There’s a report from Reuters this morning that Microsoft and Yahoo are considering expanding the scope of their search deal “outside the United States”:

Microsoft Corp Chief Executive Steve Ballmer said on Thursday the company could look to extend its search engine partnership with Yahoo outside the United States, if it gets regulatory approval.

Wasn’t that already the intention? I thought it was a global deal already. European regulators wouldn’t be considering it if it didn’t apply to their markets; they wouldn’t have jurisdiction. So I guess I’m a bit confused I guess.

Regardless, if either the EU or US Department of Justice disapproves the deal it will kill the whole thing globally in all likelihood. I would expect approval although it’s also possible that limitations and conditions could be attached by regulators.

Reportedly Barry Diller, CEO of IAC Corp., wants to sell Ask — perhaps feeling he’s ridden the wave as far as he can (with some disappointment). If so, the most likely buyer would be Microsoft according to widespread speculation. It would allow Microsoft to grab some incremental but meaningful share of the market. The question would be at what price?

Timing is huge here. If Ying/MicroHoo were to gain approval from regulators, or the appearance of forthcoming approval were strong, the value of Ask to Microsoft is less than if the Yahoo deal were not to go through. In the latter case Diller could exact a higher price than in the former. There could be other buyers out there for Ask (e.g., News Corp., Comcast?) but Microsoft is the one with more to gain from adding scale.

According to comScore, Ask maintains a small but meaningful core following:

That respresents 718 million queries in September, according to the metrics firm. However iCrossing recently said it has seen referrals to its clients’ sites from Ask drop “precipitously.”

Postscript: The following was a clarification that I received in email from a Microsoft spokesperson:

[T]he Microsoft-Yahoo! agreement does apply outside the United States. As it’s written, it must be approved by regulators in the U.S. and Europe in order to go into effect. As soon as those regulators give approval, the agreement goes into effect worldwide, although implementation in a specific country is postponed if regulatory approval is required there and it is not yet obtained. But that will not postpone implementation in other places.

Yahoo reported today that the company had “entered into an exclusive, multi-year, partnership with O2 Germany to become the preferred partner for mobile search and services, displacing Google.” Paid search results are reportedly part of the deal (and likely a revenue share as well). According to press materials:

O2 users now have direct access to Yahoo!’s mobile-optimized search engine, which is specifically designed to provide quick and easily accessible answers for users on the go. Yahoo! most popular properties including Yahoo! Mail, News, Weather, Finance, Flickr, Eurosports and Soccer will also be integrated on O2’s mobile portals. Users also will be able to sync their PC and mobile homepages, proving one seamless Yahoo! experience.

Spanish-owned Telefonica, the corporate parent of mobile carrier O2, had a prior deal with Yahoo that covered Latin America and the UK but not Germany, where O2’s search partner was Google — until now. According to an IDG News article and interview with Yahoo Mobile Europe managing director Mitch Lazar, O2’s experience in the UK with Yahoo was persuasive in the decision to replace Google.

Bloomberg is reporting this morning that the US Department of Justice has decided to look more closely at the MicroHoo search deal. Microsoft and Yahoo are to provide more information on their “ad pricing and product plans, a person familiar with the matter said.” This is not a surprise.

The companies must convince regulators that the deal will not harm competition or adversely affect SEM pricing. They must also do a similar dance in Europe, where a parallel process will take place. In the end, however, it’s likely the deal will be approved given broad US and EU concerns about Google’s market position and this deal as a possible counterweight to that dominance.

And in a CNBC interview Yahoo CEO Carol Bartz says she would have accepted the Microsoft takeover offer that then CEO Jerry Yang and the Yahoo board rejected. (That would have had a tougher time with regulators than the search-only deal now before them.) Bartz also asserted that Yahoo was still in the search business by controlling the search experience around Bing results.

Bartz also discussed many other aspects of Yahoo’s strategy and value to users. You can see the full interview below.

This morning Yahoo announced that it was acquiring Maktoob.com, “the leading online community in the Arab world.” According to Yahoo the site has an audience of 16.5 million people. The purchase price has been estimated at between $75 and $100 million and was apparently in the works before the search deal with Microsoft was announced last month. Yahoo said the acquisition is part of a larger strategy to grow its audience in emerging markets and become the “destination of choice” in those locations.

Yahoo described its Maktoob rollout strategy in in a blog post:

Initially, we’ll plan to introduce Arabic versions of Yahoo! Mail, Messenger, Search, and our homepage and then eventually local versions of properties like News, Sports, and Finance. We’ll also focus on creating content and services tailored to the region. No other global company has made this kind of investment in local relevance for the Arab world.

Unless I’m mistaken regarding the scope of the MicroHoo search deal it appears that Microsoft, without spending a dime, gets to piggyback onto the search aspect of the Maktoob acquisition. Accordingly Bing gets the potential reach that the deal provides in the Arab world.

Google has sites for most arabic-speaking countries. The following is a chart (via AdAge) that reflects Google’s market share in a selected group of markets outside the US. It’s dominant in Turkey, the one muslim-world country reflected on the chart:

PaidContent raises the potential issue of media and speech censorship in the Arab world and likens it to China and the problems and criticism that Yahoo has encountered from its cooperation in Chinese government crackdowns.

As expected, Yahoo earnings were down, about 13 percent YoY. According to the earnings press release:

Yahoo! Inc. today reported revenues of $1,580 million for the quarter ended March 31, 2009, a decrease of 13 percent from the first quarter of 2008.  Excluding the impact of currency rate fluctuations, revenues for the first quarter of 2009 would have declined 8 percent from the first quarter of 2008.  The Company’s non-GAAP operating cash flow for the first quarter of 2009 of $409 million exceeded the midpoint of the outlook range provided by the Company last quarter.

Query volume was up and search share was “stable” but revenue per search was down, based on macro-economic conditions according to Yahoo CEO Carol Bartz

Bartz said that the company was restructuring, as previously rumored, to simplify and streamline operations, dividing the company into a North American operation led by Hilary Schneider and an international division to be led by a hire yet to be named. She confirmed the rumored 5 percent reduction in force but said these layoffs were not about “across the board cost cutting” but rather about streamlining the operation, eliminating redundancy and focusing on key strategic areas.

Among those products and services Bartz mentioned as strategic were the Yahoo homepage, news, finance, mail, sports and mobile. Bartz used some of her trademark “colorful” language in reference to how Yahoo would invest in key product areas to create “kick ass experiences for our users.”  She added that the company would “manically focus on our most important products.”

When asked during the Q&A session about a potential search deal with Microsoft she said that “search is critical” to Yahoo’s business and so was the capability to combine search and display advertising. She declined to comment on talks with Microsoft about a potential advertising deal.

Bartz touted the positive advertiser reaction to the search retargeting program (”freakin’ awesome”), which offers “search insights” to display advertising (behavioral targeting). She also spoke about how Yahoo was bringing “the best of display advertising to search . . . rich media rather than just blue links.”

A great many of the questions from the Wall Street Analysts  on the call focused on the future of online brand and premium display advertising. Rhetorically Bartz asked, “Does the trend toward performance marketing signal a secular shift away from premium brand advertising online?” She then added: “My answer is an emphatic no.” And Bartz predicted a return to higher brand-display advertising when the economy “returns to normal.”

Here are some of the numbers from the earnings call slides:

A month ago, I wrote about my meet up with Google Israel, from my trip to Israel about two months ago. This week, I am back in Israel on a sponsored Blogger Delegation to meet with Israelis and see their way of business and life.

Today, I had free time and used it to meet up with some of the larger search marketing agencies in Israel. The meet up took place at Compucall, one of the largest SEM companies in Israel. Several of those that attended have been in the SEO/SEM space for about ten years and have extensive experience both running an SEM company and performing SEM services. Gilad Sasson (aka Algoholic), Ophir Cohen, Itai Levitan and Olivier Amar are names some of you would know, if you have been in the industry for a while. So, getting a chance to sit down with them and just chat was valuable, to say the least.

Before the Compucall meeting, I went to lunch with Mayer Reich from RankAbove.com and then we went to meet Ophir, the CEO of Compucall. Ophir felt it would be a good idea to have Simon Gelfand of Bukisa and ArticlesBase.com talk about his product offering. That lead into discussion about what search marketers in Israel want. Truth be told, it is extremely similar to what any SEM wants.

In my meet up with Google Israel piece, I wrote about how Google’s presence in Tel Aviv has helped expand the awareness and budgets for SEM services of Israeli-based companies. Itai Levitan expressed to me that he would love to see Yahoo and Microsoft set up offices in Israel as well. I know Microsoft has a very small user base in Israel relative to their US share. But in terms of Yahoo, even setting up a single office with one or two representatives that can help educate, as Google has done, would help agencies sell Yahoo search ads tremendously in the Middle East region. The bottom line is that Israel SEM agencies feel that it would be a win-win for Yahoo and Microsoft to set up offices here.

But what SEMs really want is for Yahoo to fix their search marketing platform. Itai told me that it is almost unusable. Olivier said that pulling reports is almost impossible. Gilad feels that Yahoo should go back to the Overture backend and dump the Panama interface. This is often what I hear from SEMs all over the world, and it is the same issue here in Israel. The word “upsetting” does not do justice to my feelings on Panama. All that time, money and resources put into that product — what a shame.

We also talked about analytics and how SEM companies should sell that as a service to their clients. Yes, Google Analytics is free, but most site owners don’t use it fully. Ophir and Itai’s companies are both Google Analytics certified resellers and they are able to sell these services as a value add. They add value by tagging marketing campaigns properly, using Google Website Optimizer to squeeze out every conversion metric possible and use these tools to make for the most efficient and streamlined marketing campaigns. Ophir explained that SEO was once a free way of gaining traffic to your site, but then agencies evolved and began selling SEO consulting services. Same here with analytics, Ophir said — the industry around analytics is growing and selling the services side of the software is both valuable and credible.

The last question I asked was how does SEO and paid search differ between Hebrew and English languages. Itai told me the main difference for him is that there are less publishers placing AdSense ads on their Hebrew online publications or blogs. You can find AdSense on tons of English content sites, but it has not grown that quickly on Hebrew sites. Since there is less inventory on the Google content network for Hebrew sites, that changes the strategy they deploy for Hebrew campaigns. Ophir said that savvy Israeli companies will show Hebrew AdSense ads for Israeli IPs on sites like TechCrunch. This way, they can advertise their products and services in Hebrew to Israeli users. Here is a picture of TechCrunch showing Hebrew ads on my computer:

Olivier told me that, on the SEO side, Google.co.il is lagging behind Google.com’s organic ranking and algorithms. Shortcuts and tricks that still work on Google.co.il do not work on Google.com.

I did not have a chance to meet all the local SEM/SEOs here in Israel, but hopefully in future visits we can meet up.

As the MicroHoo dance continues, here’s a wacky idea that just occurred to me: why doesn’t Nokia invest in or acquire Yahoo? It’s partly suggested by this Fortune article that discusses the challenges that the world’s leading handset maker faces in penetrating North America.

Nokia has added a bunch of online services that try and bridge the internet and mobile. Indeed, Nokia is trying to position itself as an internet company of sorts. And mobile search will be a big ad-revenue driver in the medium term. It’s already a critical element of an overall mobile offering.

Yahoo, obviously, is making a huge mobile push and has relationships with carriers and OEMs around the globe. Yahoo’s content and online presence would bolster Nokia’s efforts to attract users and build services (both in mobile and online), especially in the US market. Yahoo Mail has generally been the top mobile site in the US market:

Nokia’s reach would help Yahoo in mobile in myriad ways around the world. The two companies already have a partnership that offers some of Yahoo’s services on Nokia phones.

I’m not a financial analyst and don’t know whether there are any debt or equity issues that would be a problem in such a deal. But there’s something fairly complementary here in my opinion.

Just a wacky thought — or is it?

India is something of a parallel universe in terms of search and internet activity. It’s a massive and incredibly dynamic market but distinct from the US and Europe in important ways. All the major engines are competing there and it’s also often a testing ground for new products. For example Yahoo’s “Glue Pages” were released and tried there before coming to the US. Now Yahoo has bought a 30 percent stake in a local information database and directory assistance provider in the market: Info Network Management Company, which runs the Call Ezee service. Seen as a way to secure local data and provide a “voice search” (mobile) capability in the Indian market it makes sense.

Separately, Microsoft has chosen Nokia-owned NAVTEQ to provide the underlying data for its Live Seach Maps offering in India.

Microsoft also works with NAVTEQ in the US and Europe. Yahoo also gets its mapping data from NAVTEQ. Google, for its part, is now only working with TomTom-owned TeleAtlas.

In response to court orders, Yahoo and Google are censoring search results in Argentina about a variety of celebrities, including public officials, models, actors, and sports stars. According to an in depth article on OpenNet Initiative, this has been going on since 2006 and more than 100 people have succeeded in getting Google and Yahoo to filter search results in Argentina.

Astonishingly, a search on Yahoo Argentina for [Diego Maradona] — one of the world’s most well known soccer stars and the current national team head coach — produces zero results, along with a message from Yahoo that’s roughly translated as follows:

“On the occasion of a court order sought by private parties, we have been forced to temporarily remove some or all of the search results relating to it.”

According to OpenNet, both Google and Yahoo are following court orders to filter their search results, but only Yahoo is completely scrubbing search results (as seen above). The article says both search engines have appealed the court orders that force them to block search results and have been fined on occasion for not following court orders closely enough.

The article goes on to explain that all of the individuals who are seeking to have web pages removed from search results are represented by one lawyer, Martin Leguizamon Peña, who claims to have an 80% success rate in getting the court to force Google and Yahoo into blocking search results for his clients:

“Peña is reportedly obtaining new restraining orders for the same clients, week after week, with revised lists of websites, articles, blogs, and keywords that must be blocked. Many of the orders contain specific web pages to be blocked, however, some also ambiguously order the search engines to block all sites containing defamatory or scandalous portrayals of Peña’s clients. It is then presumably up to Yahoo! and Google to determine which content is defamatory — a task that neither company wishes to or is qualified to perform.”

The OpenNet article takes Yahoo to task for waiting until this week to add the explanation of why search results are blocked. It also points out that Argentinian searchers can use other Spanish-language search engines, such as Yahoo Mexico or Yahoo Spain, or Google’s country-specific search engines in Mexico and Spain, to find information about the individuals who’ve successfully fought to have Google and Yahoo censor results for their names.

The Wall Street Journal reports that Google, Yahoo and Microsoft have agreed on a common set of principles governing how they intend to do business in countries that restrict free speech and human rights. All three companies have been criticized by rights groups and the US Congress in the past for putting profit over principles and human rights, in China in particular.

According to the article:

Under the new principles, which were crafted over two years, the technology titans promise to protect the personal information of their users wherever they do business and to “narrowly interpret and implement government demands that compromise privacy,” according to the code. They also commit to scrutinizing a country’s track record of jeopardizing personal information and freedom of expression before launching new businesses in a country and to discussing the risks widely with their executives and board members.

Other Internet giants (e.g., eBay) were not involved in the formulation of these guidelines but may adopt them. Presumably the idea would be to gain as many adherents as possible, not just in the US but internationally. While interpretation and implementation of these principles might prove complicated “on the ground,” they appear to represent a considerable advance over the ad hoc corporate behavior of the past. Still the Journal cites critics who believe that the agreement isn’t far-reaching enough:

“More serious questions have to be asked about these company’s legal obligations,” said Morton Sklar, executive director of the World Organization for Human Rights USA. For instance, he said he would have liked the document to address whether Internet companies are violating U.S. or international laws by complying with requests from certain governments.

US or EU companies doing business in countries that have very different legal and political systems creates a very complex set of issues that span politics, morality and culture. However there need to be core principles and rules that Western companies won’t violate for the sake of making money. Hopefully these guidelines embody them.