Digital Media

Perhaps in a sign of how the plague of social media has numbed us all to the value of legitimate human connections, the New Oxford American Dictionary has picked the verb "unfriend," or "to remove someone as a 'friend' on a social networking site such as Facebook," as its 2009 Word of the Year.

At the very least, it's a testament to the ubiquity of Facebook, which now has well over 300 million members around the world.

Facebook itself takes the process of "friending" and "unfriending" very seriously. It once sent warning notes to players of a third-party game called PackRat because it encouraged players to amass huge friends lists (good heavens! they're polluting the social graph!), banned a Burger King ad campaign that let members "sacrifice" their friends to get a free cheeseburger ("Friendship is strong, but the Whopper is stronger"), and still puts a cap of 5,000 on personal profiles' friends lists.

Last year's Oxford word of the year was the decidedly less mainstream "hypermiling."

A correction was made at 9:25 a.m. PT on November 21. It was players of PackRat, not PackRat itself, that were threatened with account suspension.

An adviser to the European Union has sided with Google in the company's battle with Louis Vuitton and others over alleged trademark infringement.

The search giant is fighting a lawsuit in the European courts against several companies that claim Google is infringing on their trademarks by allowing advertisers to buy keywords that match those trademarks.

Led by LVMH's Louis Vuitton, the companies are upset that makers of imitation items can buy those keywords through Google's AdWords, allowing their products to pop up in searches alongside the genuine article.

But in a statement released by the European Court of Justice on Tuesday, adviser and Advocate General Poiares Maduro said that "Google has not committed a trademark infringement by allowing advertisers to select, in AdWords, keywords corresponding to trademarks."

Maduro's opinion is that the use of trademarks is limited to the selection of keywords internal to AdWords and as such only concerns Google and its advertisers. When selecting keywords, no product or service is being sold to the public, therefore, neither Google nor its advertisers are infringing on any trademarks, said Maduro.

In response to the concern that makers of imitation products can grab certain keywords, the Advocate General put the responsibility firmly in the hands of consumers.

"The mere display of relevant sites in response to keywords is not enough to establish a risk of confusion on the part of consumers as to the origin of goods or services," said Maduro in the statement. "Internet users are aware that not only the site of the trademark owner will appear as a result of a search in Google's search engine... These users will only make an assessment as to the origin of the goods or services advertised on the basis of the content of the ad and by visiting the advertised sites."

Maduro's opinion doesn't leave Google totally in the clear. Maduro said the company might be liable if found to feature content in AdWords that infringes on a trademark. But even in this case, the trademark owner would have to cite specific instances of damage to their trademarks in order to hold Google accountable.

Trademark issues over AdWords have plagued Google for years, both in the U.S. and especially in Europe where Louis Vuitton and others have taken the company in and out of court. French justice has generally found in favor of the trademark owners, usually ordering Google to pay a fine. But the issue has never been definitively settled.

In response to the latest round of legal squabbles, the French court has asked the European Court of Justice to now settle the issue.

The Advocate General's statement is not binding on the court, but the opinion is strongly considered. The court is now reviewing the case and will render its judgment at a later date.

Google's love-hate relationship with the advertisers that pay its bills could hit another rocky patch following its latest AdWords policy change.

Google announced Thursday night that starting next month it would begin allowing certain companies to purchase advertisements that use trademarks--even ones they don't own--in the text of their ads on Google search results. Previously, Google hadn't allowed anyone but the trademark owner to use a trademark in the text of an ad, but the search giant reversed course, saying "we believe that this change will help both our users and advertisers by reducing the number of overly generic ads that appear across our networks in the U.S."

But the move could anger companies who are already sensitive about the use of their trademarks as keyword triggers in searches, the subject of two lawsuits pending against Google. According to an industry group called the Alliance Against Bait and Click, which includes companies such as 1-800 Contacts and Starwood Hotels, "this (policy change) further exposes the self-interest guiding Google's advertising policies, which permits dishonest marketers to mislead consumers," it said in a statement.

In some ways, the decision makes an awful lot of sense. Some third-party resellers, for example, were not allowed to use the trademark for goods they were authorized to sell in their Google ads if the trademark holder objected.

Google compared the policy shift to turning its ads into the online equivalent of a grocery store ad circular in a Sunday newspaper, where no one raises a trademark eyebrow if Safeway advertises a sale on 12-packs of Coca-Cola. Google said it would limit the use of trademarks in text ads to three types of companies: resellers, component sellers (buy memory for Hewlett-Packard laptops here!), and information providers.

That brings Google's policies in line with those of Yahoo, which allows trademarks to be used in text ads with similar restrictions. In the past, advertisers have been more willing to sue Google over trademark disputes because the search giant said it wouldn't allow trademarks in the text of ads, but such trademarks would appear anyway from time to time on certain ads, said Dave Kelly, a trademark lawyer with Finnegan.

"This policy is better than what they were doing before," Kelly said. "This means there is an editorial policy and the number of misleading ads should be smaller than under their policy before."

Still some groups, such as the Alliance Against Bait and Click, believe it's possible that the move could grant deceptive advertisers looking to trick searchers onto click farms or e-mail harvesting sites an additional weapon to deploy.

For example, a company could theoretically sell just a single iPhone case on its Web site, advertise under searches for "iPhone cases," and redirect ad clicks to sites that mostly sell competitive smartphones or consumer electronics gadgets. Or, it could force a visitor to provide his or her e-mail for more information before revealing that flashy iPhone case.

More money
What's more likely, however, is that companies interested in preserving their brands could be forced to pay more in Google's ad auction process to make sure their legitimate ads appear on those searches.

Winning Google's keyword auction process involves a combination of the maximum amount an advertiser is willing to pay per click as well as an ad quality score. Without the ability to use a trademark in the text of their ads, third-party retailers were forced to write generic ads that likely didn't see as high a click-through rate as ads with the trademark, hurting their quality score.

But if the playing field is leveled on the quality score side of the equation, then the maximum bid has to go up. AdAge reported that branded advertisers now feel they'll have to increase the maximum amount they are willing to pay per click in order to ensure ads with their trademark appear above ads from companies that don't own that trademark.

Financial analysts who follow Google agree. "Advertisers will likely bid more if the ad can have product names and brands that will help drive CTR (click-through rate) conversions," said Ben Schachter of Broadpoint AmTech in a research note Friday. Combined with Google's announcement last week that advertisers in many parts of the world can now bid on keywords that involve trademarks, Schachter said "these two changes will be positive revenue drivers when allowed and into 3Q and beyond, however, we believe trademark holders will undoubtedly, and loudly, raise legal challenges."

Kelly, who has followed issues with Google and trademarks very closely for years, isn't so sure.

"Although the updated policy may not affect those trademark owners who want to sue Google simply because they object to the act of Google selling their trademarks as keywords, it should reduce the amount of litigation over the appearance of Google's keyword-triggered sponsored ads," he said. That's because Google is now responsible for reviewing the content of the ads to make sure trademarks are being used properly.

In what is likely not a coincidence, the decision comes following a quarter in which Google's cost-per-click numbers (the average cost that advertisers are willing to pay for a click) fell for the second-straight quarter while overall click-through rates remained flat. Issues around Google's trademark policies on search keywords have also heated up in recent weeks, with an appeals court's decision to reinstate the Rescuecom case and a new lawsuit filed this week over Google's practice of allowing anyone to bid on search keywords containing trademarks.

Some of Google's partners will hate this decision, and some, such as retailers, will like it. Either way, Google should benefit from the sale of more relevant--and more expensive--advertising.

Should companies be allowed to serve ads based on keywords that are trademarks of competitors?

(Credit: Firepond)

About a month after an appeals court revived a trademark lawsuit over Google's keyword sales, another suit has surfaced in Texas.

Ars Technica spotted Firepond's lawsuit, filed Monday in Texas, against Google over whether Google should be allowed to sell keywords bearing a company's trademark to its competitors. A similar suit involving PC support company Rescuecom was brought back to life in April by an appeals court after initially being dismissed in 2006.

The issue is whether Coke, for example, should be allowed to buy keywords such as Pepsi and place ads for Coke products on searches for Pepsi. Rescuecom and Firepond argue that their respective keywords are an extension of the trademark they have acquired on their brands, and that Google should not be encouraging competitors to violate that trademark by using it to promote their own products. Firepond makes sales management software.

Google is willing to remove a trademark from one of its ads if it's in the text of the ad (Pepsi sucks! Try Coke!), but "we will not disable keywords in response to a trademark complaint," the company says in an FAQ about its trademark policies for AdWords. Its reasoning?

"Accordingly, our trademark policy not to monitor the use of trademarks in the U.S., Canada, the UK, and Ireland aims to provide users with choices relevant to their keywords. At the same time, we investigate trademark violations in ad text both as a courtesy to the trademark owner and to ensure that ads are clear to users." A Google representative declined to comment on the Firepond lawsuit itself, saying the company was still reviewing the complaint.

AdWords is the engine that has made many a Googler rich. The system allows anyone to bid on a given keyword and win placement on the top or right side of a search results page based on a combination of factors such as the size of the maximum bid for that keyword as well as the quality of the ad.

Part of the reason that this system generates the revenue it does is because the results are highly visible; much to the chagrin of a company outbid or outclassed by a competitor for a keyword pertinent to their business. In 2006, Rescuecom tried to make the further argument that not only is this aggravating, it's misleading to consumers who think they are going to learn more about Rescuecom's services when they search for Rescuecom, only to learn about the competition instead if they click on an ad generated by that search. The company will get the chance to make that argument again in the coming months after its suit in New York State was revived by a judge.

For now, the practice continues in the U.S., U.K., Canada, and Ireland. But Google has a very different policy in most of the European Union, reaffirming its intention to uphold complaints of the use of trademarks in keywords in prominent EU countries such as France and Germany when it announced an expansion of its trademark policy earlier this month.

Google has settled a lawsuit filed by advertisers who claimed they were charged for more ads through the AdWords system than they had agreed to pay for.

Under the settlement, two named plaintiffs will each receive $20,000, other marketers will get ad credits and Google agreed to pay the plaintiffs' lawyers more than $5 million, according to MediaPost.

The lawsuit, filed in 2005 in Santa Clara Superior Court in California, named as plaintiffs printing company CLRB Hanson Industries of Minnesota and Howard Stern of New Jersey (no relation to the radio personality). It alleged that Google misrepresented what constitutes daily budget limits.

A Google spokesman provided this comment on the settlement: "Google believes the claims are without merit, but we are pleased to have the litigation behind us and to move forward with our business objectives."

Google has extended its AdWords program to Google News searches, delivering text ads on the right side of the search results page, just as Google has long done with regular Web search results.

Josh Cohen, a business product manager at Google, announced the move Wednesday in a company blog:

In recent months we've been experimenting with a variety of different formats, like overlay ads on embedded videos from partners like the AP. We've always said that we'd unveil these changes when we could offer a good experience for our users, publishers and advertisers alike, and we'll continue to look at ways to deliver ads that are relevant for users and good for publishers, too.

The ads are intended to be tailored to news search terms, but the two aren't always on the same page, so to speak. While the news search understood that "spring training" was related to baseball, for example, only one of the top three ads presented made that connection, as the example below illustrates.

Faced with a much tougher economy, Google is working harder to make money off more of its properties. In recent months, it's begun showing ads in Google Earth and Google Finance as well.

Google has begun placing text ads beside Google News searches.

(Credit: Screenshot by Steven Musil/CNET News)

Google gets knocked for being a one-trick pony--the vast majority of its revenue comes from search advertising--but its strong fourth-quarter results showed what can be done by making sure cultivation of that business isn't hurt by diversification efforts.

The company on Thursday reported net income of $382 million for the quarter, a major drop from $1.21 billion from the year-earlier quarter. But that apparent drop was mostly because of two non-cash charges writing down the value of investments in AOL and Clearwire by $726 million and $355 million, respectively. Factoring that and some other charges out, the company had net income of $1.62 billion, well over analyst expectations, with revenue excluding commissions rising 4.5 percent to $4.22 billion.

Wait a minute. Wasn't there supposed to be a recession happening or something? How did Google do well, if not actually knock the ball out of the park?

Google CEO Eric Schmidt

(Credit: Stephen Shankland/CNET News)

In short, Google had two things going for it. First, people performed more Google searches. Second, when they did, Google showed the search ads more often.

Google makes money when people click on the textual ads next to search results; advertisers bid against each other to have their ads shown when people search with particular keywords. More searches obviously means more opportunities to show ads, and the company had "strong search query growth," Chief Executive Eric Schmidt said on a conference call.

Keep searchers coming
To keep searchers coming, Google has to keep its search engine competitive. The company made more than 350 improvements to it in 2008, said Jonathan Rosenberg, Google's senior vice president of product management. And Google has been turning up the volume knob on what calls universal search, the blending of video, book excerpts, images, news, blog postings, and other material besides Web sites into search results.

"We tripled the number of queries that triggered different kinds of results," Rosenberg said of 2008.

Google still sees plenty of room for improvement in search, though. "Wouldn't it be nice if Google understood the meaning of a phrase and not just the words you type?" asked Schmidt. And the company wants better search from mobile devices.

Keep advertisers paying
On the advertising side of the equation, Google must balance two forces: showing lots of ads versus showing better ads. High-quality, relevant ads are more likely to draw clicks and to train people that they should pay attention to search ads, but focusing on quality at the expense of quantity can hurt revenue. Google has been adjusting its "coverage"--the fraction of searches that get ads--as it tinkered with quality levels and launched new technology to come up with relevant ads more often, but in the fourth quarter, coverage increased.

"Ad coverage dipped earlier in the year," but ad-matching improvements helped Google increase coverage, Rosenberg said. Coverage is now back to where it was at the beginning of 2008, he said, but now with better quality.

Bear in mind Google already was ahead of its top rival, Yahoo, with coverage. The big driver for Yahoo's search-ad deal with Google, a partnership that was squelched by federal antitrust concerns, was that Yahoo wanted to use Google's technology to show ads where its own showed nothing.

Cutting costs
Google's search-ad business subsidizes a sprawling array of services and projects, but the company is becoming more discriminating about what to support. It's closed many projects that didn't pass muster, even those such as with direct potential revenue such as Google's print-advertising system.

Schmidt declared Google showed "tight controls over most costs" in the quarter, "something that had eluded us, but we got it down now." Chief Financial Officer Patrick Pichette dodged a question about whether the cost cuts are mostly over or just begun, but so far it appears Google is more nibbling around the edges.

Added Rosenberg, Google pays more attention to how it spends its money with a careful review process. "The review process is now a part of how we do business," he said.

That's not to say Google isn't expanding. It's still betting heavily on online services such as Google Apps, its online competitor to Microsoft Office, and on Android, its mobile-phone operating system, and on many lower-profile projects.

Retaining employees
Employees, evidently, are another investment. Google has slowed hiring--the company increased its employee count by only 99, to 20,222 in the quarter--but it doesn't want to lose them to others who can offer better benefits. The fact that Google's stock price has plunged in the last year and a quarter meant many employee stock options became effectively worthless.

Stock options let employees buy company stock over a period of time at a price set when the options were granted. If the stock drops, these options are "underwater"; the more it drops, the less incentive they provide for employees to stick around as new batches of options become available. Schmidt said 85 percent of Google employees have at least some underwater stock options.

For that reason, Google offered an exchange program that lets employees exchange their worthless stock options for ones based on Google's current price--a move that Google expects to pay $490 million to fund over the course of the program.

"Part of the compensation is stock. That's how it happens in high-tech, and it needs to have some value over the long term," Schmidt said.

The big unknown
Google can control its technology and its expenses, but the economy remains a big unknown factor. Here, despite Google's contention that search ads offer a clearer return on investment and therefore are not as susceptible to tightened advertising budgets, Schmidt offered a new dose of caution.

In the fourth quarter, the economy was in "uncharted territory," Schmidt said, but now, "It's clear we're in a recession. We don't know how long this period will last."

One thing is apparent, though. Google has a strong business engine that produces abundant cash, and Google is working hard to keep that engine purring.

One True Media, the parent company of an online video ad creator called SpotMixer, has announced a fresh $9 million in Series B venture funding. The round was led by DAG Ventures, with contributions from NTT Finance and existing investor Kleiner Perkins Caufield & Byers.

Amid widespread financial difficulties (to say the least) in the media business, SpotMixer and its new investors are pitching it as a cost-cutting option for small companies.

"While the market opportunity for video advertising remains well-defined, smaller businesses are more concerned than ever about how to most cost-effectively spend their limited advertising dollars," said DAG managing director Young Chung, who has joined One True Media's board of directors. "SpotMixer has quickly established itself as one of the most innovative and thoughtful solutions that will enable accelerated growth around this major advertising trend."

In conjunction, SpotMixer announced that it has been appointed the first official "authorized reseller" of Google's AdWords service for videos. This means that SpotMixer clients will be able to directly distribute their ads using Google's ad platform in addition to creating them online.

SpotMixer charges clients a minimum of $49 per month for access to its online tools, which are effectively a souped-up version of the many Web-based video "mixing" services out there. Then they can shoot them out across the Web with video embed codes or ad campaigns on the Web or cable TV.

Making the advertising process cheaper and easier is certainly a good pitch during a recession, but there's a flip side, too: Small companies with tightening budgets could easily opt to nix video ads altogether, sticking with the more familiar territory of text or display advertising. SpotMixer, on the other hand, maintains that video ads are more effective

Google has begun testing ads that accompany the suggestions that appear when people begin typing in a search query.

Google Suggest is a feature that provides a drop-down listing possible search terms; I find it handy for completing long queries with the down arrow and the Enter key. With some people, though, Google is testing a green search ad at the top of the list, Danny Sullivan of Search Engine Land reported.

The text ads that appear above or to the right of search results happen to be Google's massive profit engine, but the company also said its tests show they improve people's search experience overall. It's not clear whether that will prove to be the case for search ads that appear in Google Suggest, but Google has been adding all sorts of ways to make more money from its site.

I use Google's search page less and less now that I've begun using Chrome, whose address bar leads directly is a Google search box. Has anyone seen search ads showing in Chrome's search results suggestion drop-down?