Redmond is set to roll out AdECN, the “real-time” ad exchange it bought in 2007, within the next two weeks. But only in the most cautious of tests: Microsoft (MSFT) will open up AdECN to a handful of ad buyers and says it will only allow them to purchase a “select, limited amount of Microsoft inventory.”

Which means that even as Google’s AdX exchange, relaunched last fall, continues to gather momentum, Microsoft will still be dabbling around the edges. And some industry sources tell me they’re not sure that Microsoft is convinced it wants to launch an exchange at all.

The promise of the exchanges is that they allow ad sellers and buyers to haggle over specific pieces of inventory at the moment Web surfers are engaged with them.

That’s theoretically important because it means an ad buyer can determine if a visitor who is, say, looking at this Web page at this very second is worth more or less than the one who was looking at it just before. Or after. Etc.

Entrepreneurs and investors in ad technology think this is a big deal, because it will allow dollars to flow into online display ads much more efficiently. Traditional publishers, though, fear that the exchanges will simply function as more traditional ad networks do–that is, they will commodify most of their ad inventory and push prices even lower.

Microsoft itself is having that debate about its own exchange, sources familiar with the company tell me. They tell me that some executives in Redmond are desperate to launch AdECN in order to compete with Google (GOOG)–and likely, Yahoo (YHOO), which is testing its own real-time platform. But others aren’t eager to launch a product that may end up pushing down prices on Microsoft properties like MSN.

That would explain the long delay in launching AdECN, which has been promised for many months. Most recently, industry sources were telling me that Microsoft would launch the exchange in January.

It appears they’ll be off by a few days. Here’s Microsoft’s statement to me in response to a question about AdECN’s launch date and plans:

To date, we’ve been piloting the AdECN Federated exchange system internally with Microsoft Content Ads and through the Microsoft Media Network. In the next two weeks, we are extending it to a select group of advertising network partners in a test phase, which will enable participants to bid for media in real-time across a select, limited amount of Microsoft inventory. We’ve been intentional in our launch approach–by initiating this test with a small group we believe that will help us to refine and build future functionality. We expect to share more details about this test and our strategy in the coming months.

Google (GOOG) stock has lurched five percent lower in the first few minutes of after-hours trading, as investors digest the news. If you want to anthropomorphize the market, you might speculate that it’s bummed that CEO Eric Schmidt and company didn’t show a higher revenue lift. But if you’re keeping track, revenue is up 17 percent compared with last year, and up 12 percent from the previous quarter.

Here is Citigroup (C) analyst Mark Mahaney’s “cheatsheet” for those playing at home (click to enlarge):

And you can see the company’s profit and loss and balance sheet here.

Google will be using YouTube to livestream its earnings call, but I’ll be providing some annotation here starting at 4:30 pm Eastern. You can also check out the company’s accompanying slide presentation here, and here’s a chart it’s particularly proud of (click to enlarge):

I’m trying out a promising new liveblog tool, but please bear with me if there are bumps along the way.

On the call: CEO Eric Schmidt, CFO Patrick Pichette, product guy Jonathan Rosenberg, sales boss Nikesh Arora. No Larry or Sergey.

Schmidt declares that he’s very pleased with Q4: “An extraordinary end to a roller coaster year.”

Schmidt: Clearly, we were right to start ramping up investments and will continue to do so. We’re investing in people and investing in tech based on our “70/20/10″ rule: 70 percent in core products, 20 percent in new business like mobile/Android, and 10 percent in “long view” initiatives like commerce and social.

And of course, more mergers and acquisitions. We’re continuing on a pace of roughly one M&A per month, some small, some big.

Pichette runs through the numbers in the release above. He reiterates Schmidt’s line about continuing investments.

Jonathan Rosenberg has a cold, but gets his message across: “We made some very hard decisions” to shut down some products to focus on winners. It’s our “more wood behind fewer arrows approach.” We’re focusing on DoubleClick integration, Android expansion and the Chrome OS. “YouTube, is in fact, monetizing well,” and we hope our partners make money, too.

Obviously, going forward, we’re going to plow resources into search. But other stuff too. Social, for instance. Not just social networking, but all of our products should be “social.” This can apply to search, local search, etc. We’re also focusing on commerce, whether people are making their purchases online or offline.

More Rosenberg: Mobile is important, and so is moving enterprise to the cloud.

Arora: We improved throughout the year, and Q4 was strong. Large companies like Staples (SPLS) and Volvo are directing an increasing portion of spending online [as they're supposed to do].

Arora: Search ads are always a value in December! Costs go up but they get more effective because people buy more.

Arora: Brand marketers are increasing their spending too. YouTube has had many successful brand campaigns. Have you seen Fox’s “Avatar” ads? They’re great. Other shoutouts for Sony (SNE) and American Express (AXP).

Arora: Most of the top networks have signed onto AdX ad exchange since we launched it in the fall.

Time for Q&A.

Google’s U.S. revenue had a big jump, but international revenue did not accelerate as quickly. What gives?

Arora: In the U.S., we saw large advertisers shifting offline to online. Other markets have different issues; hence, the different growth rates.

Are we back to normal in regard to seasonal patterns? Also, can you talk about “materiality” of mobile?

Pichette: We won’t talk about mobile revenue in any concrete way.

Arora: There is some different performance by vertical. Finance, obviously, isn’t as strong as it used to be.

Another question about mobile: Is Google trying to push revenue? Profitability? Also, please talk about China.

Rosenberg: Advertisers are starting to figure out what works on mobile. For instance, adding a phone number or an offer for mobile helps a lot.

Pichette: Regarding mobile, we want to drive innovation that in turn drives people to the Web, which is better for us. That’s the core engine of mobile.

Schmidt: “China stuff has been well-covered in the press,” the CEO notes before recounting the China story. “We’re in conversations with the Chinese government,” and our business has remained unchanged. “But in a reasonably short time, we’ll be making some changes there.” That said, we’d still like to be in China.

Missed a question. Apologies.

Please talk about outperformance of network business vs. owned and operated. Also, what accounts for higher marketing costs?

Pichette: Nothing to talk about re: network versus O&O. Re expenses, we said we were going to ramp up investment and we put in more there because we can track the results and the return on investment.

Arora: Yep, some of that money was to support consumer launches.

You said search increased five times on mobile. So what does that mean for revenue per search? Also, please talk more about increased spending on marketing.

Pichette: We’re really pleased with the marketing experiments we’re running.

Rosenberg: Regarding mobile, the new formats, targeting tools and reporting we’re giving mobile advertisers is making a huge difference. But I won’t answer your question about revenue.

Missed another question here.

YouTube monetization: Can you give us some metrics on how much inventory you’re selling?

Arora: Nope. But it has “gone from being a nice-to-have” to essential.

Pichette: The Youtube homepage nearly sold out in Q4. Hope that’s useful.

Can you break out ad spending by advertiser size?

Arora: Large advertisers are moving online, which is good. Retail was strong in Q4. We’re working with smaller advertisers to “bring them into the fray.” But the discrepancy so far has been mainly seasonal.

Can you rank your core businesses in terms of growth potential? Also, what’s up with you and Apple (AAPL)?

Schmidt: We’ve been saying for a while that display is a big opportunity. One story you haven’t seen so far is how successful we’ve been in display, but that will come out in 2010. [Note to PR staff: Start pitching!]

And obviously, mobile is small now but will grow quickly.

“With respect to Apple, it’s probably better to say”…that as a former board member “I have a special spot for Apple in my heart.” They’re a very well run company and “they have some very good stuff coming” strong competitor, etc.

Schmidt on Nexus One: What it is really about is a new way of buying a phone. Nexus One itself is the first in a series of examples where you can buy the phone online and pick your carrier.

Is Bing having an impact on cost per click?

Rosenberg: We think out CPCs are generally not affected by competitors. Prices are set by buyers.

Can you talk about Nexus One’s impact on margin?

Pichette. Not really. We want to innovate, etc. Nexus One will have its own margin and that’s how we’re focused on building the business.

We’ve seen third-party data on mobile projecting that iPhone could account for 50 percent of mobile traffic. Does that make sense to you? Also, you have said that the Apple relationship is “stable.” So what are the odds that you’re going to continue to provide search on the iPhone?

Schmidt: We won’t talk about the market share of Apple. And we won’t “speculate about any deals of any kind–true, not true, rumored, not rumored.”

Given that new display products are so great, is there any notion that people are moving dollars from search to display?

Schmidt: Advertisers “don’t shift, they add.” They might maximize search to maximize revenue and they might spend on display for long-term growth, branding, etc.

Pichette thanks Googlers listening for all their hard work. There’s an auxilary call at 6 pm Eastern with Pichette and Rosenberg, but I won’t be able to cover that one.

Dull name aside, this is an interesting business for Google to be thinking about. So-called DSPs are supposed to help ad buyers (that’s the “demand-side” part) manage the speed, volume and complexity of the new ad exchanges cropping up, like Google’s own AdX product.

The DSP industry is a fairly young one, but the companies in it are beginning to find some traction by signing up the big advertising holding outfits like WPP et al to non-exclusive deals.

I assumed that part of the appeal of DSPs is that they stand apart from Google (GOOG), giving buyers more confidence that they are seeing the widest amount of inventory possible, at market prices. But industry sources say Google would like to buy or build one of its own, anyway.

Do keep in mind the “build” option, here: A company with Google’s resources could easily build this stuff on its own. Then again, you can say that about a lot of the stuff Google has bought recently, and the DSPs are generally start-ups that haven’t raised a ton of money, so a purchase–at the right price–is definitely doable.

If you want to bet, here are some M&A candidates to keep an eye on: Invite Media, MediaMath, DataXu, x+1, Turn and AppNexus. That last one would be particularly interesting, as former Google executive Michael Rubenstein, who was running Google’s AdX service until its launch, left the company to join AppNexus earlier this fall.

[Image credit: Bruce Turner]

CBS (CBS) says it will stop doing business with the ad networks, which are ubiquitous on the Web, and will offer access to its audience of 60 million unique visitors solely via its own salesforce.

AdAge’s Michael Learmonth says CBS, bolstered by its 2008 purchase of CNET, is the biggest publisher on the Web to cut off the hundreds of networks that try to match publishers and ad buyers.

Sounds right to me. Because while lots of people like to complain about ad networks, almost everyone uses them.

Other big publishers that have cut off ad networks entirely include Time Warner’s (TWX) Turner Networks, the Gawker Media blog network and…not many others.

The ad network debate in a nutshell: Anti-ad network types argue that handing over inventory to the networks gives publishers a short-term boost because it allows them to sell ads they wouldn’t move on their own. But doing so trains buyers to avoid buying higher-priced inventory from the publishers themselves, which means that stuff gets harder to sell in the long run.

The counterargument: What are you people smoking? Ad buyers should be trying to reach their target audience at the lowest possible price. And trying to fight that impulse is like fighting gravity.

Still, there is a larger movement afoot to try to at least sell some inventory at higher prices, even if that means leaving dollars (or pennies) on the table.

That’s one of the cornerstones of Aol CEO Tim Armstrong’s strategy, and it’s what Yahoo (YHOO) is trying to do as it reshapes its Right Media platform. See also: Firms like 5to1, which say they can turn publishers’ low-rent “remnant” ads into more valuable stuff.

The countermovement, though, is at least as strong, as ad buyers and brokers use technology to move more and more inventory at ever-more “efficient”–i.e., cheap–prices. See: Google’s (GOOG) relaunched DoubleClick exchange and the one that Microsoft (MSFT) intends to roll out next month.

This should finally change next year. People familiar with Microsoft’s (MSFT) plans say the company intends to open the exchange, which will allow online ad buyers and sellers to match up in real time, in January. That will put it several months behind Google (GOOG), which turned on its real-time ad exchange in September.

But on the plus side, AdECN will offer lots of intriguing inventory from the get-go: It will sell space on Microsoft’s giant MSN network, as well as inventory on sites the company reps, like Facebook, Digg and News Corp.’s (NWS) Fox Sports.

Here’s Microsoft’s formal statement about AdECN’s the timeline:

AdECN and Microsoft remain fully committed to the AdECN Exchange and exchange business.  AdECN has been running a Pilot of its Federated, real-time bidding technology within Microsoft for the past several months and will be rolling that product out to a select group of participants in the coming months.

Real-time ad exchanges are a big deal for people trying to automate advertising buying and selling. They differ from older ad exchanges, like Yahoo’s (YHOO) Right Media, in that they’re supposed to let buyers and sellers negotiate a price within milliseconds on specific pieces of inventory.

But it’s not clear that buyers and sellers will embrace real-time exchanges. In order to use them, for instance, they’ll have to build, buy or rent technology that allows them to make and process orders at lightning speed.

AdECN manager Jeff Green left Microsoft earlier this month without explaining what he intended to do next. Jed Nahum, Microsoft’s director of network strategy and planning, is running the unit in the interim.

(Disclosure: News Corp. owns Dow Jones, which owns this site.)

[Image credit: rednuht]

Unless I’m told otherwise, I’m only going to do this once. But for the record, Yahoo is going with the following spelling for its new slogan: “It Starts With Y!ou.” I don’t think that’s going to fly with consumers or copy editors, but we’ll see.

Also undetermined: Whether there will be any news unveiled at Yahoo’s press conference to roll out said slogan. But I’ll be here for you just in case. And in the meantime, you can find glimpses of the coming campaign at the bottom of this post.

The event begins: Boilerplate intro remarks from Yahoo (YHOO) CEO Carol Bartz, followed by CMO Elisa Steele. Steele shows off a Venn diagram that shows the intersection of “my world” and “the world.” Yahoo, apparently, is that intersection. “That’s where the yodel is.”

Steele reminds us that this is Yahoo’s first global marketing campaign. That’s old hat for Microsoft (MSFT) and something Google (GOOG) has never done. Ad campaigns will roll out in 10 countries, branding campaign will be in all territories.

Steele runs through some imagery that will be used in campaign. Yahoo users, apparently, comprise many races and creeds. But all of them are buff and/or skinny. Unless they’re pregnant. A video ad, meanwhile features an upgraded yodel.

OK. Time for Q&A:

Onstage: Bartz; Steele; EVP Hilary Schneider; Tapan Bhat, SVP Integrated Consumer Experiences; Penny Baldwin, SVP Global Integrated Marketing and Brand Management.

What’s the budget for the campaign?

Steele: “Over $100 million.”

Status of ad market? Also, what won’t you sell?

Schneider: Starting to see a stabilization. “Wouldn’t go so far as to say as we’re seeing a full recovery.”

Bartz: We’re still “bumping along the bottom.” Regarding sales, she dodges/reframes the question, talking about “focus” instead. “We’re just revisiting everything.” Is there anything you won’t sell? “Of course.” But no specifics. Will improve photo, video, “much, much better email.”

Please talk about the launch of Google Ad Exchange and its threat to you.

Schneider: “The reality is that the display marketplace is fragmented.” Our exchange (Right Media) is biggest, but it’s intuitive that there will be other exchanges. “We welcome Google.”

Why do a relaunch at all? Are consumers actually unhappy, or is it just advertisers and press and investors carping?

Bartz: “Advertisers follow consumers” and we need to “build circulation.” By doing this approach, “we get really good micro-insights for our advertisers.” She doesn’t explain how this will happen, though.

Steele: “Consumers want more from online advertising.” They’re asking for it.

What about video plans?

Bartz: “Video snacks” are crucial to consumers and advertisers. “A big emphasis” inside Yahoo. A “big cornerstone of our strategy.”

How long will campaign run? How will you measure success?

Steele: It’s funded for 15 months, and I expect it will run longer than that. Vague answers about management.

Some chat about search, which formally debuts today.

Will there be product-specific ads?

Steele: Launch of the campaign in each market will start with brand, and over time you’ll see more product ads, as “people get familiar with Yahoo again.”

One more time: Is Zimbra being shopped?

Bartz: No comment. But “what I will tell you is that Zimbra technology is very, very important to our mail system, and that’s one of the prime reasons that Yahoo bought Zimbra when it did…[but] the technology is already integrated into our system.”

How is this campaign different than other campaigns? You’ve had a lot of campaigns in the last 15 years.

Steele: I haven’t been here in past, but I’ve reviewed every campaign that has been done and this is radically different because it’s more than a campaign. Carol and Carol’s staff are all behind the concept of “you.” Everyone’s on board. “If this was just a marketing campaign or a slogan, then we’ve really failed.”

Bartz: This should remind you of the past, actually. That’s not a bad thing. On search: Search has evolved from the “10 blue links” days. She views background of search much like an Intel (INTC) chip, which everyone uses. But Dell’s (DELL) experience with that chip is different than HP’s (HPQ) experience, etc. Yahoo is stable at 19 percent of search business because users are on Yahoo and they like Yahoo search. “Yahoo search is great. It’s not Bing, it’s Yahoo search….What’s most important is that we drive upstream and provide a great experience, even though the plumbing is down here.”

Do users really like to customize their search (premise behind overhauled homepage)?

Bhat: Core group of 15 percent of users really into customization. Most other people say they want that but aren’t willing to do the work. So we’re doing incremental customization on the homepage. “This will be something that keeps growing over time.”

Will you be integrating text-messaging and other short messaging services into the homepage?

Bhat: Yes.

How is the antitrust scrutiny going (with regard to Microsoft search deal)?

Bartz: Just as we predicted. We stand by our original prediction that the deal will close early 2010.

Are we too obsessed about what’s new here?

Bartz: Yes. “People just decided to put a cloud over Yahoo’s head”…and decided that if we’re going to remove the cloud we had to show off something shiny and new. “If you get out of New York and Silicon Valley, everybody loves Yahoo.” I travel a lot and everyone loves it. “I just want to transport you guys out of this cynicism you’re in….Why are you so cynical? Why not be cynical about fricking Google? See…you got me…you got me pissed off.”

[Note. Some debate about whether Bartz used "fricking" instead of an actual curse. We'll go to tape later. Update: Apologies (and thanks to Business Insider's Nicholas Carlson, who shared his video with me). Bartz appears to have said "fricking" or "frigging" Google.]

[Sorry about interregnum there. Cursing got me wound up. Back to real-time.]

Where do you want to be in two years?

Bartz: Yahoo is the only site where you when you wake up in the morning and you want to know what’s going on everywhere about everything, you can find it one place. The company is unified around that spirit, “not about technology for technology’s sake, but about what that delivers.”

Why doesn’t Wall Street buy the Yahoo turnaround story even though Google has fared okay during this recession? 

Bartz: “Yahoo and Google are different companies. They are in different businesses…investors are somewhat like you guys, where they’re saying ‘let’s wait and see.’” About this direct comparison with Google: “We aren’t a comparable company. They aren’t us and we aren’t them.”

So whom would you like to be compared to?

Bartz: “Yahoo.” But the closest analog is AOL, actually. Google is a white page with a search box. We’re very personal. When you go to our page in India, it feels like India. Relevance is important. Personalization is important. That’s not Facebook’s strategy. That’s not Twitter. “Not to say we’re not part of the greater tech sector, and you’ve got to find some compares.” But Yahoo is unique. We’re doing okay with the world side; we have to work on the easy personalization that is the core of our product focus.

Please address the stock sale, Carol.

Bartz: “I didn’t sell anything.” I got restricted stock throughout the year; when it vests, it gets recorded as a sale. “I haven’t sold one penny of Yahoo stock. Thanks for asking, because it pissed me off when they said I sold. I wouldn’t do that.”

Q&A ends. More in a bit.

The search giant will reportedly open up its AdX service, which is supposed to bring together ad buyers and sellers the same way a stock market does, within the next two weeks. ClickZ says the exchange is supposed to open in conjunction with next week’s AdWeek festivities in New York.

That timeline sounds right to me. Google (GOOG) has already been inviting selected clients to try out the system, which is based on the one DoubleClick ran before Google acquired the firm last year. Google told potential buyers via email that it will begin integrating their ads into the exchange this week.

None of this will have any impact on Google’s search users, but it’s potentially important for online advertisers and publishers.

Until now, the online exchange market has been dominated by Yahoo’s (YHOO) Right Media, but Google will become an instant rival as soon as it opens its doors. Meanwhile, Microsoft’s (MSFT) offering, AdECN, seems stuck in the starting gate.

Google’s exchange will open shortly after the departure of its manager, Michael Rubenstein, who is now president of ad tech start-up AppNexus.

I’ve been trying, unsuccessfully, to find out what Rubenstein is doing next*. Google hasn’t filled his slot, but is looking externally for a candidate, I’m told. His former boss, DoubleClick CEO David Rosenblatt, left in May.

UPDATE: Rubenstein is now president of AppNexus, which describes itself as a “a cloud computing and real-time online advertising platform company”. I asked him to explain what that meant today, and he was intentionally vague — but noted that cofounders Brian O’Kelley and Mike Nolet are both veterans of Right Media, the ad exchange that Yahoo (YHOO) bought in 2007. So “there’s a lot of exchange knowledge here,” he deadpanned.

Rubenstein’s departure is worth noting because the unit he has been overseeing is small now but could be important for the ad giant’s future. Google (GOOG) hasn’t formally unveiled its Ad Exchange, which is supposed to bring together ad buyers and sellers in the same way a stock exchange does, but industry folks are already using it on an invitation-only basis. (Google’s “real time” ad bidding system, which is separate but parallel to the Ad Exchange, is also an open nonsecret in the ad tech world).

*Are you Michael Rubenstein, or are you someone who knows what Michael Rubenstein is doing next? Great. Please drop me a line at peter@allthingsd.com, or use the blind tip box here.

And there are lots of marketers trying their best to ignore technology and keep their ads as dumb as possible. Example: Sprint’s email to me this morning trying to convince me to sign a new contract so I can snag a free “Katana Eclipse X” from Sanyo. Here’s the pitch (click to enlarge):

Nothing against the Katana Eclipse X, by the way. I’m sure it’s a fine phone. But here’s the thing: Sprint (S) has my email address because I am a customer. I’ve been one for a decade. And so Sprint knows that:

• I own a BlackBerry 8830, and that…
• I spend $100 a month for an all-you-can eat plan (plus another $60 a month for a broadband wireless card!), and that…
• My contract expires in a couple of weeks.

So if I were Sprint, I’d be trying very hard to convince me not to ditch the company for AT&T (T) and Apple’s (AAPL) new iPhone 3G S, which looks awesome.

And again, nothing against the Katana, which is apparently available in “Nightlife Black and Hypnotic Pink.” But it’s no BlackBerry, and it’s no iPhone. And it’s not a Pre, the phone that Sprint and Palm (PALM) are positioning  to compete against those two.

But I’ve yet to get an email from Sprint telling me that the Pre exists–perhaps the company hopes that I’ll be wowed by its new woman-friendly TV ads. Or what about Research in Motion’s (RIMM) new “Tour,” which is coming out this summer and looks great? Nope. Had to learn about that one by reading a blog.

So while I worry that I’ll regret typing this, here goes: Dear Sprint: You know where I live, what I own and how much I spend. You know I’m a free agent at the end of the month. Want to keep me? Start pitching.