Where before, Google had listed nine people as executive officers, now it only has six, cutting out Shona Brown, Alan Eustace, and Jonathan Rosenberg. What happened to those three? Long-time head of product management Rosenberg is leaving the company; Eustace is now head of “Knowledge,” a.k.a. search, on par with six other “core product area” SVPs; and Brown is now in charge of Google.org.

By the way, none of those changes have actually been announced by Google, though when asked, the company has confirmed they have indeed happened.

That leaves the following:

Larry Page, CEO
Eric E. Schmidt, Executive Chairman
Sergey Brin, co-founder
Nikesh Arora, Senior Vice President and Chief Business Officer
David C. Drummond, Senior Vice President, Corporate Development and Chief Legal Officer
Patrick Pichette, Senior Vice President and Chief Financial Officer

Sure, we’re obsessing about a single, mostly static Web page, but what makes these deletions more remarkable is that prior to a major clean-up last year, the management page had something like 70 people on it (here it is on the Wayback Machine).

Meanwhile, a related corporate timeline that diligently lists Google’s launches and other accomplishments hasn’t been updated since Sept. 2010.

But this seems to be the way of the new Larry Page regime: offering less information, not more.

In an exceedingly calm voice, Page said he is “very excited about Google and our momentum,” adding his new team has “really hit the ground running,” with the changeover from long-time CEO Eric Schmidt “working very well, exactly as we have planned.”

Then CFO and SVP Patrick Pichette took control, accompanied by SVP of Advertising Susan Wojcicki and SVP of Commerce and Local Jeff Huber, as well as SVP and Chief Business Officer Nikesh Arora piping up for the Q&A.

Wojcicki and Huber were recently promoted as part of Page’s inaugural management reorganization. The two have been invited to speak on earnings calls before, appearing on the line-up for the Q1 2010 call.

Earnings call regular Jonathan Rosenberg, who is leaving the company, did not participate.

Earnings call ringleader Pichette remains CFO, and Page expanded his role to include human resources and business operations.

Larry Page kicked off his reign as Google CEO last week by reshuffling his management ranks.

This week’s news event: His first formal solo sit-down with Wall Street, during Google’s Q1 earnings call this afternoon.

Page won’t be expected to carry the full weight of the call: His predecessor Eric Schmidt usually handed over much of the event to his lieutenants, and there’s no reason to think Page will handle things differently. (Though one of the calls’ primary participants, product boss Jonathan Rosenberg, announced his retirement on Page’s first day.)

In fact, Schmidt was AWOL entirely for Google’s last few earnings calls, a move that Google said was supposed to allow analysts to focus their full attention on the company’s performance. (And in retrospect, that decision seems a little more freighted. But whatever.)

In any case, analysts and the Twittering classes will still be very interested to see how Page handles himself during the call. They’ll also be interested in any directional hints Page makes about Google’s plans. Like, for instance: What’s up with social, which Page doesn’t seem to enjoy himself but insists is crucial for the company’s future?

And, of course, Wall Street will want to hear about numbers, which in the end will matter much more than Page’s personal style. Analysts are expecting revenues of $6.32 billion and earnings of $8.13 per share, which really means they’ll be disappointed if Google doesn’t turn in results that are better than that.

It’s telling that Citigroup analyst Mark Mahaney’s note previewing today’s call has zero mention of Page or his management changes. Here’s Mahaney’s ever-helpful “cheat sheet” so you can get a detailed sense of what Wall Street wants; I’ll be back this afternoon to cover all of this live.

Until now, business operations has been managed by Shona Brown, who had also once run “People Operations,” as human resources is called at Google.

More recently, HR has been run by VP Laszlo Bock, who initially reported to Brown and later directly to former CEO Eric Schmidt.

He will now report to Pichette, sources said.

Brown will narrow her duties to leading Google’s philanthropic efforts, via Google.org. She takes over from new business development VP Megan Smith (please see disclosure below), who has run “Dot Org” on an interim basis as its general manager since the departure of its initial high-profile Executive Director Larry Brilliant in 2009.

Google declined to comment on personnel matters.

Brown has been with Google since 2003 (which was well after Larry 1.0; Eric Schmidt became CEO in 2001). Here’s how my colleague John Paczkowski described her role last week:

Before she came to Google, Brown spent a decade consulting for McKinsey and is widely credited with optimizing Google’s internal structure.

But Page is not a McKinsey guy and he’s obviously not a big fan of Google’s current management organization anymore.

That might not bode well for the legendarily sharp-elbowed Brown who most sources describe as highly strategic but also as extremely difficult to work with.

Still, if Page is tinkering with the way Google is organized, Brown might also be the one he turns to to find a new structure.

That said, he seems to be fine doing it on his own and some suggest Brown will move to another role within the company rather than leaving.

Not all agree.

Said one source: “I wouldn’t be shocked to see Shona go. Frankly, I’m surprised she survived as long as she did, but then I didn’t think Rosenberg would last this long either.”

But, said another about Brown, who has previously taken time off from Google and returned: “I’d never count Shona out.”

Page’s big reorg aims to make the 12-year-old company he co-founded faster and more innovative to fend off the stagnation of middle age. The first step was removing long-time product chief Jonathan Rosenberg, followed by the elevation of seven long-time product leaders to senior vice president of their respective domains: Sundar Pichai (Chrome), Vic Gundotra (social), Andy Rubin (mobile), Salar Kamangar (YouTube), Alan Eustace (search), Susan Wojcicki (ads) and Jeff Huber (local and commerce).

And as for the newest big winner, Patrick Pichette? Unlike many of the others in Page’s inner circle, Pichette is a more recent Googler. After spending seven years at Bell Canada, Pichette replaced the retiring George Reyes in 2008.

Pichette has been a regular presence on Google quarterly earnings calls, the next of which is this Thursday at 1:30 PT. While whatever Google did in the first quarter of 2011 was surely interesting, the call should be the first public comment on the new Page regime. It will be a big test for Page, who notoriously loathes the public eye.

Meanwhile, Google’s management bio page should be sent packing to the Internet Archive any day now.

While it’s only a week out of date–my, how things have changed.

(Full disclosure: Smith is married to All Things Digital Co-Executive Editor Kara Swisher.)

Things are sure shaking over at Google, since the sudden departure on Monday of Jonathan Rosenberg, Google’s head of product management and one of its most senior executives.

While his exit was portrayed as friendly all around, sources with knowledge of the dicey situation said that was definitely not the case.

Instead, moving aside Rosenberg was newly installed CEO and Co-founder Larry Page’s first parry at remaking the search giant in his own image.

Moving management chairs around is one of the tried-and-true way new leaders often try to effect that kind of dramatic change and several sources said Page has been tossing them about rather than just rearranging them.

That was certainly clear in last night’s knighting of six new SVP titles upon a group of execs, all very close to Page.

The promoted in new business units: Sundar Pichai, SVP of Chrome; Vic Gundotra, SVP of social; Andy Rubin SVP of mobile; Salar Kamangar SVP of YouTube and video; Alan Eustace SVP of search; Susan Wojcicki SVP of ads.

Of them, Eustace was previously an SVP, in charge of engineering and research, and Wojcicki had recently held the title SVP of product management.

It’s all the next step in Page’s overhauling the company’s management structure, as I reported in this column earlier this week was in the works.

As I wrote:

The main theme that seems to be emerging: An elimination of Google’s more centralized functional structure–where Rosenberg was one of several manager kingpins–to one in which the individual business units and their engineers, such as its most independent Android division, rule more autonomously.

Reimagined like this, Google would become an ambidextrous organization with more powerful unit line execs, mostly engineers, doing what needs to be done to succeed, less burdened by the need to vet every little effort through various managers of Google’s powerful operating committee.

This, of course, brings into focus that fates of several other SVPs on the formal management structure list on Google’s Web site and still serving on that OC.

Leaving Eustace off, since he has a new SVP title, they are: Nikesh Arora, SVP and Chief Business Officer; David Drummond SVP, Corporate Development, and Chief Legal Officer; Shona Brown, SVP, Business Operations; and Patrick Pichette, SVP and Chief Financial Officer.

How their roles evolve or do not–all might stay as is, of course–will be the next interesting part of what I am calling PageYank:

Nikesh Arora:

In a widely read column earlier this week, investing gadfly Eric Jackson argued that Arora is probably the most vulnerable of all the senior executives at the company.

The high-profile Arora is well known both inside and outside the company as both highly ambitious and consistently pugnacious.

While that is not necessarily a bad thing to be, that style has garnered him some criticism and he is often referred to as “Darth Vader” among detractors (and even some supporters).

Still, Arora has been a consistent producer of results over his tenure, which might be all that matters. In fact, it might also make him an attractive candidate for a CEO job outside Google.

But, perhaps most important right now though, is that Arora is “definitely not part of Larry’s inner circle,” said one source, adding “and that’s a very important place to be right now.”

Incidentally, that inner circle currently seems to consist of many of those promoted last night–Kamangar, Rubin, Pichai and Gundotra–as well as search leads Udi Manber and Amit Singhal and, of course, Co-founder Sergey Brin.

And not, it seems, Arora.

David Drummond:

With Kent Walker recently promoted to an SVP title, along with being Google’s general counsel, does the company need a Chief Legal Officer or does it need to winnow down another layer of management?

As one source told me, “Why do you need a Drummond, when you’ve got a Walker?” It’s a fair point.

While also in charge of both public policy and corporate development, Drummond has been known more for benign absence at Google than for aggressive presence.

Some also suggest that the affable exec, who has been at Google since early on and is presumably very wealthy, might also not want to sign up for the long-term commitment that Page now expects of his top managers.

Shona Brown:

Before she came to Google, Brown spent a decade consulting for McKinsey and is widely credited with optimizing Google’s internal structure.

But Page is not a McKinsey guy and he’s obviously not a big fan of Google’s current management organization anymore.

That might not bode well for the legendarily sharp-elbowed Brown who most sources describe as highly strategic but also as extremely difficult to work with.

Still, if Page is tinkering with the way Google is organized, Brown might also be the one he turns to find a new structure.

That said, he seems to be fine doing it on his own and some suggest Brown will move to another role within the company rather than leaving.

Not all agree.

Said one source: “I wouldn’t be shocked to see Shona go. Frankly, I’m surprised she survived as long as she did, but then I didn’t think Rosenberg would last this long either.”

But, said another about Brown, who has previously taken time off from Google and returned: “I’d never count Shona out.”

Patrick Pichette:

He’s not going anywhere, as far as I can tell. The friendly and erudite Pichette is widely admired at the company and by Page–the most important admirer of all at Google these days.

He’s also been a smart and stable presence on earnings calls and does a job with Wall Street analysts and investors that Page is pretty much uninterested in and–more to the point–completely incapable of doing well.

Let’s be honest about the socially awkward CEO: Page’s frequently prickly and robotic style makes Facebook’s Mark Zuckerberg look like Cary Grant.

Pichette stays.

As for everyone else, as Page reaches even further down into the organization at Google, it will be interesting to see where the next chair will fall.

One thing is clearest of all: Page is positioning himself as the centerpoint of the entire company.

Because make no mistake, these new autonomous divisions all report to him, in a system that mimics Apple and its legendary leader Steve Jobs.

A tough act to follow, to be sure.

PREVIOUSLY:

• Google’s Page Begins Major Reorg: Engineers, Not Managers, In Charge
• Product Chief Jonathan Rosenberg to Leave Google
• Larry Page as CEO: Steve Jobs or Jerry Yang?

A spokesperson for Google confirmed the reorganization and called it a formalization of what had been anticipated since earlier this year when Page started rethinking and taking over Google’s business.

DigitalDaily’s John Paczkowski had written as much in a story earlier this week. The Los Angeles Times is also reporting the reorganization.

The six promoted executives replace Jonathan Rosenberg, the SVP of product management who announced he was leaving the company this week. Of them, Eustace was previously an SVP, in charge of engineering and research, and Wojcicki had recently held the title SVP of product management.

In a bid to revitalize the company, Page has placed himself in a hands-on role at the center of the organization. Each business unit is set up to run as its own independent start-up, as an alternative to the more horizontal division of labor under Rosenberg and former CEO Eric Schmidt.

The Google spokesperson declined to comment on what the shake-up implied for other current top executives, which include Nikesh Arora, Shona Brown, David Drummond and Patrick Pichette.

According to a source who was present for festivities celebrating the promotions today, spirits and expectations are running high. Which makes sense, because it was a party.

Update: Google clarified that it is calling the teams “core product areas” rather than “business units,” as we had originally stated.

Jonathan Rosenberg said his resignation from Google yesterday was precipitated by Larry Page’s return as CEO, but unrelated to Page’s effort to restore the urgency of innovation and nimbleness that was once the company’s hallmark.

And that may well be the case.

Certainly, Rosenberg has been crucial to Google’s success, so his exit has come as a shock to pretty much everyone to whom I’ve spoken.

That said, its timing seems quite convenient, particularly in relationship to what looks very much like a significant reorg that is currently underway at Google, said sources familiar with the situation.

Note first that Rosenberg’s replacement wasn’t immediately named and it’s not clear whether Page even feels one is needed.

But sources close to the company tell me it is likely to be much more than just Rosenberg’s departure.

The main theme that seems to be emerging: An elimination of Google’s more centralized functional structure–where Rosenberg was one of several manager kingpins–to one in which the individual business units and their engineers, such as its most independent Android division, rule more autonomously.

Reimagined like this, Google would become an ambidextrous organization with more powerful unit line execs, mostly engineers, doing what needs to be done to succeed, less burdened by the need to vet every little effort through various managers of Google’s powerful operating committee.

And that might mean fewer of those centralized execs–which raises the question of which general manager is next to go, whether on their own volition or not.

There is much speculation within Google about this, and it will surely increase now with the departure of Rosenberg.

The up and down fate of certain execs will be important signs of what’s coming, especially that of Chief Business Officer Nikesh Arora, Business Operations SVP Shona Brown and David Drummond, SVP of corporate development and chief legal officer.

So too the execs running business units at Google. Even now, for example, YouTube operates somewhat independently from the main part of Google. The question is, can such an engineering-driven structure be applied to local, social, commerce and more?

The goal, of course, is laudable–for Google to have significantly less bureaucracy and a more consistent stream of innovation.

But is this a good idea?

Looking at the company’s Android unit, the answer would appear to be a resounding yes. Under Andy Rubin, the Android team has developed its own structure and processes and it’s excelling in the market. Google’s role here is more nurturing parent than anything else. In other words, it’s supporting innovation, not micromanaging it.

That jibes well with Page’s push to whittle down Google’s manager bureaucracy, eliminate politicking and rekindle its start-up spirit.

And it also offers the added benefit of making him the centerpoint of the entire company.

Because make no mistake, these autonomous divisions under discussion would all have one thing in common: Larry Page.

In other words: He’s the CEO, functionary!

In essence, he would be their Lord High Engineer (and Executioner, in all senses) and their connection to the rest of the organization.

Which puts him in a very Steve Jobsian position, in which he’s the company’s one true arbiter.

That’s worked out well for Apple, but its culture is very different from Google’s. And Page and Jobs are as dissimilar as they come.

That said, if Page’s vision of a new, ambidextrous Google fosters the same sort of incremental and radical innovations we’ve seen come out of Apple in the past decade, that would probably be a good change.

Because change is just what Google so needs–and it seems it has begun.

A shocking departure. Curiously timed one, too. Why leave now?

Evidently Page has been asking Google’s executive committee to make long term, multiyear commitments to remain at the company and Rosenberg didn’t feel he could oblige. His plan had always been to leave Google when his kids neared college age. And he’s decided not to deviate from it. Given Page’s plan to revitalize Google and return it to its start-up roots, Rosenberg felt he owed it to him to move on now. Better to get the transition out of the way as Page works to recast the company than embark on it when the process is well under way.

“I think I’ve done the things that I set out to do,” Rosenberg told The Mercury News. “My focus has been on building a great team, and hiring the best people in the world. I think I’ve also been very focused in studying the manner in which we manage at Google, and working very hard on developing the next set of Google management talent. We’re obviously going through a transition here; Larry is stepping into the role of CEO. And I think it was important to him that he establish and build around an executive team that intended to be here for many, many years.”

Page praised Rosenberg’s legacy, one highlight of which was his 2009 companywide email titled “The Meaning of Open.” “We tried to hire Jonathan multiple times because he was the only person we could imagine doing the job,” he said. “It’s lucky we were so persistent because he’s built an amazing team–hiring great people who’ve created amazing products that have benefited over a billion users around the world.”

And freshly departed CEO Eric Schmidt, with whom Rosenberg plans to write a book, joined in: “Jonathan is phenomenal–hugely energetic, strategic, a man of real principle who always puts the user first. He’s been crucial to our success over the last nine years and I cannot thank him enough for everything he’s done. It’s been wonderful working with him–and great fun.”

Rosenberg plans to stay at Google through the summer, then do some consulting for the company after that.

The street is looking for revenue to jump more than 20 percent, and profits to grow at just a slightly smaller pace. If you’re a bottom-line person, the consensus calls for net revenue of $6.05 billion and earnings of $8.07 a share (or more–some “consensus” numbers I’ve seen go as high as $6.06 billion and $8.09 a share).

Those numbers reflect the strength of Google’s core search business, but as usual, Wall Street would also like to hear about mobile, video and display ads.

And, as usual, it shouldn’t expect much: Last quarter Google made a big point about unveiling a few limited metrics for those businesses. But they were…limited.

Still, it’s always worth listening to Google’s call, which I’ll be doing this afternoon. Check back then for a link to live coverage.

And who knows, the Google guys might tip their hand! Last quarter, analysts asked what the company thought about daily deal sites like Groupon, and product SVP Jonathan Rosenberg allowed that the industry was “a very exciting and hot space.” Turns out it was $6 billion–but not more–worth of exciting!

And as always, here’s the helpful “cheat sheet” that Citigroup’s Mark Mahaney thoughtfully provides. Click to enlarge:

Pichai, who is Google’s VP of product management in charge of Chrome and Chrome OS, had been Twitter’s top pick after longtime VP of product Jason Goldman stepped down last month, as NetworkEffect reported last week.

Suffering from employee departures for companies like Facebook or their own start-up efforts, the search giant seems to have been able in this instance to persuade its talent to stay put.

While I haven’t been able to nail down what exactly Google paid to keep Pichai, it was apparently a significant increase to his previous compensation package. Google declined to comment on the matter.

Stories of Google paying millions of dollars to keep key employees are not uncommon these days. And Pichai is said to be particularly valued by Google CEO Eric Schmidt and SVP of Product Management Jonathan Rosenberg.

Meanwhile, Twitter–which has many product leaders within the company, including co-founder and former CEO Evan Williams–will continue its search for one product VP to rule them all.

Here are the three data points that the search giant showed off during its earnings call this afternoon. All of them “begin with the letter B,” as product SVP Google Jonathan Rosenberg noted, and all of them come with caveats:

• $2.5 billion: Non-text display ad revenue run rate. That number includes ads from its DoubleClick unit as well as YouTube.
• 2 billion: YouTube monetized views per week.
• $1 billion: Mobile annualized revenue run rate.

All of those seem big–and they are! But they’re also deliberately fuzzy enough that it’s hard to tell exactly what they mean.

For instance: As Henry Blodget notes, those display-ad dollars are gross revenue, which means that Google only keeps a portion of them. And while that two billion YouTube views number is up from a billion a year ago, it’s proportionally the same: A year ago YouTube said it was monetizing a billion views a week while serving up a billion views a day; now the video site says two billion views a week and two billion a day.

Meanwhile Google officials, who routinely announce that YouTube is close to profitability, refused to tell analysts whether YouTube is actually profitable.

No matter! The point of b-as-in-big numbers was to impress Wall Street with Google’s ability to create new revenue streams beyond its core search ads. And the data, along with the company’s impressive Q3 performance, seems to have worked: Shares are up nine percent in after-hours trading.

——————

EARLIER

There’s the beat Wall Street was looking for. Google reports earnings of $7.67 a share and net revenues of $5.48 billion. The consensus was for $6.67 and $5.25 billion. GAAP EPS was $6.72.

Google (GOOG) has been plowing money into capital expenditures and people–it now has 23,300 employees, up from 21,800  months ago, a 6.8 percent increase–but it has been able to keep operating income quite healthy, anyway. Adjusted operating income was $2.93 billion, well above the $2.77 billion consensus.

GOOG is up considerably, now seven percent, in after-hours trading. Robot cars for all!

You can listen to (and watch) Google’s 4:30 pm ET earnings call by clicking on this YouTube link. I’ll add updates from the earnings call occasionally starting here:

As in recent quarters, CEO Eric Schmidt is sitting this one out.

CFO Patrick Pichette starts off. Aha! Teases that “we may have” Schmidt available for the first 30 minutes of Q&A before he gets on a GooglePlane.

300 of those new 1,500 employees came from acquisitions.

Discussion of “long-term” growth–”the next 5 to 10 years.” “Simply put, we’re on this growth agenda at full throttle…investing heavily in people and in product.”

There’s a “war for talent” in our industry, which is “out of synch” with the broader economy. Currently exploring how to attract and retain people. Winners and losers determined by this battle.

Re: Product investment, which you’ll hear about from product SVP Jonathan Rosenberg. He’s going to tell you about some numbers, but don’t expect to hear an update on these–they’re merely “proof points” about Google’s success.

Here’s Rosenberg, teasing new previously unreleased numbers.

Here they come. Starting with search and Google Instant:

Impact has been “very minimal” on revenue and “quite expensive” from a resource perspective.

But! “We launched it because we could.”

As search gets better, ads have to keep pace. Great momentum with AdWords.

New ad formats appear on more than 10 percent of query. Some formats show clickthrough rates as much as 10 percent on some, up 30 percent in others.

Big numbers, “which all begin with the letter B.”

$2.5 billion: Non-text display ad revenue run rate. That includes DoubleClick, YouTube.

2 billion: YouTube monetized views per week

$1 billion: Mobile annualized run rate

Mobile search queries up 5 times in the last few years.

Back to Pichette, to tamp down numbers.

In some cases, there is overlap with numbers. For instance, with AdMob, numbers counted in both display and mobile.

Time for Q&A, Schmidt is now on the line.

Schmidt says query growth is pushing click growth, and so are new ad formats. Ads are more compelling, etc.

Pichette notes that AdX numbers are included in the $2.5B display total.

Q: Please talk about YouTube. Of the two billion monetized views, what percent is that of total views? And are you profitable yet?

Pichette: Re: Profitability, “We have not made any comments on it.” [Except of course when they do, over and over.]

Rosenberg: Note that we’ve said we do two billion views per day–that will give you context.

Sorry, missed a Q.

Schmidt says growth of Android is “well past what I had ever hoped for.”

90,000 apps on Android “and growing very fast.”

Question about “proprietary benefits” of Android.

Schmidt: Android is the “largest single platform play” in mobile today.

We’re growing it by giving software away. How does that help us? Well, for starters, people who use Android search two times more than anyone else. Obvious benefit for us there, and search is more lucrative for us there as well, and that makes Android “hugely profitable.”

And we can add other value-added services to Android, but that’s not the focus right now.

Questions on cost: Cost per employee has declined. Can you continue that? And on mobile, will you stay with the “indirect monetization” Android strategy?

Pichette: Wouldn’t read anything into the cost-per-employee numbers. But we’re continuing to be frugal and generous.

Ad boss Nikesh Arora: We’re excited about the revenue model we have. We have no reason to change the model we have with Android.

Schmidt: And display will become a very big component of mobile.

Q: On display, can you break out YouTube and AdX numbers? And what do you think of competitive Android marketplaces?

Pichette: No breakout of numbers. [Duh.]

Schmidt: Goal of the app store is to make money for developers. Not a revenue goal for Google. More stores are a “win for everybody.”

Question about CPC on mobile devices. Rosenberg: They’re lower than desktop, because there aren’t many practical ways to consumate transaction. But on the iPad, activity looks a little bit more like it does on a PC, because there’s more room to enter credit card numbers, etc.

Q: Please discuss cannibalization between smartphone and PC–are iPad and tablet searches incremental or cannibalization? And can you give us color on international 26 percent growth?

Rosenberg: We don’t see cannibalization. We see mobile as complimentary to desktop. Different use patterns–mobile search is on weekends, during lunchtime, etc.

Arora: Generally, trend positive across the board. U.K. a bit weaker, but some of that is FX. Southern Europe way better than Northern. Asian markets robust.

Q: Competitors make $300 profit per handset sold over the lifetime of a device.You’re approaching this with a different model, but do you think that’s an upper limit on that number?

Schmidt: Our model is that handset makers and manufacturers make a lot of money from the phone, and we make money from advertising. So can’t compare the two, and premature for us to guess what we can do. “It should be highly lucrative” and a “very very strong revenue stream compared to a PC.”

Q: On social search. How do you “capture the signal” without access to the data feeds, as you have with Twitter.

Schmidt: “There are some ways we can do that” now, and we’re working on new ways.

Sorry, stepped out. Back now.

Q: TAC rate seems to be lowest since IPO. Sustainable? Growth has been driven by volume, not price. Sustainable, and/or will pricing increase going forward?

Pichette: MySpace deal is now over. That saved us a bunch of money. And mix of our partners will effect our TAC. That’s about it.

Rosenberg: Can’t answer volume/price question without “being forward-looking.” [Heh]

Q: Microsoft/Facebook deal was exclusive. But do you think you’ll see exclusive data deals? And what about Groupon, etc.? Can you compete there?

A: Value of exclusive data is “swamped” by “vastness” of the Web. So no concern there.

Schmidt: Always a concern that large chunks of data are not accessible to search engines….long pause… up to the content owner to decide how much to expose. We believe the world is better off if more information is searchable. “We fundamentally believe that.”

Rosenberg: Daily deals are very exciting. “A lot of small companies doing a fabulous job there.” We participate a little bit via sitelinks. But no question “that’s a very exciting and hot space.”

Q: When will Google Instant be on the BlackBerry or iPhone? What’s Android activation rate? And why not let advertisers bid directly on mobile inventory?

Rosenberg: Instant availability on other platforms “relatively soon”–probably this fall.

Not updating Android activation numbers.

Q: Given that non-core search is more material, do you think you’ll keep allocating resources with your 70-10-10 model? And when do you anticipate mobile overtaking desktop?

Schmidt: On mobile vs. display: Even if we knew I don’t think we’d talk about it.

On core vs. emergent: We talk about this all the time. Depends. Android is very small, and growing fast, so they get all the resources they need. We end up still at 70-10-10, but that’s not really a formula for us.

Pichette: What really matters the most to us is as Eric says, “When you see a hockey stick, pour gasoline on that fire.”

Q: Big-picture data question: What does Google think about leveraging user data to better target ads (see Facebook, Yahoo, etc.)–particularly with search data and display?

Schmidt: “We have a pretty strong opinion that we’re not going to do very much of it.” We’re intensely serious about privacy.

So “we’re not going to do the kinds of things that we could do with it… without your explicit permission. And in many cases we probably won’t do it forever.”

A question on display, which I’ve missed but will have to return to.

Pichette wraps things up. Today’s data points “are not about giving you information” for coming quarters, but to give you confidence that we’re building long-term businesses.

Call ends.

Mark Mahaney’s cheat sheet will help you decipher the numbers:

With the news that a Hollywood production company is working on a movie about Google, based on the nonfiction book “Googled: The End of the World as We Know It” by Ken Auletta, BoomTown has been noodling on which actors would be good to cast in the various roles of the top players.

While the Google film isn’t as juicy as the film about Facebook–“The Social Network,” coming out this fall (and, par for the course, the social networking site beats the search giant to the big screen!)–there is plenty of opportunity to bring a little glamour to the Googleplex.

While not a casting director by trade, but having actually covered the Google (GOOG) geeks off and on since its earliest days, I feel that I might have nailed the casting, below, for a smattering of the more-visible execs from the company, then and now.

I could not get to everyone–no Silicon Valley frenemies at Apple (AAPL), no VCs, no giant parade of former Googlers now at Facebook–but please feel free to add your own suggestions.

Thus:

CEO Eric Schmidt/Philip Seymour Hoffman (uncanny!):

Co-founder and President, Products Larry Page/Zachary Quinto (keeping the Spock ears):

Co-founder and President, Technology Sergey Brin/Tom Cruise (in crazy jumping mode):

SVP, Product Management Jonathan Rosenberg/Jim Carrey (need we say more?):

SVP, Corporate Development and Chief Legal Officer David Drummond/Denzel Washington (even more uncanny!):

VP, Search Products & User Experience Marissa Mayer/Reese Witherspoon (separated at birth, right?):

VP, Product Management Susan Wojcicki/Maggie Gyllenhaal (because, let’s be frank, both deserve more notice):

VP, Engineering Andy Rubin/Dick Costolo (he’s not an actor, but he plays one at Twitter; also uncannily uncanny!):

VP, Engineering Vic Gundotra/Stewie Griffin (pretend the gun is a smartphone and it will all make sense):

Please see this disclosure related to me and Google. (And I will leave the casting of Megan to others, although I did lob in a call to Angelina Jolie’s people.)

BoomTown liveblogged Google’s earnings call this afternoon.

Earlier today, Google (GOOG) beat Wall Street’s expectations in its first-quarter earnings, signaling that online advertising spending is back on track.

Here we go:

1:30 pm PT: Investor lady went over investor stuff. Zzzz.

1:33 pm: First up: Patrick Pichette, CFO of Google, whose delightful French accent livened up what was an almost entirely newsless event.

In fact, it turned out that the biggest news was changes in how Google presents its earnings calls going forward: No more CEO Eric Schmidt!

Instead, it will be Pichette from here on out, along with sidekick and head products dude Jonathan Rosenberg. Who was not around today, so top Google execs Susan Wojcicki and Jeff Huber filled in.

Also making an appearance, Nikesh Arora, president of Global Sales Operations and Business Development.

Thus, a parade of Google execs replaced Schmidt–all of whom said as little as he used to!

Pichette went through the numbers–lots and lots of them.

“Very strong performance, across the board, in terms of revenue,” he concluded.

1:44 pm: Next up, Wojcicki–fun fact about the VP of Product Management: Google was started in her garage–talking about improvements to ad search results.

They are going to get fat and detailed, apparently, with all kinds of stuff attached to them.

“The idea is for them to be more useful and therefore more high performing,” she said.

In display, Wojcicki said there was “very strong momentum.” More DoubleClick integration, more analytics.

Mobile: “Doing very well.” (I look forward to the first analyst question about its regulatory approval problem with Google’s $750 million AdMob acquisition.)

There will be an ability to “call through” on ads in smartphones, which sounds kind of cool.

1:51 pm: Next, it was Huber’s turn. He is SVP of Engineering.

He started with mobile and geolocation features Google is working on, some of which sounded a bit stalkerish. To the all-seeing eye of Google, they are fabulous, of course.

Its Android and Chrome operating systems are growing, Huber said, noting that there are now 34 Android devices.

Take that, Apple!–which has but one (which is doing pretty well on its own, Huber declined to add).

1:55 pm: Arora joined the call with the others for Q&A.

Questions about international advertising. All was well, said both Pichette and Arora.

Next question was about the percentage of revenue from enterprise and mobile. Also what up with Nexus One?

Pichette was not saying, of course, as that information would be useful.

Also no data on the profits of Nexus one, which Pichette noted was indeed profitable. But Google wasn’t saying how much! More non-news.

Finally, a good question about whether Google will remain on Apple (AAPL) products–given growing corporate rivalry between the two–and why the heck Schmidt is not on the call anymore and whether there is more to it.

Pichette became slightly agitated about the CEO question.

Eric has been everywhere! Abu Dhabi! Washington, D.C.! Jetting around on the GooglePlane like it was nobody’s business!

“It does not mean that Eric is not available,” said Pichette, explaining that the move is simply a question of “streamlining.”

Huber declined to comment about Apple, of course!

But, blood in the water: What’s up with Facebook competition?

This is a true oucher for Google internally, with execs quite concerned about the social networking site’s growth, even if Huber did not admit it and called it “not a significant issue.”

Translation: It’s significant.

2:04 pm Back to the sleepy questions on marketing and how the company feels about upcoming quarters compared with previous ones.

Hey, the colorful letters of Google and Googley goodness are just not cutting it anymore! You need some pretty ads! You have to promote! After all, Google has actual products now, like the Nexus One.

The next questions were on the number of Nexus One phones sold and, finally, on China.

Huber was not disclosing! If there were a badillion devices sold, you know he would, of course.

Pichette took the China question.

“This was a tough situation, but we really think we made the right decision,” he said, noting that the company is kind of still in China from Hong Kong.

Well, not really, but it was the right decision.

2:10 pm: Another good question on the News Corp. (NWS) deal and the AdMob situation.

Pichette pointed out the the mobile ad market is “nascent,” naturally noting that Apple announced its recently announced iAd network.

In other words, let’s keep pointing to what Apple is up to to save our bacon with the government.

“Google wants every partner,” said Pichette about renewing the deal over MySpace, but added that economics have changed since the first one was done with the then-hot-and-now-not social networking site.

Translation: Don’t expect a big check, Rupert Murdoch!

More in-the-weeds questions, which provided some insight, but not much.

2:28 pm: Another China question about whether serving its results from Hong Kong is sustainable.

Yes, said Pichette.

More about search advertising innovations and targeting. Google is all over it, said Wojcicki in many, many, many more words.

This line of questioning continued until someone asked whether the reported tensions between Schmidt and co-founder Sergey Brin over China are behind his absence.

Juicy, but completely ridonkulous.

“Non,” laughed Pichette, answering in a jaunty way.

The lack of Schmidt, he added, was not a negative, but part of a review of stuff Google could do better. In fact, it was an innovation!

Mais oui or mais non, it was the most interesting news of the day.

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.

Reporting third-quarter results after market close Thursday, Google (GOOG) topped estimates, posting net income that rose to $1.64 billion, or $5.13 a share, from $1.29 billion, or $4.06 a share in the same period last year. Net revenue for the period ended in September rose nearly one percent to $4.38 billion. Excluding items, earnings for the quarter were $5.89 a share. Consensus estimates had been calling for $5.42 a share and $4.24 billion in net revenue. The chart below shows revenue sources within Google (click to enlarge).

Impressive. Seems paid clicks grew 14 percent compared to the same period last year, and four percent compared to the prior period. Cost per click was down six percent year over year, but up five percent sequentially.

“Google had a strong quarter–we saw seven percent year-over-year revenue growth despite the tough economic conditions,” said CEO Eric Schmidt. “While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future.”

Good to hear. Google’s shares, which have already risen more than 50 percent in the past six months, are on another upward tear. They rose 1.82 percent to $539.27 on the news in after-hours trading.

Earnings call highlights via The Wall Street Journal’s Andrew LaVallee:

4:32: Call starts. The cast is the same as last quarter: Mr. Schmidt, CEO; Patrick Pichette, CFO; Jonathan Rosenberg, SVP of product management; and for the first time, Nikesh Arora, president of global sales operations and business development. But there’s a twist–they’ll be using Google’s moderator to vet questions with voters. They vote on “the most relevant questions,” which go to the Google execs, the operator says.

4:35: “While there’s obviously a lot of uncertainty about the pace of the economic recovery, we believe the worst of the recession is behind us,” Schmidt says.

He adds that Google now has the confidence to invest “heavily” in its future. “It’s all good news from our perspective, at least in looking at the quarter.”

4:37: Says “we want to really get to the perfect search engine” and that many advertisers would like to spend more with Google if the company’s product allow them to do that.

4:38: Schmidt says “we’re open for business in making strategic acquisitions, both large and small.”

4:39: It’s Pichette’s turn. “At a high level, we’re very pleased with our Q3 results,” he says. The quarter benefited from growth in AdSense for content and display initiatives.

4:41: U.S. revenue up 4% to $2.8 billion. U.K. revenue decline affected by foreign exchange as well as ongoing macroeconomic weakness, Pichette says.

4:42: Operating expenses rose from the prior quarter, mostly due to payroll, equipment and facilities-related expenses.

“We believe the worst of the recession is behind us,” he says.

4:44: Brazil was a standout in Latin America, Arora says. We’re beginning to see signs of recovery in Europe and Africa, particularly Spain. In Asia, China performed strongly as an emerging market.

4:46: Looking at the display-advertising business, those have also shown strong results, he says.

On YouTube, new advertisers and partners are helping with monetization efforts. Ninety percent of the top 50 advertisers have run YouTube campaigns with successful results–recent examples include McDonald’s and Hewlett-Packard.

4:47: YouTube has signed deals with all four major record labels and several independent labels. Earlier today, Google announced a partnership with Channel 4 in the U.K., which will bring full-length programming to the video-sharing site.

4:48: Arora adds a personal shout-out to the sales team.

4:50: Rosenberg calls the new AdWords front-end one of the company’s biggest investments of the year. Advertisers have new reports, can run more efficient campaigns and can get new features faster thanks to the platform, he says.

Top line for Google’s Q2 earnings: Net revenue of $4.07 billion and earnings of $5.36. The Street was looking for net revenue of $4.05 billion and earnings of $5.05.

CEO Eric Schmidt isn’t overly effusive: “Google had a very good quarter, especially given the continued macro-economic downturn. While most of the world’s largest economies shrank, Google’s year-over-year revenues were up 3%. These results highlight the enduring strength of our business model and our responsible efforts to manage expenses in a way that puts us in a good position for the economic upturn, when it occurs.”

Meanwhile paid-click growth was up 15 percent, and the company continues to clamp down on expenses: Google’s headcount actually shrank in the last three months, from 20,164 to 19,786 full-time employees.

I’ll be listening in on the call and occasionally updating here.

• Schmidt: “Youtube is now on a trajectory we’re very pleased with.”
• “Too early to tell when the recovery will materialize.”
• CFO Patrick Pichette: Still hiring, but decrease in headcount came from previously announced layoffs.
• Product SVP Jonathan Rosenberg: We’re focusing more than ever on power users.
• Mobile monetization picked up, driven by smart phones. YouTube’s monetized views have tripled in the last year.
• Sales boss Nikesh Arora: Small advertisers have stayed consistent during downturn, and larger advertisers who have been on sidelines are coming back.
• Schmidt on Chrome OS: We’re talking to manufacturers about designing “products that are very, very exciting.” Will Chrome run on existing hardware? Available for download? Still to be worked out.
• Was June soft? Schmidt: We generally don’t parse interquarter trends. On YouTube: Monetizing “billions of views” per months. [Nothing approaching real numbers or real context].
• Arora: “Significant sellthrough” in markets where Google has YouTube homepage for sale. Next phase of YouTube sales emphasis will be preroll ads on short-form videos.
• Arora on YouTube “trajectory” comment: We’re excited about getting pieces in place to drive this forward [i.e., not talking about numbers]. Customers accepting YouTube ads: “It’s becoming accepted user behavior where they’re going to watch premium content that people have invested in, they’re going to watch pre-roll ads.”
• Is YouTube profitable? Pichette: We don’t give out economics. But in the not-too-distant future, we see it being very profitable.

Here again, per Citigroup’s Mark Mahaney, is a crib sheet for interpreting the results (click to enlarge):

And here are the slides from Google’s investor presentation:

2009Q2_google_earnings_slides –

Robert A. Eustace, SVP Engineering & Research: $1,376,000

Omid Kordestani, SVP Global Sales & Business Development: $1,376,000

Patrick Pichette, CFO: $1,244,000

George Reyes, former CFO: $675,000

Jonathan Rosenberg, SVP Product Management: $1,638,000

Larry Page, Sergey Brin, Eric Schmidt: $0

All fine payouts, to be sure (Larry, Sergey and Eric never take a cash bonus). But for the record, note that these do represent a small tick down from last year, when Eustace, Kordestani, Reyes and Rosenberg each got cash bonuses of $1,683,606. Then again, a year ago, GOOG was trading at $471; this morning it’s at $327 and change.

We should get full compensation info–including how much execs received as base salary and how much they got via stock grants and options awards–within the month when Google releases its annual proxy statement.

But! The company does have some free advice about how papers could help themselves. For instance–maybe they should overhaul their Web sites.

That’s what Google (GOOG) exec Jonathan Rosenberg suggests. In a novella-sized blog post–Rosenberg modestly calls it a “treatise”–published earlier this week, the senior vice president ruminates about, well, everything. As I said, it’s really long.

But Rosenberg does spend some time thinking about the ways newspapers can deliver a better online product (thanks to Slate.com for highlighting):

…the old-fashioned business model of bundled news, where the classifieds basically subsidized a lot of the high-quality reporting on the front page, has been thoroughly disrupted.

This is a problem, but since online journalism is still in its relative infancy it’s one that can be solved (we’re technology optimists, remember?). The experience of consuming news on the web today fails to take full advantage of the power of technology. It doesn’t understand what users want in order to give them what they need. When I go to a site like the New York Times or the San Jose Mercury, it should know what I am interested in and what has changed since my last visit. If I read the story on the US stimulus package only six hours ago, then just show me the updates the reporter has filed since then (and the most interesting responses from readers, bloggers, or other sources). If Thomas Friedman has filed a column since I last checked, tell me that on the front page. Beyond that, present to me a front page rich with interesting content selected by smart editors, customized based on my reading habits (tracked with my permission). Browsing a newspaper is rewarding and serendipitous, and doing it online should be even better. This will not by itself solve the newspapers’ business problems, but our heritage suggests that creating a superior user experience is the best place to start.”

If the Googlers are technology optimists, I’m a business skeptic–I think that the best place for newspapers to start is by cutting costs and generating more revenue. But maybe I’m missing something. Would a better-designed New York Times site make you more likely to, say, pay for a subscription to the New York Times? Let me know.

Google’s revenue, excluding traffic-acquisition costs, was $4.22 billion, above the Thomson Reuters estimate of $4.12 billion. Earnings per share, excluding certain items, was $5.10, beating estimates. The company also announced plans for an options exchange program for workers whose stock options are underwater.

Updates from its conference call with analysts:

4:33 p.m.–The host introduces today’s conference call participants: Google CEO Eric Schmidt, dialing in from New York; CFO Patrick Pichette and SVP of product management Jonathan Rosenberg, in Mountain View, Calif.; and Omid Kordestani, SVP of global sales and business development, in London.

Read the rest of this post

So while all the attention on who Microsoft is hunting next–after its latest parry at grabbing Yahoo’s search business was foiled once again–has settled on Time Warner’s AOL (see BoomTown’s post on that interest from Monday), it would be a mistake to assume that the software giant is not still aiming directly at Yahoo.

Why?

Because it must, and not only for the reason–to get control of its Yahoo’s #2 search business–that has been much focused on.

It’s also Yahoo’s (YHOO) strong display advertising business that Microsoft (MSFT) is clearly after.

It has been obvious that Microsoft needs to get hold of Yahoo’s search market share to even begin to compete with its archrival Google (GOOG) in the Web’s goose-that-laid-the-golden-egg search business.

But the future hope, according to numerous sources within the company, is to gain a foothold at Yahoo in order to someday take over its much more impressive and potentially more lucrative online display business, which includes ads like banners.

“This is not just about search,” said one source. “It is about scale in all aspects of a market that is going to be gigantic.”

In a way, it’s a reliable old Trojan Horse strategy, getting into Yahoo’s house in search and then moving onto display, an arena which many think will be the real moneymaker in the years ahead.

Right now, search rules in the online ad business, which totaled $21.2 billion in 2007, according to the Interactive Advertising Bureau.

Search advertising, which Google completely dominates, with Yahoo second and Microsoft third, accounts for 41 percent of that total.

Display accounts for 34 percent. In this space, Yahoo is king, while Google has been a minor player, despite its recent purchase of DoubleClick. Microsoft has been trying to muscle its way in too.

Many think the scaling and targeting technologies that are developing and that Google or Microsoft certainly can bring to the table–combined with the relationship business for which Yahoo is famous–is the next killer app to make display dominate.

Google, though it is trying to downplay its overall power of late, is aiming hard at doing in display what it has done in search, especially trying to use its powerful technology skills.

“We really feel we’re in a position to become the world’s largest display ads provider,” said Google’s SVP Jonathan Rosenberg in its first-quarter earnings call in April.

Obviously, Microsoft’s efforts in this arena would be greatly helped by being tightly integrated into Yahoo’s search business first.

So, while AOL’s (TWX) Platform A ad business is also attractive, it still only sits in the middle of the online ad food chain.

That’s why Microsoft is not likely to take its eyes off the real prize: Yahoo’s much tastier high-end display business.

Please see this disclosure related to me and Google.