Fresh off the heels of two search industry conventions (ugh), Mahaney synthesizes a couple different industry reports with his own interviews. Key takeaway: Search advertising spending will be flat at best in the first quarter of 2009, but will rebound for the rest of the year:

As one very experienced Search agency executive put it to us, ‘Flat is the new Up.’ Not surprisingly, specific verticals that were singled out as weak were Retail & Travel. And surprisingly, one vertical that was singled out as stabilizing was Financials. We also picked up signs that February Search spend may be picking back up from depressed January levels. Two leading Search marketing firms separately told us that while January saw client spend cutbacks, indications are firming for a January and March recovery.”

Translation for Google: Mahaney thinks net revenue will decline seven percent for the search leader in this quarter compared to net revenue three months earlier. That will be mind-blowing for the go-go growth company but in line with the seven percent and 10 percent decreases that Yahoo (YHOO) and IAC’s (IACI) Ask have suggested. But Mahaney, a Google bull, thinks the company will end the year up four percent.

Perhaps that should be our definition of a recession going forward–a year when Google (GOOG) posts low single-digit growth–and that’s seen as a good thing.

The new Ask is faster than its predecessor. Its search results are more relevant and sharpened by structured data (TV listings, etc.) where available. And the little search engine that couldn’t is still using semantic technology to interpret and answer questions put to it by users. “To call it an all-new Ask is wrong; it’s an evolution of Ask,” said Barry Diller, CEO of Ask parent IAC/InterActiveCorp (IACI). “I think it’s going to help us primarily in [visitor] retention and frequency. That is really its goal.”

But while it might appeal to some, Ask’s latest iteration isn’t likely to make much of a difference in the brutish battle for search engine market share. But then Ask doesn’t need much, does it? The search business is enormously profitable. As Microsoft’s (MSFT) Don Dodge once noted, every market-share point in search is worth a billion dollars or more. So if Ask manages to boost its share of all searches even slightly, it’s a success. “Search revenue for us is very profitable and it’s certainly growing,” said Diller. “Does it matter whether or not we take big chunks of…market share? No. Would we like and hope to? Yes.”

The new Ask is faster than its predecessor. Its search results are more relevant and sharpened by structured data (TV listings, etc.) where available. And the little search engine that couldn’t is still using semantic technology to interpret and answer questions put to it by users. “To call it an all-new Ask is wrong; it’s an evolution of Ask,” said Barry Diller, CEO of Ask parent IAC/InterActiveCorp (IACI). “I think it’s going to help us primarily in [visitor] retention and frequency. That is really its goal.”

But while it might appeal to some, Ask’s latest iteration isn’t likely to make much of a difference in the brutish battle for search engine market share. But then Ask doesn’t need much, does it? The search business is enormously profitable. As Microsoft’s (MSFT) Don Dodge once noted, every market-share point in search is worth a billion dollars or more. So if Ask manages to boost its share of all searches even slightly, it’s a success. “Search revenue for us is very profitable and it’s certainly growing,” said Diller. “Does it matter whether or not we take big chunks of…market share? No. Would we like and hope to? Yes.”

With more critics piling on to the just-say-no-to-Yahoogle bandwagon–questioning the controversial ad deal for Yahoo to outsource some of its search ads to Google–sources said some top Google execs are now hightailing it to Washington, D.C., to smooth over any regulatory feathers the company might have ruffled with its aggressive, damn-the-torpedoes approach to pushing the deal forward.

The partnership is set to start up around Oct. 13 and promises to give the much-suffering Yahoo (YHOO) a huge boost in revenues.

Google (GOOG), of course, benefits by blocking Microsoft (MSFT), which has caused the software giant to lobby against the deal like a lipstick-wearing pitbull.

Google and Microsoft have been locked in a variety of tech battles on many fronts of late, but the Yahoo front has been a particularly rough one.

Critics like Microsoft have a lot of ammo here though, especially because Yahoo and Google together will claim over 80 percent of the search market.

That has caused a big outcry to prevent the No. 1 and No. 2 players from partnering.

The latest objection, among a passel of them, came earlier this week from the World Federation of Advertisers, which has asked the European Commission to stop the partnership, even though the deal, as currently conceived, impacts only U.S. Web sites.

So to assuage the tumult, Google is glad-handing regulators, even as Yahoo announced a new group for advertisers called the Digital Advisory Council.

“Opening up Yahoo! is a key part of our strategy, and we want to help advertisers understand how they can benefit from this approach,” said Yahoo U.S. EVP Hilary Schneider. “At the same time, there has been confusion and misinformation surrounding Yahoo!’s agreement with Google, which represents another key milestone in opening up our network. As questions emerge about how Yahoo! will implement this agreement, the Advisory Council will provide a forum for us to engage in a dialogue with key customers on those issues.”

Well, phew! A council! That’s sure to bring online ad harmony across the planet!

Actually, it all feels like that model United Nations thing I grudgingly did in high school, and almost as useful.

And the pair also got a boost from New York Times Digital Domain columnist Randall Stross, who penned a piece Sunday called “Why the Google-Yahoo Ad Deal Is Nothing to Fear.”

Nothing? Really? Not even a little bit?

BoomTown has got to say, we’re still a smidgen nervous. OK, tons and tons. (And, it turns out TechCrunch’s Michael Arrington agrees with me, so you know it is serious!)

Still, in the interest of fairness, let’s examine Stross’s main argument, which is essentially that Google’s and Yahoo’s more than 80 percent market share does not matter.

“Google controls about 70 percent of the search advertising market. Doesn’t that give it a monopolist’s ability to set prices as high as it wishes?

“It does not. Google does not set the prices. Its advertisers do, bidding against one another for the amount they will pay when a user clicks on one of their ads. They do the same for ads on Yahoo and Microsoft search sites, too.”

Noting Microsoft’s efforts to portray Google as a “price-controlling monster,” Stross then tried to make a case that worries about higher prices are currently just speculation and not based in practice.

“Even though this is a business based on auction pricing, the specter of price fixing has been raised by demagogues. Shout ‘monopoly’ loud enough and point to ’90 percent share’ of something–it doesn’t really matter what–and federal and state regulators will decide this is a matter meriting their close attention.

“One company has done more than any other to publicly disparage the Yahoo-Google deal: Microsoft, the same company that did not succeed in acquiring Yahoo earlier this year. Hell hath no fury like a suitor scorned.”

Oh dear, the loser-boyfriend argument, which is a canard.

Sure, Microsoft is up to all sorts of tricks and aggressive lobbying about the deal–just as Google surely would be if the tables were turned and Microsoft had won the heart of Yahoo CEO Jerry Yang and consummated a merger marriage.

And Google and Yahoo are correct that the auction model means advertisers set prices for ads.

But what Stross is leaving out is the key problem of what happens later, when perhaps Yahoo’s share of the search market declines even further–as is the inexorable trend–and Yahoo becomes yet another vassal of Google’s largess.

That’s now true for AOL, Ask, MySpace and many others. And it is in no one’s interest–especially publishers–to have just one place to turn, which is what they will have, since Google will increasingly yield the best results.

Last week, for example, I was meeting with a big advertiser on both Google and Yahoo, who noted that he liked to have two strong choices.

“In the end, as Yahoo’s results weaken, it will probably only make sense to use Google,” he said. “And that opens up a whole can of worms.”

Indeed. Which is why–at the very least–regulators should force Google and Yahoo to make some commitments about their deal.

The kind of trust-but-verify-later requirements that anticipate possible problems was well argued in the form of a white paper yesterday from a nonprofit think tank called the American Antitrust Institute.

The report was relatively even-handed, noting, “the transaction should be viewed as presumptively anticompetitive, although it may also contain possible pro-competitive benefits.”

So, in the interests of consumer and advertisers and publishers, it is incumbent on the government to get tweaks to the Yahoogle deal that minimize the former and maximize the latter.

Without such promises, who knows what tomorrow brings in a world in which one search engine survives?

Please see this disclosure related to me and Google.

According to new metrics from Hitwise, Google’s (GOOG) share of the U.S. Internet search market grew to 70.77 percent in July. That’s a 10 percent increase over the same month last year. The search juggernaut’s growth came once again at the expense of rivals Yahoo (YHOO), Microsoft (MSFT) and Ask. The market share of all three declined in the same period–Yahoo’s to 18.65 percent, Microsoft’s to 5.36 percent, and Ask’s to 3.53 percent.

Seems that search really is a natural monopoly business, as Credit Suisse analyst Heath Terry once noted. “We believe that search is a natural monopoly business and expect that over time Google will continue to gain share until they have effectively reached 100 percent,” Heath wrote in a research note to clients last year. “Over the last two years Google has gained 50 [basis points] of share/month in the U.S. and 60bp globally. We expect these share gains to accelerate as declining scale makes it more difficult for competitors to justify the technology investments needed to maintain search result quality.”

If that’s the case, if search is a natural monopoly business, then Google is apparently its natural monopolist. After all, a 70 percent share of the search market is … well, it’s obscene, really. And it begs many a question about the company’s partnership with Yahoo and the potential antitrust problems it may present. No wonder the document outlining the terms of two companies’ search advertising deal is so heavily redacted …

According to new metrics from Hitwise, Google’s (GOOG) share of the U.S. Internet search market grew to 70.77 percent in July. That’s a 10 percent increase over the same month last year. The search juggernaut’s growth came once again at the expense of rivals Yahoo (YHOO), Microsoft (MSFT) and Ask. The market share of all three declined in the same period–Yahoo’s to 18.65 percent, Microsoft’s to 5.36 percent, and Ask’s to 3.53 percent.

Seems that search really is a natural monopoly business, as Credit Suisse analyst Heath Terry once noted. “We believe that search is a natural monopoly business and expect that over time Google will continue to gain share until they have effectively reached 100 percent,” Heath wrote in a research note to clients last year. “Over the last two years Google has gained 50 [basis points] of share/month in the U.S. and 60bp globally. We expect these share gains to accelerate as declining scale makes it more difficult for competitors to justify the technology investments needed to maintain search result quality.”

If that’s the case, if search is a natural monopoly business, then Google is apparently its natural monopolist. After all, a 70 percent share of the search market is … well, it’s obscene, really. And it begs many a question about the company’s partnership with Yahoo and the potential antitrust problems it may present. No wonder the document outlining the terms of two companies’ search advertising deal is so heavily redacted …

BoomTown is flatly fascinated by the rather incredible memo Microsoft CEO Steve Ballmer penned to his troops yesterday, with news of the reorganization of its massive Platforms and Services Division and the departure of its president, Kevin Johnson.

In the memo, in a very rare public airing of its less-clean laundry, Ballmer actually casts Microsoft’s two major rivals, Apple and Google, in a somewhat positive light, while still vowing to best them.

It is not often that Ballmer or even Microsoft Founder Bill Gates mentions either company in public. More to the point, what neither typically does is acknowledge that they do anything right.

But Ballmer did so yesterday in the memo, perhaps a sign that Microsoft (MSFT) realizes it has trouble on its hands and needs to publicly declare tough enemies to pump itself up to fight.

The memo should be Topic A for financial analysts, who are gathering at Microsoft’s Redmond, Wash., headquarters today for their annual meeting with company leaders.

“It’s going to be a rocky day,” said one Microsoft source.

And how! Especially given the need to explain the memo in more detail, including plans for beating back incursions by more nimble companies like Apple (AAPL) and Google (GOOG).

Ballmer took a baby step in that direction in the strategy email to employees.

About Apple, for example, Ballmer wrote:

In the competition between PCs and Macs, we outsell Apple 30-to-1. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience. Today, we’re changing the way we work with hardware vendors to ensure that we can provide complete experiences with absolutely no compromises. We’ll do the same with phones–providing choice as we work to create great end-to-end experiences.

It is, for longtime Microsoft watchers, an interesting way to put it, actually framing the fight on Apple’s strengths–an end-to-end computing experience–rather than on Microsoft’s.

While Ballmer is entirely right about the sales figures, he is leaving out perhaps the more important fact that Apple–using its iPod and now iPhone juggernaut–has captured the consumer imagination and owns the tech zeitgeist, which is all about a deeply integrated and entirely Web-focused computing experience.

His mention of the phone issue is especially interesting.

Why? Because no matter what Ballmer says, the ancient cell phone software in Windows Mobile is under assault from Apple, Google’s Android and the upcoming new RIM (RIM) platform.

Ballmer’s longish comments on Google were just as important to pay attention to:

We continue to compete with Google on two fronts–in the enterprise, where we lead; and in search, where we trail. In search, our technology has come a long way in a very short time and it’s an area where we’ll continue to invest to be a market leader. Why? Because search is the key to unlocking the enormous market opportunities in advertising, and it is an area that is ripe for innovation. In the coming years, we’ll make progress against Google in search first by upping the ante in R&D through organic innovation and strategic acquisitions. Second, we will out-innovate Google in key areas–we’re already seeing this in our maps and news search. Third, we are going to reinvent the search category through user experience and business model innovation. We’ll introduce new approaches that move beyond a white page with 10 blue links to provide customers with a customized view of their world. This is a long-term battle for our company–and it’s one we’ll continue to fight with persistence and tenacity.

While it would be hard not to acknowledge Google’s overwhelming lead in search (and, of course, its position as the other key zeitgeist leader of the moment, in tech), Ballmer is laying out the challenge–which was, in essence, formulated by Johnson–as one that can be won by innovation.

He is entirely right, except for the fact that Microsoft is not a company well known for being innovative or for pushing boundaries.

More importantly, Microsoft cannot really do so from a search position of under 10 percent (check out how well Ask’s innovative efforts worked).

That’s why owning or controlling Yahoo is so critical, since its mid-20 percent market share gives Microsoft the leg up it needs to make these still-unknown innovations a success.

On a visit to Microsoft recently, I did see some really cool ideas and efforts in its Live offering, for example. But to move the needle, Microsoft needs scale to make consumers sit up and pay attention.

That’s why Ballmer’s comments about Yahoo rang especially false to me.

He wrote:

Related to Google and our search strategy are the discussions we had with Yahoo. I want to emphasize the point I’ve been making all along–Yahoo was a tactic, not a strategy. We want to accelerate our share of search queries and create a bigger pool of advertisers, and Yahoo would have helped us get there faster. But we will get there with or without Yahoo. We have the right people, we’ve made incredible progress in our technology, and we’ll continue to make smart investments that will enable us to build an industry-leading business.

Maybe so, but Yahoo is actually a strategy and not a tactic–which is to get there faster and with less of an uphill slog.

Microsoft could get where it wants to go with Yahoo. Without it? Not so easy.

Please see this disclosure related to me and Google.

Lanzone had been at the company, which is owned by Barry Diller’s InteractiveCorp (IACI), for more than a half-dozen years, before stepping down in January in a management reshuffle at the company that put Match.com CEO Jim Safka at the top of Ask.

At the time, Diller praised Lanzone copiously in a statement, but noted that “these changes are intended to strengthen and streamline the operating structure at IAC, both leading up to our intended spinoffs, and beyond.”

For those not following IAC’s tribulations of late, Diller is currently embroiled in a vitriolic fight over control of the company with one of its biggest shareholders, Liberty Media, and its voluble leader John Malone.

That’s no longer Lanzone’s problem, although he remains a consultant to Ask for a little while longer and is also an entrepreneur-in-residence at Redpoint Ventures. He told BoomTown that he is still trying to figure out what to do next, but wants to remain on the product side of the consumer Internet business.

I like Lanzone a lot, especially given the more innovative and even aggressive efforts Ask has made to gain ground and try to put a dent in Google’s market share in recent years, laudable efforts a larger player like Yahoo might have been trying as hard.

While we despised the high-concept Kato Kaelin ads (see it once again posted below the Lanzone video to see why) Ask used this summer, BoomTown does not blame Lanzone for them–paging Barry Diller! All is forgiven anyway, since they were junked.

In any case, here is a video interview with Lanzone done yesterday, in which we talked about where search was headed:

“I am beginning to think these people are insane. … Everything they cite is hogwash.”

That’s what is known as a classic Barry Diller, who can be relied on to come out with a good one when provoked.

In this case, the provocateur is Liberty Media’s John Malone (pictured on the right in this comic with Diller), whose company has headed to court to try to remove Diller from his job as chairman and CEO of IAC/InterActiveCorp.

As chronicled by the always deft Jessica Vascellaro of The Wall Street Journal today, the fight between the longtime partners is getting uglier still with–oh, let’s just admit it–totally confusing moves and countermoves about the fate of IAC and its subsidiaries.

Liberty has a giant stake in all of these entities and Diller, of course, has control of that stake. A recipe for mogul mud wrestling, if ever there was one.

But the fight is a serious one for a number of high-profile Web companies within IAC, which was being restructured to stop just this kind of fighting between Diller and Malone.

Just how Diller has gone about rejiggering it all, in complicated spin-offs in a way that allegedly undercuts Liberty’s control yet again, is what set the new round of tensions off.

Those sites embroiled in the fighting include: Expedia, TicketMaster, LendingTree and Ask.

As luck would have it, Diller will be interviewed onstage at the sixth edition of D: All Things Digital in late May, so there will be plenty to talk about!

The last time I interviewed him at the Monaco Media Forum last November, Diller let loose too, when he memorably scoffed at the $15 billion valuation for Facebook and Microsoft’s $240 million investment in the hot social network.

“If it was real money, it would be insane, but since it isn’t really, then why bother [worrying about it],” said Diller. “It doesn’t mean anything, it is a phantom, false valuation. Let them sell for $14 billion, $998 million, and then I’ll believe them.”

But being No. 5–unfortunately, in this case–requires some showmanship, if that’s what you would call the bizarre commercial featuring a man who has typed in “chicks with swords” and sings repeatedly and, well, repetitively, that “I got what I was asking for.” Naturally, a bevy of scantily clad iron maidens swish their weaponry behind him in a Busby Berkeley-style cavalcade.

When I typed the same thing in, I thankfully got a lot less, although the link to a video of a “Hot Asian Female Assassin” looked promisingly awful.

All joking aside, it’s another strange chapter for the also-ran Ask, which has apparently lost its marketing mind after it killed off Jeeves the Butler a while back. This TV ad comes after the viral (and still continuing) campaign centering around the “Algorithm,” wherein billboards declared menacingly “The Algorithm was banned in China,” inexplicably “The Algorithm consistently finds Jesus,” annoyingly “The Algorithm is from New Jersey” and just plain offensively “The Unabomber hates the Algorithm.”

That’s too bad, as any new upgrade of a search engine, which Digital Daily’s John Paczkowski wrote about here, has to be a good thing. While I will leave the reviewing of the new interface of Ask (called Ask 3D) to folks like Walt, one of the things that struck me from most of the people onstage at the D5 conference last week was that everyone talked about the evolution of search and how it has to change. Hopefully, we all don’t have to wait until the mandarins of Google decide to do something about improving the search experience when it pleases them.

In any case, I think most feel that search is still in its Neanderthal stages and that some years hence we will all laugh at the pages we now find valuable and useful, somewhat like looking back now at clunky early versions of AOL or Yahoo (pictured here).

Speaking of Yahoo, instead of creating insane commercials, of course, another tack is redefining the subject. That’s what Tapan Bhat, vice president of Front Doors, Yahoo’s personalized home page, did when he spoke this week at a conference in Europe. “Search is no longer the dominant paradigm,” said Bhat. “The future of the Web is about personalization.”

We’ll see, but until then, we’ll apparently have to bring on the dancing girls (the Ask commercial below was uploaded to YouTube by TechCrunch):

Please see this disclosure related to me and Google.