.

During Google’s third quarter earnings call CEO Eric Schmidt expressed a kind of philosophical objection to corporate stock repurchase programs. But now in the wake of the $750 million acquisition of AdMob Google is going to do its first stock buy back to prevent investor dilution from the event.

During the Q3 earnings call the following question was asked of Schmidt: “What are the plans for Google’s large cash balances? Are stock buybacks being considered at any point?” Schmidt responded:

[CFO] Patrick [Pichette] and I were talking about who should answer this question. We have been doing very well in the cash generation front, throughout this whole year, which is a critical year. We have been able to be very strongly cash flow positive and we hope that that will continue for a long time. We love cash.

The issue with stock buybacks is historically they have often not achieved the objective that they’ve set out. So they are certainly none under consideration right now and I wouldn’t expect any time soon. I wouldn’t rule one out but I would not put it on your list of things to anticipate any time soon.

From our perspective the cash gives us a lot of operating and strategic flexibility over the very long term and so we are very happy to have it sit in our bank account and earn modest interest rates.

(Emphasis added.)

That was on October 15; today is November 12, less than a month later.

I would guess that Google was pretty far along in talks with AdMob about the acquisition at the point of the Q3 call but  perhaps unclear on how it would pay for and structure the deal. The stock transaction means that AdMob’s key personnel will be sticking around at least through some vesting period (at least two years). Getting their expertise was one of the explicit points of buying the company for Google.

Google has acquired AdMob (www.admob.com), a popular mobile display ad company, for $750 million.

Google has already built their own platform for AdSense on Mobile devices, but this acquisition gives Google access to AdMob’s more than 15,000 mobile Web sites and applications.

There are more details about this acquisition at google.com/press/admob.

Here is the email AdMob sent their publishers and advertisers:

Google to Acquire AdMob November 2009 Today we announced that AdMob has signed a definitive agreement to be acquired by Google for $750 million. We are extremely excited about this new partnership and what it means for our advertiser, developer and publisher partners.

AdMob’s people, products and tools will continue to work to deliver successful campaigns for you and to effectively monetize your mobile traffic – no interruptions. Our product and engineering teams will keep building great products for our customers. Our sales team will keep working with our thousands of advertisers to deliver successful campaigns. Our business development team will keep working to maximize ad revenue for the more than 15,000 mobile Web sites and applications that make up AdMob’s publisher network.

After our deal closes, AdMob will work with Google to accelerate the pace of innovation in mobile and do an even better job for you. We believe this deal will benefit our advertisers, developers and publishers by:

*Increasing our investment in building innovative and engaging ad units across platforms and to further improve targeting and tracking.

*Building even more powerful relevance and optimization capabilities, and more powerful technology and tools to monetize mobile traffic.

*Increasing the effectiveness of display advertising on mobile devices by leveraging Google sales team, infrastructure and relationships.

*Improving the already high level of service and support we deliver to our advertisers, developers and publishers.

You can read more about this deal at www.admob.com/google.

Omar

Postscript from Greg: I was able to speak to Google and AdMob CEO Omar Hamoui briefly today. The acquisition puts Google at the forefront of mobile display advertising and instantly brings Google a great deal of sophistication in the segment that it previously did not have. In fact that’s one of the things that Google emphasized in the discussion: they get a team that has been working the space and thinking about mobile display for four (or more) years.

Google also alluded to a potential for “holistic” approaches to display advertising when I asked explicitly about whether there was going to be some future cross-platform ad buying capability.

Though perhaps the most visible, AdMob is not the largest mobile ad network. According to an August compilation of Nielsen data by Mobile Marketer, here’s the reach of each of the top mobile ad networks (monthly unique users):

1. Millennial Media: 45.6 million
2. Yahoo!: 36.1 million
3. Google: 31.9 million
4. AOL/Platform-A’s Third Screen Media: 28.6 million
5. AdMob: 25.7 million
6. Microsoft: 25.4 million (doesn’t include the new Verizon deal)
7. Jumptap: 23.4 million
8. Quattro Wireless: 23 million

I asked Nielsen to confirm these figures and they declined to do so. But if they’re correct it would make Google the largest of the mobile ad networks, when combined with AdMob’s reach. In the $750 million all-stock deal, UBS analysts estimate that Google “could have paid 8-12x 2011 revenue for AdMob.”

TechCrunch reports Turkey is claiming Google owes them 71 million Turkish Lira or 47 million US dollars in back taxes.

In fact, the Turkish government is fining Google for the money. Google claims all the funds are through their Ireland branch and Google does not owe Turkey any taxes. Google technically has a company in Turkey named Google Reklamcılık ve Pazarlama Ltd. Şti. but the company is technically set up as a ‘liaison’ branch. If set up properly, TechCrunch reports Google would owe little to no taxes to the Turkish government.

Two years ago, Norway complained that Google was evading taxes in their country.

Universum released a report that shows Google is the “most attractive employer” globally. Google was ranked number one in both the top 50 global businesses and engineering companies. Microsoft was also up there on that list, ranked as number three for business and 2 for engineering.

The study asked about 120,000 students at “top academic institutions” to select their ideal companies to work for. The students were from all around the globe, including US, Japan, China, Germany, France, UK, Italy, Russia, Spain, Canada and India.

The Charlotte Observer reports the N.C. Institute for Constitutional Law appealed the decision to not allow them to sue over Google receiving tax breaks for picking North Carolina for a server farm.

The advocacy group argues that the tax benefits given to Google will ultimately cost North Carolina’s tax payers more, to make up for those benefits given to Google. North Carolina feels the jobs created, 210 of them, will lead to more income for the state and benefit the state over all. Bob Orr, the institute’s executive director said, “How are people going to challenge the acts of government that they feel are unconstitutional if, as taxpayers, the courthouse door is shut?”

The court heard the lawyers arguments on both sides and may take up to a few months to make a decision.

Google’s co-founder, Sergey Brin, made a surprise visit at the Web 2.0 Summit last week. The video of his 18 minute interview with John Battelle is now available on YouTube. Here it is:

In summary, he talked about his thoughts on Twitter’s deal, Google’s Social Search, also a little bit about Bing and even Yahoo giving up on search. He actually touches on about a couple dozen topics within this short interview.

Here are some quotes from Brin’s talk that I thought I pull out:

Battelle asked Brin, what do you make of Bing? Brin said, “Ummm…” Then Battelle asked, are you a Bing user? “Oh yea, I use all search engines out there.”

Brin then added there are “probably a few dozen start ups doing a few interesting things” in search. Brin added, “even, prior to Bing, MSN’s Live.com had many interesting features also and a lot of those carried over. People just didn’t check them that often.”

Then Brin was quoted on Yahoo, saying “It is a shame that Yahoo plans to abdicate that area.” He added, “I do think Yahoo had a number of interesting innovations there and I wish they would continue to innovate in search.”

On Tim Armstrong leaving Google to run AOL, Brin said, “We certainly miss Tim [Armstrong] a lot. It is really good for AOL to have a leader like that.”

The discussion about Twitter was a bit awkward in the beginning. Battelle asked if he [Brin] had anything to do with the Twitter deal? Brin said awkwardly, “me personally?, I was certainly aware of it.” He then goes on to talk about entrepreneurship. But he did clarify “I did not try to buy Twitter.”

Brin also said, “People do not spend all their attention in the search box,” when defending critics about Google’s dominance. Battelle added, monetarily, they do kind of control the area. Brin replied “when we started Google, it was the least amount you can make,” when referring to ad buys.

Also, when talking about Google developing hardware. Brin said, “G1, we worked very closely with HTC on the design.” He added, “you can’t create software completely divorced from how the hardware is designed.”

On the book scanning project, Brin said “I’ve been surprised about the level of controversy there.”

Finally, here is a picture of special shoes Brin wore to the Web 2.0 Summit:

Google has decided to extend and pick up the pace of its “Going Google” (Apps and enterprise products) traditional media campaign. The ads were first launched in August in four cities with billboards. Now Google says the campaign will be expanded globally to “the U.K., France, Canada, Japan, Australia and Singapore” and appear “in train stations such as Paddington, La Défense and Shinagawa, and at airports in Singapore, Toronto, Dallas and beyond . . .”

Here’s a promotional video (”campaign preview”):

The campaign seeks to establish the credibility of Google’s enterprise offerings by naming companies that have adopted them, that have “Gone Google.” And, yes, it’s about stealing customers from Microsoft’s more traditional software products. But that’s obvious.

What’s more interesting to me is that Google is now much less inhibited about doing traditional media advertising, which it has done for Maps, Transit, the LBC, Chrome, Book Search (court-ordered) and AdWords/AdSense. There’s also a ton of advertising going on for Android phones, of course, although that’s being paid for by Google’s partners: T-Mobile, Verizon, Sprint, HTC, Motorola and others. Every ad for Android is indirectly an ad for Google.

Now that Google acknowledges traditional media spending and promotion are often important to build awareness, we’re likely to see the company do more of this sort of thing in the future. In my mind, it marks a significant change in Google’s attitude toward media and advertising. It’s also consistent with the “maturation” of the company.

Expectations were high for Google’s Q3 given some of the positive reports coming out about clicks and search volumes from third parties such as Efficient Frontier and comScore. Even though Google performed solidly (almost $6 billion in a still-bad economy) there may be some disappointment on Wall Street (apparently not). Google’s Eric Schmidt said “The worst of the recession is behind us.” He added, “We’re very pleased with the third quarter.”

Google apparently did better than consensus estimates and so “beat the street.” Shares are now up in after-hours trading.

Most metrics were flat. Here are the earnings release and associated highlights:

Google reported revenues of $5.94 billion for the quarter ended September 30, 2009, an increase of 7% compared to the third quarter of 2008. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the third quarter of 2009, TAC totaled $1.56 billion, or 27% of advertising revenues . . .

• GAAP operating income in the third quarter of 2009 was $2.07 billion, or 35% of revenues. This compares to GAAP operating income of $1.65 billion, or 30% of revenues, in the third quarter of 2008. Non-GAAP operating income in the third quarter of 2009 was $2.39 billion, or 40% of revenues. This compares to non-GAAP operating income of $2.02 billion, or 37% of revenues, in the third quarter of 2008.

• GAAP net income in the third quarter of 2009 was $1.64 billion, compared to $1.29 billion in the third quarter of 2008. Non-GAAP net income in the third quarter of 2009 was $1.88 billion, compared to $1.56 billion in the third quarter of 2008 . . .

Google Sites Revenues – Google-owned sites generated revenues of $3.96 billion, or 67% of total revenues, in the third quarter of 2009. This represents an 8% increase over third quarter 2008 revenues of $3.67 billion.

Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $1.80 billion, or 30% of total revenues, in the third quarter of 2009. This represents a 7% increase from third quarter 2008 network revenues of $1.68 billion.

International Revenues – Revenues from outside of the United States totaled $3.14 billion, representing 53% of total revenues in the third quarter of 2009, compared to 53% in the second quarter of 2009 and 51% in the third quarter of 2008. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2009 through the third quarter of 2009, our revenues in the third quarter of 2009 would have been $166 million lower. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2008 through the third quarter of 2009, our revenues in the third quarter of 2009 would have been $297 million higher.

Revenues from the United Kingdom totaled $765 million, representing 13% of revenues in the third quarter of 2009, compared to 14% in the third quarter of 2008.

Earnings call and Q&A excerpts:

Google CFO Patrick Pichette said that Google was going to resume investments and hiring, “especially in engineering and sales.”

Nikesh Arora, President, Global Sales Operations, cited growth of YouTube advertising and brand advertiser use of YouTube. He also cited UK deals to bring full-length TV programming to the site. He added that there were “over 1 million publishers” in the Google content network. And he said “over half of the top 25″ ad networks are “already using” for the new DoubleClick exchange.

Product SVP Jonathan Rosenberg comes on to discuss “long term bets and investments.” He first discusses the favorable response to the new AdWords interface and infrastructure. He cites Local Listing Ads and their simplicity for small businesses. He says that all calls generated through the program “go through Google Voice” (call tracking). He says there are 50 million Place Pages and now “Everything is finally in place to enable small businesses to connect with customers online.”

Rosenberg talks up Search Options, Chrome, Chrome Frame and the DoubleClick ad exchange. We’re making it easier for advertisers to run ads across a broader range of publisher sites and opening up the display ad ecosystem. Roughly 25 percent of all online display inventory remains unsold.

Question about acquisitions at Google:

Eric Schmidt: We’ve historically done an acquisition . . . one a month or so . . . and they’re usually small to complete an offering. He cites Chrome, Android and Search as areas where acquisitions are likely. Large acquisitions may happen “every year or two.”

GMail outages:

Jonathan Rosenberg: We’ve taken steps that ensure that major outages won’t happen again (referring to Sept. 1 outage). We’ve learned a lot from it.

Capital spending decreases:

Schmidt said that capital spending had declined because of greater efficiency.

Android adoption vs. other smartphones:

Rosenberg: Look at the scope of growth with carriers and devices. The open ecosystem of developers and carriers is “paying off” and going very well.

Schmidt: Android adoption is about to explode. This is a very critical period.

Plans for Google’s large cash balances:

Schmidt: We love cash. There’s no stock buyback being considered. Cash provides strategic flexibility.

Verticals with spending improvement Q2 vs. Q3:

Nikesh Arora: Auto performed well partly because of cash for clunkers. Retail is recovering. Finance is “tough.” Pockets within finance are “robust,” like insurance.

YouTube questions:

Patrick Pichette: We’re really pleased about YouTube’s performance. It’s going really well. YouTube is on a path to profitability “in the not-too-distant future.” We’re monetizating more than a billion video views every week.

Nikesh Arora: 90 percent of YouTube homepage inventory was sold out in Q3 in the US. We’ve closed deals with everyone in the music business. Pleased so far “and we like the trend.”

Google margins:

Patrick Pichette: I don’t like the word “dominant.” We build great products and they’re winning in the market.

Schmidt: We’re happy to have businesses that have different margins; we don’t have margin targets. We’ll accept the “native margin” structures of Google’s various businesses — as long as they’re winning in the market.

TeleAtlas removed from Maps:

Rosenberg: We’re using the new system in the US and Mexico. The data are coming from a wide range of sources including Street View, Census bureau, overhead imagery, local knowledge (UGC)  — it gives us lots of flexibility to create different types of maps. It allows us to launch better Place Pages and is quite significant.

(Implication is new system will be global in time.)

Mobile search and monetization:

Pichette: Q over Q, mobile searches grew 30 percent on Google. “New types of searches (emphasizes local/LBS) create new monetization opportunities.”

Headcount in the future:

Pichette: We’re delighted that we’re able to fund headcount growth. But it’s really about finding the best engineers, the “best minds.” You have to “find the right Googler.”

Schmidt: In terms of recruiting I think we do it well.

Mysteriously there were no questions about anti-trust or the Book Search settlement or plans in that area.

Arthur Levinson, a member of Google’s board of directors since 2004, has resigned from that position effectively immediately.

Google’s announcement doesn’t give a reason for Levinson’s departure, but he’s also been on Apple’s board of directors since 2000. The growing competition between Google and Apple led Google CEO Eric Schmidt to leave Apple’s board this past summer. At the time, Apple CEO Steve Jobs said Schmidt’s “effectiveness as an Apple Board member will be significantly diminished” by the increasing overlap in what the two companies offer.

Earlier this year, the FTC launched an inquiry into possible anti-trust violations due to Schmidt and Levinson being on both boards. As Greg Sterling suggested in our coverage at the time, it seemed inevitable that both Schmidt and Levinson would have to leave one of their positions.