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Google revenues topped $5.37 billion for the quarter ended June 30, 2008, an increase of 39 percent compared to the second quarter of 2007. That’s also an increase of 3 percent compared to the first quarter of 2008.

But those numbers still disappointed investors who basked in the glow of Google’s growth and perhaps lingered a little too long in the sun.

The big news? Weakness in key sectors such as real estate, where paid search has proven resilient in the face of the recession. As SEW readers know, Auto finance average CPC was down in June; as was the total Finance category.

Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the second quarter of 2008, TAC totaled $1.47 billion, or 28 percent of advertising revenues.

“Strong international growth as well as sustained traffic increases on Google’s web properties propelled us to another strong quarter, despite a more challenging economic environment,” said Eric Schmidt, CEO of Google, in a statement. “As we continue to focus on innovating in our core business of search, ads and apps, we also look forward to enhancing the experience of our users and expanding the reach of our advertisers and partners with new technologies and formats, particularly as our integration of DoubleClick gains momentum and creates new opportunities in display advertising and elsewhere.”

Highlights of the 2nd Quarter:

Google Sites Revenues - Google-owned sites generated revenues of $3.53 billion, or 66% of total revenues, in the second quarter of 2008. This represents a 42% increase over second quarter 2007 revenues of $2.49 billion and a 4% increase over first quarter 2008 revenues of $3.40 billion.

Google Network Revenues - Google’s partner sites generated revenues, through AdSense programs, of $1.66 billion, or 31% of total revenues, in the second quarter of 2008. This represents a 22% increase over network revenues of $1.35 billion generated in the second quarter of 2007 and a 2% decrease over first quarter 2008 revenues of $1.69 billion.

International Revenues - Revenues from outside of the United States totaled $2.80 billion, representing 52% of total revenues in the second quarter of 2008, compared to 48% in the second quarter of 2007 and 51% in the first quarter of 2008. Had foreign exchange rates remained constant from the first quarter of 2008 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $88 million lower. Had foreign exchange rates remained constant from the second quarter of 2007 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $249 million lower.

Revenues from the United Kingdom totaled $774 million, representing 14% of revenue in the second quarter of 2008, compared to 15% in the second quarter of 2007 and 15% in the first quarter of 2008.

Paid Clicks - Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 19% over the second quarter of 2007 and decreased approximately 1% over the first quarter of 2008.

The growth of paid clicks year-over-year is good news, showing the strength of the paid search marketplace. As Google has stated previously, the company has made an effort to improve the quality of clicks rather than increasing click volume. AdWords and AdSense were down sequentially, due to quality control and seasonality.

Google acknowledged the weakness of key sectors (Autos, Finance, Real Estate) that have wreaked havoc with display advertising. Real estate sector for paid search and contextual ads is down year-over-year. Auto ad spend is up year-over-year, but not consumer financing.

Ad Sense partners may have felt the squeeze too. Traffic Acquisition Costs (TAC), the portion of revenues shared with Google’s partners, decreased to $1.47 billion in the second quarter of 2008. This compares to TAC of $1.49 billion in the first quarter of 2008. TAC as a percentage of advertising revenues was 28% in the second quarter, compared to 29% in the first quarter of 2008.

The majority of TAC expense is related to amounts ultimately paid to Google’s AdSense partners, which totaled $1.32 billion in the second quarter of 2008. (TAC is also related to amounts ultimately paid to certain Google distribution partners and others who direct traffic to Google’s website, which totaled $154 million in the second quarter of 2008.)

In a letter that is likely to believed by almost no one, Yahoo regurgitated much of the same old statements about Microsoft and Carl Icahn - and then slipped in something about selling the entire company for $33 a share. Of course, that’s only “if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing. This is the simplest, most straightforward way to maximize value for you.”

Rumor had it that Yahoo wanted somewhere in the neighborhood of $35-37 per share in the spring when the deal went south. Both sides have accused the other of walking away prematurely.

Then Carl Icahn created a proxy board and subsequently called for Yahoo to sell for $34.375 a share. Now Yahoo says it will go for $33 per share.

If I were Microsoft, I would just sit back, relax and continue to watch the price drop. If I were Google, I’d continue laughing all the way to the bank.

Here’s the full letter:

Dear Fellow Stockholder:

The recently-formed Carl Icahn-Microsoft alliance continues to make misleading statements about their plans for Yahoo!. Your Board of Directors believes strongly that the Icahn-Microsoft agenda -as presented to us jointly last week - will destroy stockholder value at Yahoo!, serving only their very narrow special interests, clearly not your interests.

Your Board continues to work to maximize value for you and is taking the following steps to do so:

– Moving forward with our strategic plan and strategies to lead in online advertising - with both search and display;

– Preparing to implement our recently signed commercial agreement with Google that will increase cash flow;

– Continuing to explore other ways to unlock value and return value to you such as unlocking the value of our Asia assets; and

– Remaining open to negotiating a value creating transaction (including with Microsoft) that provides real and certain value - not just the possibility of value.

In contrast, let’s review Carl Icahn’s brief involvement with the Company to date.

Carl Icahn bought his stock two months ago for an estimated average cost of less than $25 per share. He is well-known as a corporate agitator with a short-term approach to his investments. His short-term approach gives Mr. Icahn a strong incentive to strike any deal with Microsoft that enables him to recover his investment and get back his money quickly, even a deal that does not provide full and fair value to you. Is that in the interests of all stockholders? Clearly, it is not.

Mr. Icahn has severely handicapped himself in his ability to negotiate a favorable transaction with Microsoft. Why?

– Mr. Icahn has made it clear that his only objective is to sell part or all of Yahoo! to Microsoft. That fact, combined with his lack of an operating plan going forward, means that he will have no leverage to negotiate a fair deal with Microsoft. He has set himself up for failure.

– Second, Mr. Icahn and his slate lack the working knowledge of Yahoo! and its Internet business needed to do two things that are required to successfully deliver a value-enhancing transaction for Yahoo! stockholders. First, they do not have the detailed knowledge to negotiate a complex restructuring of a large, innovative high technology company in a rapidly changing environment. Second, they do not have the hands-on experience to manage and lead Yahoo! during the approximately one year period estimated to be required to gain regulatory approval for a deal or to manage and lead the remainder of the Company (non-search) after a transaction is completed. Don’t take our word for that. Mr. Icahn will be calling the shots if his slate wins and yet Mr. Icahn himself told the Wall Street Journal last fall: “Technology hasn’t really been one of the things I’ve focused on too much before” and “It’s hard to understand these technology companies.” That’s why you need a knowledgeable, experienced and independent board to represent your interests vis-a-vis Microsoft.

Mr. Icahn can’t make up his mind about what he thinks will work for Yahoo!. He bought his position believing that he could bring Microsoft back to buy all of Yahoo!, at one point suggesting we publicly offer to sell Yahoo! to Microsoft for $34.375. But he didn’t do enough due diligence to determine what your Board already knew: that it was Microsoft’s decision to walk away and that it had rebuffed repeated efforts by your independent directors to get a whole company acquisition back on the table. Recognizing that a sale to Microsoft might not be an option, Mr. Icahn said as an alternative that we should enter into an agreement with Google (which we were already negotiating and subsequently signed), and that we should walk away from Microsoft’s search-only proposal (which we did after careful evaluation of that proposal). Then, in an extraordinary flip flop, Mr. Icahn teamed up with Microsoft and embraced their latest joint search-only proposal–even though it involved significant execution and operational risks and was fraught with flaws that made the “headline value” asserted by Microsoft and Mr. Icahn more illusion than reality.

How can Yahoo! stockholders trust Mr. Icahn to deliver what he claims he can deliver when his actions have been so contradictory -and when all he has delivered so far is a risky proposal of questionable value from his new friends at Microsoft? Yes, the Microsoft/Icahn proposal is somewhat of an improvement over Microsoft’s last search-only proposal, but no one should confuse a modestly improved offer with a good offer. The Icahn/Microsoft proposal was more “smoke and mirrors” than objective reality.

Now let’s turn to the recent marriage of convenience between Microsoft and Mr. Icahn.

This “odd couple” collaboration - between two parties with keenly different agendas - is indeed perplexing. Why does Mr. Icahn believe he can count on Microsoft to complete a transaction? Certainly Microsoft is a well-respected and successful company and we have been clear that we are fully prepared to do a deal with them. But Microsoft’s flip flops and inconsistencies over the past five months are so stupefying that one can only conclude that Microsoft was never fully committed to acquiring Yahoo! either because:

– Microsoft can’t decide what is and isn’t strategically important to its online business; or

– Microsoft is more interested in destabilizing a key competitor so that it can either enhance its competitive position or buy our highly valuable search business–and the enormously desirable intellectual property associated with it –at a bargain basement price.

Microsoft desperately needs to improve the performance of its online services business (consisting of its search and display assets) which, cumulatively since 2003, has lost money despite billions of dollars of investment. And yet Mr. Icahn would ignore this track record and its implications for his fellow Yahoo! stockholders, swallowing a deal that leaves Yahoo!’s future dependent, in part, on Microsoft’s ability to monetize search. And, as Mr. Icahn has himself pointed out, it would eliminate any opportunity we may have to sell the entire Company for an attractive premium.

In contrast to the conflicting and confusing statements emanating from the Icahn-Microsoft alliance, your Board and management have been crystal clear about our position.

First, we will sell the entire Company to Microsoft for $33 per share or more if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing. This is the simplest, most straightforward way to maximize value for you.

Second, we remain open to selling only search to Microsoft as long as it provides real value to our stockholders and resolves the substantial execution and operational risks associated with the separation of our search and display businesses.

Third, your Board takes seriously its obligation to examine all value-creating steps it could take and continues to actively examine many of these now, including a potential spin-off of our Asia assets and a return of cash to stockholders. These are steps Yahoo! could take, if we determine they are feasible and in our stockholders’ best interests, without any “help” from Microsoft or Mr. Icahn. But they are complex steps that require care and prudence. These should not be adopted simply because Mr. Icahn and Microsoft are trying to dress up Microsoft’s inadequate search-only proposal.

While your Board continues to evaluate the foregoing avenues, your current Board and management continue to execute on our strategy to grow the value of our unique collection of assets. That strategy is working and we believe it can result in substantial double digit growth in operating cash flow as we move forward. Our recently executed search advertising agreement with Google reflects our commitment to achieving our strategic goals, while preserving flexibility to pursue a sale of the Company or even, on the right terms, a sale of our search business.

Please compare and contrast the straightforward, responsible actions and positions of your Board of Directors with the behavior of Mr. Icahn and Microsoft.

There you have the situation, as we see it, put as simply and clearly as we can. We believe the Icahn slate and agenda present significant risk to your investment in Yahoo!. We believe you cannot count on Microsoft to bail out Mr. Icahn’s misguided agenda, at least not on terms that are in the best interests of Yahoo! stockholders.

In contrast, your Board remains fully prepared to represent your interests aggressively and conscientiously in the effort to maximize value–whether that takes the form of negotiating a transaction that provides full and fair value, with certainty; finding other ways to unlock and return value to you; or moving forward with our accelerated strategies to lead in online advertising.

Your Board of Directors remains committed to maximizing stockholder value. It is–and will remain–our number one priority. Do not be fooled into thinking otherwise by Carl Icahn.

We strongly urge you to vote your WHITE Proxy Card today for your current Board of Directors.

Thank you for your support.

Roy Bostock Jerry Yang
Chairman of the Board Chief Executive Officer

Canadian Business Magazine has an excellent Q&A with Google’s Tim Armstrong. Here are some choice excerpts that show where Google’s headed and why.

Canadian Business: What are some other emerging trends you’re seeing in Internet advertising?

Tim Armstrong: Social networking will be a big part of online advertising in the future. There’s also going to be a lot more analytics beneath Internet advertising. It’s still hard to measure how different types of online ads and targeting techniques affect a consumer’s perception of a brand. We’re also excited about mobile opportunities.

CB: How big could mobile advertising become for Google?

TA: It will vary depending on the country. For example, in some developing countries, the infrastructure is being built more for cellphone access than stationary computer connections, and some people are skipping the computer generation altogether. We’ve done a lot of mobile testing in Japan, which has done a nice job of building high bandwidth access for cellphone users. I don’t think one mobile search will eliminate one computer search or interaction on the web. Consumers have different needs when they’re using those devices.

CB: How will the advertising industry change in the future?

TA: Advertising over the last 50 years has been about coming up with a big idea, planning around it for a year, then launching a six-month or year-long campaign for a product or service. In the future, advertisers will come up with 10, 100 or 1,000 creative messages for their products and services, then run, test and optimize them in real time. Campaigns won’t be based on a time schedule, but on consumer behavior patterns.

Beginning tomorrow (July 17), GoDaddy will offer .me domains in open registration. The registrar and hosting provider hopes that people will sign up for two reasons: 1. to have their own name as their domain and 2. to have more control over their email address.

“‘I want my name as a domain name’ is something I hear often from Internet users,” said GoDaddy.com CEO and Founder Bob Parsons. “DotME not only gives everyone a chance to register their own name, but provides the perfect domain for expressing themselves.”

Next Monday, July 21 at 12pm EST, Encirca will sell .pro domains (pdf) as part of the relaunch of the extension. Only licensed professionals can register .pro domains.

“We enthusiastically support the re-launch of dot-pro,” says Thomas Barrett, President of EnCirca, the leading dot-pro registrar. “These long overdue changes will open the door for businesses representing over 1,100 licensed professions, from every country in the world, to establish their Internet brand identity with the .pro domain name.”

Previously, the .pro domain was only available for four types of professionals in four countries, but now the domain is available to many more professions in hundreds of countries. Examples of eligible licensed professionals include:

• Lawyers
• Accountants
• Engineers
• Architects
• Surveyors
• Doctors
• Dentists
• Chiropractors
• Nurses
• Opticians
• Optometrists
• Podiatrists
• Psychologists
• Therapists
• Social Workers
• Veterinarians
• Plumbers
• Inspectors
• Building Contractors
• Electricians
• Investment Advisors
• Real Estate Brokers
• Insurance Brokers
• Educators
• Patent and Trademark Examiners
• Court Reporters
• Police and Fire Safety Officers
• any other profession where an official credential is required for a business or individual to offer services

Before you make those all important domain purchases, be sure to brief yourself on the impact of domain names on SEO:
How to Choose the Best Domains for Search Engine Visibility
What’s in a (Domain) Name? Take 2
Is The Company Worth As Much As The Domain Name?

Yesteday, I reported that YouTube user viewing histories would not longer be handed over to Viacom by Google per an agreement by the two. I also wrote that User IDs, IP addresses, and Visitor IDs would still be handed over. What yours truly completely missed (i am afterall, only human) is that even that data will be scrambled. Here’s the legalese:

When producing data from the Logging Database pursuant to the Order, Defendants shall substitute values while preserving uniqueness for entries in the following fields: User ID, IP Address and Visitor ID. The parties shall agree as promptly as feasible on a specific protocol to govern this substitution whereby each unique value contained in these fields shall be assigned a correlative unique substituted value, and preexisting interdependencies shall be retained in the version of the data produced. Defendants shall promptly (no later than 7 business days after execution of this Stipulation) provide a proposed protocol for this substitution. Defendants agree to reasonably consult with Plaintiffs’ consultant if necessary to reach agreement on the protocol.

Last week the Senate Commerce Committee held a hearing on online advertising and privacy. Today, the Judiciary Committees of the Senate and House get in on the action as it relates to the recent Yahoo-Google deal.

The Senate hearing began at 10:30 am, but is largely eclipsed by a speech by the President as well as Fed Chairman Ben Bernanke’s umteenth appearance on Capitol Hill. You can watch it live by clicking on “Live Webcast” here.

The House hearing begins at 1:30pm and the site has links to webcast video, though I personally couldn’t get them to work on my laptop. If you’re in the DC area, head on over to 2141 Rayburn House Office Building to observe the hearing for yourself.

Google Senior VP for Corporate Development and Chief Legal Officer David Drummond will be appearing at both hearings and is planning to touch on the following:

• The agreement will be good for Internet users (who will see ads that are better targeted to their interests); advertisers (whose ads will be better matched to users’ interests, allowing them to reach potential customers more efficiently), and website publishers (who will see increased revenue from better-matched ads on their websites).
• Google and Yahoo! will remain vigorous competitors, and that competition will help fuel innovation that is good for users and the economy. Commercial arrangements between competitors are commonplace in many industries. Antitrust regulators in the US have recognized that consumers can benefit form these arrangements, especially when one company has technical expertise that enables another company to improve the quality of its products
• The agreement will not increase Google’s share of search traffic, because Yahoo will continue to run its own search engine and compete in online search.
• Yahoo! will make its instant messaging network interoperable with Google’s. This will mean easier and broader communication among a growing number of IM users, and enable users to choose among competing IM providers based on the merits and features of the services.
• A number of steps have been taken in the Yahoo! agreement to protect user privacy. As Google supplies ads to Yahoo! and its partners, personally identifiable information of individual Internet users will not be shared between the companies. Yahoo! will anonymize the IP address of a searcher’s computer before passing a search request to Google.

Also scheduled to appear are:

• Michael Callahan, General Counsel, Yahoo!
• Brad Smith Senior Vice President and General Counsel, Microsoft
• Matthew Crowley, Chief Marketing Officer, Yellowpages.com
• Tim Carter, President and CEO, Askthebuilder.com

Twing.com, a new search engine dedicated to finding information within forums and communities, today announced it has launched new features that can help brand managers gain insight into product and company discussions.

“Our Saved Search and Buzz Graph products were created for our users,” said General Manager Kevin Shea in a statement. “And they also have a lot of value for anyone tracking brand conversations.”

Buzz Graphs let visitors see the popularity of various terms within the online community space, as well as refine terms by category and share the results with colleagues. Typical web users might find the results fun and interesting. For brand managers, it’s a valuable tool offering insight into what’s being said about products and companies.

According to Forrester’s North American Social Technographics Online Survey, Q2, 2007, those who read online forums account for 28 percent of US Consumers – even more than blogs, which account for 25 percent. In terms of participation, 18 percent contribute to online forums, whereas only 14 percent comment on blogs, with 11 percent maintaining their own blogs. While blog writing and usage is considered explosive, the facts show that much of the online conversation is happening in forums.

Launched in January 2008, Twing.com is a search engine dedicated to online communities and forums. Twing.com’s proprietary software and algorithms index thousands of forums and millions of conversations worldwide. Analyzing forum posts, topics, and whole forums provides accurate and relevant search results.

“If today’s marketing is really about conversations and relationships, then good brand stewardship demands managers pay attention to the conversations happening in forums,” said Director of Product Management Scott Germaise in a statement. “Keeping track of web pages and blogs is not enough. The real person-to-person communication is happening in online forums.”

Twing offers multiple search options plus advanced filtering and sorting tools so people can effectively search forums in ways not available until the advent of Twing.com. The company also seeks to build even more awareness of the online forum space.

Twing.com is easily used by entering search terms to quickly locate specific discussions and/or topics. Visitors can register – for free – to become a Twing.com member, participate in Twing.com’s forums and take advantage of current and upcoming personalization options.

Twing.com’s use of proprietary software and algorithms enables users to search into forum content well beyond the limitations of traditional search engines. With Twing.com, Internet users can search the rich user-generated content found in online communities and forums, and access these discussions through highly relevant, easy-to-read search results.

Google is extending the Webmaster Tools Access Provider Program to include more hosting providers. Originally, the pilot program was a partnership with GoDaddy. Now other hosting providers can apply for qualification in order to offer the same services to their customers.

The program allows hosting providers to offer Google’s Webmaster Tools directly through their account management panels. Webmasters may find this particularly useful as they can now use the Webmaster Tools right along their other account management tools, if their provider qualifies.

Related Reading:
New Google Webmaster Tool Aids Robots.txt Creation
Google Adds Site Location To Webmaster Tools
Google Adds Malware Tool To Webmaster Central Tools

Google’s Website Optimizer Tool came out of Beta in April, and practing what they preach, they’re doing some testing. They are looking for a few good partipants for a test that requires 60 minutes of your time. In exchange, you’ll get $100 AdWords credit.

Here are the requirements in order to sign up:

• 18 years old or older
• Sign their Usability Non-Disclosure Agreement
• Windows 2000/XP and Internet Explorer installed (sorry, no Macs)
• Broadband Internet connection or stronger (such as DSL, Cable, or T1)
• Have a phone (cell or land line) with a handless option so you can speak on the phone and use your computer simultaneously

Interested? Sign up here.

If Microsoft and Yahoo spent half as much time developing search technology as they did battling out the proposed acquisition in the court of public opinion, they might actually make the marketplace competitive.

But instead of working together in peace and harmony, they’re engaged in posturing that’s akin to a nasty celebrity divorce - or an episode of The Hills.

This time, Microsoft is feeling the need to correct what they say are inaccuracies of Yahoo’s account of the latest search proposal. Primarily, they say that no change-up in Yahoo leadership was part of the latest offer.

Furthermore, they say that Roy Bostock called Steve Ballmer and requested a new offer. They quoted him as saying, “with substantial guarantees on the table and an increase in the TAC (traffic acquisition cost) rate, there are the pillars of a search only deal to be done.”

Because of that, Microsoft says they made an offer that “included significant revenue guarantees, higher TAC rates, an equity investment and an option for Yahoo! to extend the agreement over a 10-year period.”

That offer was made on Friday, rejected on Saturday, the same day as Yahoo’s latest statement. It took Microsoft two more days to release their statement. Sounds like they took some time to get their story together?