VigLink is in the news today primarily because the company has announced that it has closed a round of seed investment, for $800,000 in total. From the press release, funding sources include:

Google Ventures, and individual investors including LinkedIn Founder Reid Hoffman, longtime Google executive and current LinkedIn VP of Product Deep Nishar, and noted technology entrepreneurs Niel Robertson, Hadi Partovi, Ali Partovi, Carlos Cashman, and Micah Adler. The financing, which was co-led by First Round Capital and Google Ventures, will be used to accelerate VigLink’s market expansion.

At Search Engine Land, we don’t tend to focus on affiliate programs. But I felt VigLink was worth a closer look because of the Google involvement and because of questions the company’s program raises in terms of Google’s guidelines about paid links.

Google’s involvement is straight-forward. Google has a venture capital arm, Google Ventures. The company likes VigLink’s prospects enough that it has decided to back it with funding (how much isn’t disclosed).

On the paid links front, my understanding is that VigLink passes Google’s paid links requirements. I’ll get into that more, but first, how it works.

Install Code & Get Affiliated

VigLink provides code to those who are in its program. Similar to code used for something like Google Analytics, you insert this so that it’s present on every page.

The code reports to VigLink all the outbound links on your site — or specifically, all the outbound links that people are actually clicking on. If notes these links and checks to see if the companies the links lead to offer affiliate programs. If they do, then VigLink turns those links into affiliate links that earn you money.

VigLink’s demo page gives a real example of how this works. On that page, there’s a link to a book at Amazon called “Four Steps to the Epiphany.” The link in the page looks like this, if you hover over it:

http://www.amazon.com/Four-Steps-Epiphany-Steven-Blank/dp/0976470705/

Click on that link from the demo page, and you’ll see how it looks like this in your browser’s address window:

http://www.amazon.com/Four-Steps-Epiphany-Steven-Blank/dp/0976470705/?tag=vig-20&sid=151gu6ptz593e

That part I’ve put in bold? That tells Amazon that this person came from VigLink. If they buy something, then VigLink earns some money off the sale, since VigLink is an Amazon affiliate through the Amazon Associates program.

VigLink has enrolled itself in thousands of affiliate programs similar to those that Amazon offers. Anyone using VigLink code on their web site is effectively becoming part of VigLink. VigLink would look at your site, and if it sees a link to Amazon that doesn’t have an affiliate code on it, then it would add a tag to make it part of VigLink. The same is true for other online retailers such as eBay or TigerDirect.

Visitors to your site see none of this. If they hover over a link, they won’t see the affiliate code. Nor does VigLink operate like some of those programs like Vibrant that automatically try to make any word on your site. Only links that you’ve already created are turned into affiliate links, assuming there’s a relevant program.

Advantages

The plus side is the time savings. On my personal blog Daggle, for example, I link to things all the time. If I’m really thinking about it, I might add my Amazon affiliate code to a link to relevant information in something I’m writing. If I’m busy, I probably won’t bother. Other companies I link to might have affiliate programs, but it’s not worth my time or effort to sign up for those.

VigLink aims to correct such laziness. For example, I’m in the closed VigLink beta right now. I can see that in the week or so since I put the VigLink code up that I’ve had 53 clicks from my site over to Amazon. Of these, 47 clicks were on links where I had added affiliate codes. The other 6 clicks? I never added the code, but VigLink did it for me, using their code.

Similarly, I had nine clicks from my site to TigerDirect. I’m not a TigerDirect affiliate member. I have no affiliate code on those links. But by adding VigLink, it added its own code to those TigerDirect links, making them earn for me.

Now, I’ll earn more if I do affiliate links direct. VigLink takes a cut of any affiliate sales (how much varies and isn’t specifically disclosed, to my understanding). If you’re really worried about earning as much as possible, you’d want to do your own direct affiliate links. And if you do, VigLink recognizes these and doesn’t replace them, the company says. It only act on links where it sees a failed monetization opportunity.

Disadvantages

On the con side, the biggest is probably disclosure to your readers. When I affiliate a link, I usually make a note of this to my readers — and that’s something recent FTC guidelines now say is a requirement. VigLink suddenly makes any link on your site into one that requires disclosure. But since you don’t know which ones — and right now, since you can’t selectively choose which links might be affiliated — to cover yourself, you probably should have a blanket disclosure statement as part of your articles.

Another con is that the program doesn’t automatically find words or products that probably should be affiliated. If you write about a product but don’t link to it at some site, you’re not going to earn. In contrast, a program like Google AdSense tries to automatically look at your content and put ads near your content. And a program like Vibrant will actually turn words in your stories into links. Of course, many people find that type of word-to-link transformation annoying, myself included.

Paid Links & SEO Issues

From a search engine optimization perspective, VigLink seems a minefield. Google wants any paid link on a web site to be blocked from its crawler or flagged with a nofollow attribute, lest the site owner face a paid links penalty. VigLink potentially makes any existing link into a paid one, and site owners don’t know which, nor can they control the implementation.

Since VigLink uses JavaScript, there’s the potential that if Google does NOT read the JavaScript, it won’t see the paid links. That would mean the site is effectively getting a cloaked paid link. The search engine sees a non-paid one, but humans see a paid one. Arguably, this could be a guideline violation. Then again, since the site owner may not have deliberately set out to place a link in return for payment, Google might not view it that way.

If Google DOES read the JavaScript, as it does in some cases, then some of the links are definitely transformed into paid links — and currently, without any nofollow attribute attached to them, VigLink tells me. Some of them probably do not have redirect blocking that would make up for the lack of nofollow, so again, there’s a potential guidelines violation.

Google Gives All Clear

VigLink said it has talked closely with Google and been assured that its program will not cause site owners to violate paid link guidelines. I’m also waiting for a longer statement from Google. But Google also reassures me that it has seen the VigLink program, and it doesn’t pose any problems.

Other Issues

Another search marketing concern is the lack of control you have over where your site’s reputation can flow. Some sites want to ensure external sites receive get PageRank or reputation credit that’s typicaly passed through links. A program like VigLink, if done to Google’s paid link requirements, means that this credit is blocked. This isn’t the case within domains, by the way. VigLink says it never changes a link within the same domain or subdomain of a hosted site.

Long-term, if VigLink is successful and attracts imitators, the links that Google depends upon for much of its relevancy would be lost, since it wants to ignore any that are paid. Of course, affiliate links aren’t a new issue on this front. In the past, Google has suggested that there’s always enough of a sample of non-paid links for it to do good link analysis.

Ideally, I’d like to see site owners have much more precise control over what links get affiliated and which don’t. I’d also like to see VigLink insert nofollow attributes to links that are processed through JavaScript. Similarly, I think it should consider placing nofollow around any links on a page that it may make paid when the JavaScript processes.

CEO Oliver Roup told me last week these are all things that might happen in the future. But on the nofollow front, right now it’s not so pressing, since Google’s given the program a clean bill of health as things are now. As for granular control, VigLink says that if that comes as needed during the beta, it’ll happen afterward.

Of course, much of this is moot right now. VigLink is in a closed beta. You can’t sign up for it. You can, however, generate what’s called a “pre-sales” report. This is designed to show you links on your site that could be monetized by VigLink when it opens generally in the future.

Postscript: James Morell alerted me to Skimlinks, which seems to operate in the same way as Viglinks. I haven’t looked at Skimlinks in any great detail. In a quick visit, one key difference between it and Viglink is that Viglink says members get paid each month, regardless of how much they earn. Skimlinks says there’s a roughly $160 minimum earning needed in a month (50 UK pounds).

Here are some verbatim excerpts from the SEC filing:

Negotiation and Execution of the Definitive Agreements

Pursuant to the terms of the Letter Agreement, the parties will negotiate and execute the Definitive Agreements as soon as practicable but in any event by October 27, 2009 (the “Negotiation Period”). If the Definitive Agreements are not executed during the Negotiation Period, the parties will submit any disputes regarding the final terms of the Definitive Agreements to an arbitration panel.

Conditions to Commencement and Termination Prior to Commencement

Prior to the Commencement Date, the Letter Agreement and Definitive Agreements may be terminated only by (a) mutual consent, (b) if a breach renders a condition incapable of being satisfied by the Termination Date (as defined below), or (c) if the conditions to commencement have not been satisfied by July 29, 2010 (the “Termination Date”); provided that Yahoo!, in its sole discretion, has the right to extend the Termination Date by six (6) months if the required antitrust approvals have not yet been obtained.

Search and Advertising Services and Sales Agreement

For a period of ten (10) years beginning on the Commencement Date (the “Term”), Microsoft will be Yahoo!’s exclusive technology provider for algorithmic and paid search services and Microsoft will provide contextual advertising to Yahoo! on a non-exclusive basis. Yahoo! will be the exclusive worldwide relationship sales force for Yahoo!’s and Microsoft’s premium search advertisers.

The services provided by Microsoft under the Search Agreement will be provided on all web sites, applications and other online digital properties owned or operated by or on behalf of (a) Yahoo!, Yahoo! subsidiaries and Yahoo! joint venture relationships, as well as on software applications developed or distributed by Yahoo! or Yahoo! subsidiaries that provide access to or enable algorithmic search services or paid search services (“Yahoo! Properties”) and (b) Yahoo! Syndication Partners (as defined below), as well as software applications developed or distributed by Yahoo!’s Syndication Partners that provide access to or enable algorithmic search services or paid search services from Yahoo! (“Syndication Properties”). “Syndication Partner” means a third party with whom Yahoo! has contracted to provide algorithmic search services or paid search services.

Subject to certain specified restrictions, Yahoo! will have full flexibility with respect to the user experience, content and look and feel on all of its web pages, and will also be entitled to use the paid search services and algorithmic search services for non-internet search queries with minimal restriction . . .

Microsoft’s mapping services and mobile search services. Yahoo! may implement each of the mapping services and the mobile search services on a non-exclusive or an exclusive basis. Yahoo! also has the option to work with Microsoft to implement the services on other platforms. If Yahoo! elects to receive services for other platforms, it must receive such services on an exclusive basis.

Revenue Share Payments and Other Payments

During the first five years of the Term, Yahoo! will be entitled to receive 88% of the net revenues generated from Microsoft’s services on Yahoo! Properties (the “Revenue Share Rate”). Yahoo! will also be entitled to receive its share (at the Revenue Share Rate) of the net revenues generated on Syndication Properties after the Syndication Partner’s share of net revenues is deducted. For new Syndication Properties during the Term, and for all Syndication Properties after the first five years of the Term, Yahoo! will receive its share (at the Revenue Share Rate) of the net revenues generated from Microsoft’s services on Syndication Properties after the Syndication Partner’s share of net revenues and certain Microsoft costs are deducted.

On the fifth anniversary of the Commencement Date, Microsoft will have the option to terminate Yahoo!’s sales exclusivity for premium search advertisers. If Microsoft exercises its option, the Revenue Share Rate will increase to 93% for the remainder of the Term, unless Yahoo! exercises its option to retain its sales exclusivity, in which case the Revenue Share Rate would be reduced to 83% for the remainder of the Term. If Microsoft does not exercise such option, the Revenue Share Rate will be 90% for the remainder of the Term.

Microsoft will also pay Yahoo! a payment of $50 million annually during the first three (3) years of the Search Agreement. Yahoo! may use these payments to partially cover transition and implementation costs not otherwise covered under the Search Agreement.

Termination Provisions

Yahoo! may terminate the Search Agreement if the trailing 12-month average of the RPS in the United States (the “U.S. RPS”) of Yahoo! and Microsoft’s combined queries falls below a specified percentage of Google Inc.’s (“Google”) estimated RPS measured on a comparable basis or if the combined Yahoo! and Microsoft query market share in the United States falls below a specified percentage; (d) on the fifth anniversary of the Search Agreement, and any time thereafter, Yahoo! has the right to terminate the Search Agreement if the trailing 12-month average of Yahoo!’s U.S. RPS is less than a specified percentage of Google’s estimated RPS; or (e) subject to exceptions, either party may terminate if a law, regulation or order would have a significant, adverse impact on a primary aspect of such party’s intended benefit of the Search Agreement.

Transition and Implementation Plan

Microsoft will hire not less than 400 Yahoo! employees (the “Transferred Employees”) and will offer the Transferred Employees market competitive compensation packages. In addition, Yahoo! and Microsoft will mutually agree on a retention plan to be paid for by Microsoft to assist in retaining the Transferred Employees and an additional 150 Yahoo! employees to be mutually agreed upon between Microsoft and Yahoo! to assist with providing the transition services.

The deal seems broader than the “web, image and video” search scope we heard before. Yahoo can terminate the deal if certain targets aren’t meet surrounding revenue per search, benchmarked to Google. At the five year mark the parties can change who runs “premium sales.” The rev share percentages change accordingly.

On a related note, there’s an opinion piece in the Wall Street Journal that argues these terms give Redmond a bigger win than Yahoo in Microsoft CEO Steve Ballmer’s “win-win” scenario but that, in the larger scheme of things, Google may have already won the game:

The deal is a clear win for Microsoft and a qualified win for Yahoo. The big question is whether it makes any difference in the only contest that really matters, which is the one with Google. The risk for both Microsoft and Yahoo is that the contest is already over. Second place won’t really matter, especially as the competition shifts to Microsoft’s home turf: operating systems.

Related coverage:

• It’s Finally Official, Microsoft & Yahoo Make A Deal, Yahoo Gives Up On Search
• Live Blogging The MSFT – YHOO Search Press Conference
• Microsoft-Yahoo Deals 2008 & 2009, Side-By-Side
• A Search Eulogy For Yahoo
• Micro-Hoo Details: Q&A With Mehdi & Schneider
• The Microsoft-Yahoo Search Deal, In Simple Terms

Here’s the issue in a nutshell. According to a March 2008 survey by Truste (written up in MediaPost), “nearly three out of four people, or 71%, said they realize that companies track their Web browsing activity for purposes of sending them targeted ads. The majority–57%–said they are not comfortable with the practice, even when their browsing history can’t be linked to their names. At the same time, 72% of Web users also told researchers they find irrelevant ads ‘intrusive and annoying.’”

The US Federal Trade Commission (FTC) held hearings on personal data collection and last year proposed voluntary rules for ad targeting on that basis. Just this week the IAB adopted formal guidelines around consumer privacy and when users should be notified and given the opportunity to opt-out of targeting. The IAB’s rules are apparently more “flexible” for publishers and advertisers than the FTC’s and don’t require as many consumer disclosures and notifications.

Every BT firm and practitioner out there will say that it works effectively without personally identifiable information. However, there are many in Washington and Europe, as well as privacy NGOs, who simply don’t buy those claims.

Earlier this year ISPs in the US and UK began collecting data on user behavior for resale to ad networks and others. In the US a firm called NebuAd provides the enabling equipment that captures the data and permits it to be shared with third party advertisers and networks. In the UK NebuAd competes with a company called Phorm. And there are others seeking to bring more targeting capabilities from deeper data mining of user profiles and activities. Yahoo is on the forefront of this in the US.

Yesterday, however, cable ISP Charter Communications backed away from a plan to work with NebuAd, citing privacy issues. According to the Washington Post:

The company had been planning to harvest the stream of data from each Internet customer for clues to their interests and then make money from advertisers who would use the information to target online pitches.

The data-collection effort would have protected personal information, Charter officials said in describing the plan, but critics likened the practice to wiretapping.

Charter said the plan had indefinitely been put on hold. This week, in a parallel but contrary development, the US House of Representatives passed domestic spying legislation that enables federal officials to obtain copies of all communications (phone or Internet) in the US without first obtaining a search warrant or court order.

Privacy advocates see little difference between what firms like NebuAd are doing and the efforts of the US government to spy on citizen communications. It’s therefore somewhat ironic that the US FTC is asking private companies to offer broad disclosures about data collection when the government is adopting an entirely different standard for its own activities. (The justification for the double standard is criminal law enforcement.)

On the advertising side, the question of who “owns” the data and what the scope of protection for that data should be will continue to be the subject of debate for some time. In Europe, it has been proposed that an IP address should be treated as personal information. That position has all sorts of privacy implications that fly in the face of BT and other targeting initiatives. Indeed, most advertisers and ad networks argue against such a policy.

Investor Esther Dyson, in a related piece in the Wall Street Journal this past February, wrote that a “coming ad revolution” is tied to individual management of personal data (on social networks). She also supports NebuAd and related firms in their effort to provide more relevant ads to users. Dyson’s bullishness has a one-sided, naive quality about it, however.

Facebook’s tracking initiative Beacon failed because it was manipulative and somewhat deceitful. Many users didn’t know their behavior was being rebroadcast to their networks. When they found that out, they were upset in many cases. Facebook was forced by bad PR and related negative coverage to drop the program, just as Charter Communications made a similar calculation before the PR problems could begin.

The issue of data mining and ad targeting is extremely complicated. The genie is out of the bottle, however, given that these capabilities exist. And users do prefer more relevant ads. In this environment the challenge is to find the right balance between data collection, discloses, and consumer choice around being tracked.

And that’s not an easy thing for anyone.

At the recent SMX Advanced event in Seattle, I sat in on the Amazing New PPC Tactics panel. It was a good panel overall, but the one thing I wanted to highlight was the presentation by David Szetela of Clix Marketing, as David explained how to do content match marketing effectively.

Understanding the problem

The problem stems from the way that the search engines decide on which sites to run your content match ad. Basically, the only clues that the search engines have is the list of keywords you provided. What would be wrong with that, you might ask? Let’s illustrate with an example.

Let’s say you are selling a variety of widgets, and that these widgets can be used in your kitchen, on boats, in your workshop at home, and also has applications in industrial machine shops. You might create a list of keywords that looks something like this:

kitchen widget boat widget workshop widget machine shop widget

These are the keywords that the search engine will then use to try and match your content match campaign up with web sites for placing your ads. With the above list you might end up on sites about kitchens, boats, workshops, and machine shops. The reason this happens is that the search engine takes the keyword set and looks for sites that have similar words on their pages.

This is significantly different than the way the keywords operate in search. In search, the search engine is trying to match you up with a user’s search query—with an average of only about 2.3 words per query. Not a lot of data to match up with, and usually pretty focused on nature. As a result, with search campaigns, there is a tendency to create as large a keyword list as possible, to cover a lot of potential ground.

This may work in search, but in the content match world you can rapidly get into trouble. In our example above, you may not want to be on sites about kitchen design, or boat vacations, etc. Worse still, you may not want to be on a site about travel that happens to have a few pages about cruises you can take (e.g., if your widget helps people repair boat engines, this would not be a match).

The solution

It turns out that I have always had that first step right. Turn off content match in your traditional campaign. It’s just going to be very tough to do well with it.

Then, create a new campaign, and turn off “Google Search” and “Search Network” in your campaign settings, and create a campaign which is only for content match. This is the second step.

For the third step, create a custom set of keywords just for your content match campaign. These keywords will be significantly different from your search keyword set. Here’s some of what David recommended we do to pick out the keyword set:

1. Pick out a few sites that are strong examples of where you would like your ad to run

2. Do an analysis of the types of phrases that appear on these sites (which is what the search engine will do)
3. Consider going further and entering some of those phrases in the search engines to discover a few other sites you would be interested in being on, and expand the analysis
4. Limit the list of keywords to something between 15 and 30 keywords

With this approach you will be significantly closer to targeting your content match campaign. Better still, since many people simply turn this feature off, and most others use their search keywords, you will have a better optimized campaign and a significant competitive advantage. David offers many other Content Match Optimization tips on his site.

Eric Enge is the president of Stone Temple Consulting, an SEO consultancy outside of Boston. Eric is also co-founder of Moving Traffic Inc., the publisher of Custom Search Guide.

Yahoo will be powering the ads within PDF documents that are contextually relevant to the content within the PDF. If you produce PDF documents and want to monetize them with relevant ads, this seems to be the product for you.

To get ads on your PDF documents, you will first need to be approved for the beta. To sign up for the beta, complete this form. Then you apparently upload your PDF documents to the system, then Adobe and Yahoo will place the ads within the documents automatically.

Here is a sample image of Yahoo ads in Adobe PDFs:

The PDF FAQs has more information on how this all works. Here is a copy of the PDF document as text:

What is Ads for Adobe PDF powered by Yahoo!?
Ads for Adobe PDF is a new opt-in service that enables commercial publishers to monetize their PDF content through advertising. The advertising service, powered by Yahoo!, automatically matches and displays dynamic, contextual ads in a panel of Adobe Reader and Adobe Acrobat when a user views the PDF. Commercial publishers that sign up to participate in this program are eligible to be paid for valid clicks on ads. In this unique advertising relationship, Yahoo! helps connect advertisers from its extensive network of online advertisers with commercial publishers that are distributing content through Adobe PDFs. Yahoo! will incorporate this new advertising inventory into its portfolio of online advertising opportunities.

How does it work? When a recipient opens a PDF document from a commercial publisher participating in this program, ads will be dynamically matched and displayed in a panel adjacent to the content. The publishers are eligible to be paid for valid clicks on the ads. Adobe has partnered with Yahoo! to provide ads across a broad range of categories to match PDF content. Since the ads come from Yahoo!, publishers do not have to establish and maintain direct relationships with advertisers.

To use the service, publishers follow these easy steps: 1. Apply for an account. 2. Upload and register the PDF content. 3. Distribute the registered PDF content – just as they do today.

PDF registration associates the publisher with the content in order to receive payment and automatically analyzes the content to enable ad matching.

How will ads be matched to PDF content and will they be relevant? The PDF content is thoroughly analyzed, using an algorithm that takes into consideration factors such as: * Keywords – identifies keywords based on how frequently the word appears, where it appears in the content, and how it appears in the content, among other things * Context – associates categories or concepts with specific words; for instance, content about soccer could be associated with sports

This analysis enables contextual ads to be matched to the PDF content.

How is this different from ads placed in PDF content today? For commercial publishers, the current approach for securing advertisers or sponsorship for PDF content is very time-consuming. Ads for Adobe PDF takes advantage of Yahoo!’s existing relationships with an extensive network of advertisers, and provides publishers the opportunity to monetize PDF content with little effort and without the need for an advertising sales force.

For readers, Ads for Adobe PDF provides dynamic ad content that is up-to-date and related to their interests. Given this new opportunity to monetize PDF content, some commercial publishers may choose to provide readers with access to more free content, which previously was available only to paid subscribers.

For advertisers, Ads for Adobe PDF provides a powerful new channel to communicate their messages to a highly engaged and targeted audience. In addition, Ads for Adobe PDF provides advertisers a means to track the performance of ads placed in PDF content, just as they can today with ads placed in web sites. That’s an important distinction from current ads in PDF content, which are static, and offer no means to measure the effectiveness of the ad placement.

When will Ads for Adobe PDF be out of beta? Adobe and Yahoo! anticipate several beta cycles prior to release for General Availability. We will provide updates on the release schedule in the coming months.

• Facebook Pages allow brands to have profile pages on Facebook in the same way that people have them. (see Coca-Cola’s screenshot from ZDNet) with marketing messages, games, video, etc. When users interact with those pages, add elements to their profiles or brands as "friends," that information is spread virally through the Facebook newsfeeds, just as it is today with the Facebook apps. A related program, Insights, will offer very specific analytics and data to marketers, in the aggregate.
   
• Facebook Social Ads allow brands to use the full range of profile information to target people by age, gender, relationship status, location, and so on. MySpace launched a conceptually similar ad program "hypertargeting ads" Monday.
   
• Facebook Beacon is a widget-like system being adopted on 44 third party partner sites (e.g., Blockbuster, Hotwire, The Knot, TripAdvisor, TypePad, Yelp, among numerous others). Activities on sites using Beacon will flow back into a Facebook user’s News Feed or Mini-Feed, allowing their friends to know some of what they did at that site. This effectively represents a way for individuals to "endorse" brands, products, or businesses on partner sites and broadcast that information back to their networks on Facebook.

On the one hand, this set of announcements represents a creative, clever, and logical use of the Facebook demographic and profile information and the Facebook platform. Beacon is sort of like Facebook apps in reverse. Both represent ways for marketers to attempt to reach consumers through Facebook’s much touted "social graph" (awful term).

Brand advertisers are hungry for effective ways into social networks and to reach their generally young user bases. The potential problem here for Facebook is that it may be moving a little quickly and may be pimping its users a bit too aggressively. Those who feel they’re being watched, used, or manipulated somehow by these ads may resent it. Privacy is a potential concern as well, though Facebook has sought to address that by using anonymous, aggregated data for targeting and reporting.

Facebook Platform was a stroke of genius, but I find that much of what now goes on at Facebook (via the apps and their adoption) qualifies as a kind of spam, even though it is pushed via my network. Clearly not all people share this view. But in my opinion, while Facebook Ads may make the site engaging and safe for brand marketers, it may start to become much less so for regular people.

For more, see the press release from Facebook and the Facebook blog post. TechCrunch live blogged the event, and there’s plenty of coverage on Techmeme.

Marketers with existing AdWords accounts may create ads within BuzzLogic for the particular sites where the “conversation” about a product, service, or brand is happening. This capability doesn’t exist within AdWords/AdSense itself. BuzzLogic has said that other ad networks will follow in the near future.

What this means is that marketers can locate, create, and then place ads, say, for digital cameras, on blogs that have the greatest influence (as determined by the BuzzLogic algorithm) on the online discussion of digital cameras. This has many obvious and some less obvious but important implications for brands as well as direct marketers. As social media and blogs gain in influence, marketers are seeking ways to take advantage of or combat their influence. What’s interesting about BuzzLogic’s tools is that they make that influence much more transparent to marketers. And the new ad targeting options make it actionable.

Other blog search engines and tracking tools, such as Technorati, allow audiences and marketers to see blogs that may have overall influence or are discussing particular topics. But they don’t rank blogs for influence on particular topics or keywords, let alone allow marketers to buy ads on those specific sites.

BuzzLogic said its beta advertisers saw conversions that were as much as 2x better than other approaches.

Superpages is charging advertisers a one-time $990 production fee and a small monthly recurring fee to have a video icon associated with their listings. For each consumer stream/click, advertisers would also be charged a fee — pay per stream — based on competitive bidding on a category basis. Category level bidding is the same way that Superpages’ clicks and calls products work.

Advertisers can also pay a one-time fee for the rights to use the videos on their sites or distribute them elsewhere — on or offline. Superpages is also considering various syndication options for the video, similar to the way it syndicates calls and clicks. Syndication from yellow pages publishers (and other local sites like Citysearch) will likely be the way that local and SMB video gets into search or local results at Google, Yahoo, and Microsoft.

Here are a number of examples of Superpages video in different business categories.

Video is popular with both consumers and advertisers, as lots of empirical work already shows. A recent online survey from Opus Research and AllBusiness.com of 653 U.S. SMBs found that 33% of respondents said they were evaluating developing video ads in the next 12 months.

There’s some additional discussion of the particulars of the Superpages program on my personal blog, Screenwerk.

As explained by the press release:

Based on Blinkx’s ground-breaking AdHoc platform, the new widget places unobtrusive, highly-relevant text advertisements against embedded video from popular sharing sites such as YouTube, GoogleVideo, and DailyMotion. Blinkx will share 50 percent of the revenue generated from the ads with users, and payments will be facilitated through PayPal.

In addition, last week social search provider Eurekster and Blinkx announced a partnership that added video from Blinkx to Eurekster’s popular Swicki widgets. Here’s an example using Family Guy clips.

What Eurekster has built, beyond an interesting distributed social-search product, is a nascent long-tail ad network of sites using its Swickis.

Google creates products that are a lot more complex than a soft drink. When all is said and done, I think the latest-generation product development protocols are going to have to lead to significant shifts in how advertisers interact with online ad platforms like AdWords. In the short term, for example, many of us have preferred “classic” Google AdWords Content Targeting to the newer Site Targeting flavor of content targeting. But that’s probably temporary. In short, sentimentality means little in the face of changing economic trends and the impatient needs of today’s sophisticated online actors. Google ain’t a soft drink.

New, improved, more scientific formulations are likely to make us ever more impatient with some of the “classic” versions of the ad auction platforms. I no more think that the world will continue to put up with some of the quirks of first-generation ad auction systems than I think I’m likely to go back to using a retail stock broker who sends me paper confirmations in the mail that tell me I was lucky enough to pay a $78 commission on that small stock buy that I researched myself.

Google content targeting already showing its age

If you’re like many search advertisers, you fell into the so-called “content targeting” add-on to paid search platforms mainly through inertia. As you reached the limit of search click inventory, you enabled content targeting (or “contextual” ads). You then began to manage this carefully to ensure you weren’t getting tripped up by the quirky economics and distribution patterns.

If you were one of those unfortunate ones who enabled a new AdWords account without looking before you leapt, I’m afraid your budgetary mix was even more exogenously determined than that. (“Sorry, newb.”) Basically what would have happened if you weren’t paying enough attention was that you would have launched your campaign by opting into content targeting, even if you may have been only dimly aware of what it was. Worse, you bid the same as you bid on search, even though almost no one does this across the board due to the often sharply different ROI’s on the two streams.

At a certain point, in either case, you decided to take more control of the situation: tracking results more precisely, bidding better, and now, reading Placement Performance reports within the Adwords interface to determine what referring sources were responsible for the majority of your clicks, and whether they converted or not. (Such reporting has long been available with good third party analytics tools, if customized properly.)

On the whole, Google’s content targeting program now works well, in the very practical sense that more inventory is now available, and that steps have been taken to improve both targeting and pricing, so that the ROI is improving. (One of these initiatives is called “smart pricing” – Google’s algorithm looks at the projected quality of publisher pages in terms of the likelihood of behaving like pages that typically convert to sales or leads for advertisers.) Instances of zero conversions on substantial numbers of clicks are less frequent now in the content program.

But what’s striking is that most of the “improvements” to Google’s contextual ad program have come in the form of “fixes” to an initially flawed product that was released to a skeptical response from advertisers. The “fixes” were relentless, and admirable Google’s overall revenue from contextual ads dropped from over 50% to below 40% over a two-year period as a result; you can bet they are now hoping to grow this back to well over 50%, given the volume ceiling on search inventory proper. But the reality is these were still band-aids applied to a clumsy model whose black-boxishness is legendary. To exaggerate for effect: neither advertisers nor publishers know what the heck is going on with the program! Meanwhile, Google gets paid handsomely for acting as the middleman. Google has been playing the part of one heckuva crafty mutual fund salesman.

Google: today’s sophisticated product development strategies

The latest generation of Google, the diversified web products/services company, has taken the world by storm. The world caught wind of the momentum with the release of things like Google Maps, Google Earth, and of course GMail. But most pertinent to the present discussions, and to search marketers, has been the release of the latest version of Google Analytics, and the rollout of Google Website Optimizer. Inside Google AdWords, to boot, there have been a number of innovations that look like they fall into a similar category or generation as the above products.

Systematic planning efforts go into these products now, with increasing degrees of input from directly affected communities and blue-chip panels or beta testers getting more involved. Another clue to Google’s growing maturity is the establishment of formal reseller programs that allow collaboration for mutual benefit.

The fact that Google is now a mature company that creates and evaluates product development in a sound fashion that reflects input from relevant experts in the immediate ecosystem, as well as users, puts the design of the platforms that generate its core revenue streams at a crossroads.

The current paradigms that AdWords and AdSense (content targeting) are built upon must satisfy a number of criteria if they’re to stand up to the next phases of growth and competition:

• They need to scale
• They need to integrate well with the efforts of editorial, sales, and customer support staff, and be well understood by them
• They need to adapt to different communities of users
• They need to make economic sense to advertisers and publishers
• They need to be transparent enough that they don’t appear to be one-sided in Google’s favor
• They shouldn’t be overly complex
• They shouldn’t be just plain stupid, or seem stupid to the average user

Some of what I’ve stated seems obvious. But these are pretty daunting criteria in some senses, depending on what the market comes to expect.

Content targeting, the product: pros and cons

In this case I’ll just look at content targeting. From the beginning, the program was flawed in a number of senses. I’ll tip my hat to the benefits, which I’ve always tried to highlight. The automated methods of matching content to the keywords and ads in your account allow advertisers to add relevant exposure with no research and often make fewer mistakes than human media buyers. The system also (now) allows for control in the form of separate bidding, site exclusion, and Placement Performance reports.

But there have been numerous downsides. First, it seemed manipulative: newbies are opted into content, at the same high bid as they pay for search. It’s all fine and good for customer support to “recommend” content bids and other niceties, after the fact, but designing the platform to be misused in the first place sounds like the kind of “you had every right to…” formalism that has no place in a discussion of real world usability.

In theory, content targeting works. The “reverse usability” of the program, to anyone watching carefully, makes it obvious that in fact there was too much one-sidedness in Google’s favor built into the very design.

On complexity: there is plenty. Many advertisers simply do not understand how the content targeting program’s matching works. Those of us who do understand that our ad might show up on relevant pages of any type around the web, based on a proprietary matching technology and our bid, still really do not clearly understand exactly what’s going on, and have a limited grasp of the overall size and shape of the ad network. We definitely have no clue as to what sites our ads will show up on next. That’s uncertainty combined with complexity, especially for the direct-response advertiser who counts on ads to convert, and doesn’t like to put money in the pockets of untried publishers.

But it’s not as easy as it sounds to come up with an alternative.

Radical simplicity? Brilliant hacks, design philosophy, and markets

The potential solution to that leads to another dilemma, however. The obvious answer, to some, would be to remove complexity in the way that Apple does: build such a compelling, intuitive outer layer that nobody seems to care that there’s a crazy amount of the same old sausage being made by tiny primary-colored leprechauns inside. It seems unlikely that Google can go to this extreme – by, say, sending you an “ad pod,” a lovely white plastic spheroid that blinks its red eye and tells you your ad spend and not much else (other than “Googlepod loves you!”) at the end of each day (or week, depending on whether you order the “red eye ad pod” or the “blue eye ad pod”). We’ve been too conditioned to drill down on details of user behavior and ad performance to go for this. And by “we,” I mean us OCAJ’s – Overly Conscientious AdWords Junkies. Many ordinary advertisers out there would actually go for my “ad pod” plan, especially if it doubled as a paperweight or a radar detector (the latter being a banned item for Google advertisers, but I digress).

It’s important to stress that Google has been impressive in its awareness of such issues, and in its willingness to experiment and to roll out new features that actually work in the real world and do emanate from principles like radical simplicity and from asking bold “what if” questions. Google knew classic content targeting was suboptimal, and asked: “What if we made it very advertiser friendly and priced every click in part based on the likelihood of that ad making money for that particular advertiser? It will be a self-learning system, and we’ll call it Smart Pricing.” Google actually did this – they pulled it off, and it worked pretty well. But due to circumstances, it just wasn’t the type of fundamental reorientation advertisers really needed, though it did markedly improve their economics. It turned out to be a brilliant technical solution grafted onto a flawed network. It also directly contradicted the principles of transparency and efficient markets, as radical simplicity and arbitrarily-designed pricing models inevitably do. Radical simplicity and arbitrary design works a lot better for a physical consumer product, let’s say, than it does for a complex system like a market.

Brilliant band-aids, but still band-aids

The open-ended nature of the ad network, and the way that a spike in content targeting clicks can not only alter overall campaign performance but “borrow” budget share from search (assuming a reasonable budget limit on a campaign), leaves advertisers vulnerable to the unknown. Case in point: a friend with an AdWords campaign that follows direct marketing criteria for its highly technical product recently received 100, then 500, then 10,000, then 50,000 clicks from a major social networking site, in a single ad group, in spite of a relatively low bid (40% of what was being bid on search), further discounted by Smart Pricing. 50,000 clicks at 17 cents is still $8,500 worth of unwanted advertising. Not a single click converted; the situation cropped up in such a way that the non-contributing inventory was not caught for awhile. Going forward, the advertiser can exclude this site, but they are left wondering when the next “incident” might occur. Advertisers want to plan proactively. They do not wish to play “rogue publisher whack-a-mole.”

All this incident proves is that our old friend, Content Targeting circa 2003, is still in place despite the many fixes.

The Site Targeting flavor of content targeting appears to be an interim solution only – a response to complaints about Classic Content Targeting, but not a particularly compelling design in its fundamentals. You can already tell Google was grasping for a good fit here by how many fixes to Site Targeting were implemented or contemplated. The pricing model was set at CPM instead of CPC, and then the minimum bid allowable kept dropping, as I chronicled with each price drop. At a later stage, beta tests of a CPC version of Site Targeting were introduced.

What none of these band-aid fixes seem to do is to provide the advertiser and publisher with a transparent marketplace that truly maximizes economic efficiency, as the initial search ad platforms did. And part of the reason for that is because of the low quality of the majority of the publisher inventory featured on the network. If nobody seems motivated to engage in bidding wars for particular publishers’ offerings, it’s because they fear it won’t be worth much to them. Thus, publishers never get the type of gratification they need to put their full confidence in AdSense. Whether it’s site targeting or content targeting flavor, Google content targeting seems to present itself as what some observers lament as “yet another ad network.”

The problem with ad networks

According to Jay Sears, SVP of Strategic Products and Business Development at ContextWeb, “most ad networks are remnant ad networks, built to favor direct response advertisers.” So by extension, a network that is not particularly friendly to publishers will likely elicit publisher behavior that is unfriendly to advertisers. “Publishers have no control on the economics,” argues Sears, so they typically provide only “remnant inventory” to ad networks.

This means they choose to monetize premium and middling content in other ways. So advertisers scouring, say, Google AdWords’ content targeting network for quality inventory, are going to be looking very hard indeed.

Wouldn’t it be better if advertisers were enticed to take the content program more seriously — as seriously as the search program — because it offers some really transformative level of functionality, and access to higher quality publishers and more information about the auction process?

Two years ago, when Google was making only incremental changes to its site targeting and content targeting programs, I started adding a slide to my presentations (at SES New York, etc.) arguing that a new type of platform was needed to help advertisers and publishers truly communicate with one another. (I alluded to this only briefly in blog posts — the need for advertisers and publishers to “transact based on something closer to perfect information.”) What I was getting at, without knowing it, was the emerging concept of a true ad exchange. Today, ad exchanges like Right Media, ContextWeb, adify, and DoubleClick Ad Exchange (which will be a Google offering in some form, if their acquisition of DoubleClick passes regulatory muster), are the talk of the industry – and for good reason.

When you look at the ad exchange model as the model for buying and selling targeted online advertising, suddenly the jerry-rigged Content Targeting and Site Targeting programs look creakier than ever.

Ad exchanges are so promising, they deserve separate treatment, so I’ll drill down on them in a n upcoming column. Suffice to say that with its DoubleClick acquisition, Google has acquired significant food for thought.

Andrew Goodman is the founder and principal of Page Zero Media and author of Winning Results with Google AdWords. The Paid Search column appears Tuesdays at Search Engine Land.