Earlier:

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Twitter wants to replicate Google’s and Facebook’s advertising success, and in order to do that it will have to have a self-service ad platform, just like the big guys. It’s now testing out the service, which it wants to launch later this year, and MediaPost has a lengthy preview. Takeaways: The platform is designed to sell Promoted Tweets and Promoted Accounts; buyers can use both search keywords and users’ interests to target the ads.

He is the founder and chief executive of REMcloud, a startup that on Tuesday plans to formally launch a would-be social network based around stories people experience while they sleep. Like Twitter, users of the site post snatches of text, in this case brief accounts of what they dreamed.

The site, among other things, responds with an automated interpretation of each dream, based on the analysis of individual keywords in the text. That information comes from existing databases offered by Web companies, Muhota says. (Existing sites that focus on dream interpretation include Dream Central, DreamForth and Dreamanity).

A more unusual element of REMcloud, Muhota says, will be the interactions people have over dreams. Friends of a user, for example, can rate dreams the user posts or post their own interpretations of them. (Dreams can be posted publicly or limited to a circle of followers, Muhota says).

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The numbers are pretty striking:

It’s easy enough to figure out why this happening. Economies of scale mean the big guys can cater to price-conscious shoppers, and a crummy economy makes their marketing advantage over the little guys even more pronounced.

I’d argue that there’s a trepidation factor, too. I’ll admit that I’ve been wavering on buying a gadget in large part because the only place on the Web that sells it is the manufacturer’s site.  Amazon (AMZN) and Target (TGT) must know this, since they’ve bought the search keywords for the gizmo even though they don’t sell it. Sneaky.

Meanwhile, comScore says, overall online spending is up four percent this holiday season, running ahead of the tracking service’s prediction of a three percent bump.

The short version is that unlike its broadcast peers, CBS (CBS) has been reluctant to make many of its shows available on the Web because it worries that doing so cuts into its core TV business.

So while GE’s (GE) NBC Universal and News Corp.’s (NWS) Fox put Hulu together, CBS stayed away. And when Disney (DIS) decided to join the joint venture earlier this year, CBS executives argued strenuously against the deal. Instead, CBS has been content to use the Web as a promotional tool for TV via outlets like Google’s (GOOG) YouTube.

The longer version is below, via the transcript of a brief chat I had with Smith this afternoon to discuss his plans and the network’s. This is stuff he’s talked about before–to reporters, in industry forums, and even via emails he wishes he hadn’t written–but I’m running it at length here.

Because 1) I think Smith does a good job of explaining the push-and-pull of Web viewership vs. Web economics that everyone in big media is grappling with, and 2) I want people to see just how difficult it is to keep up when Smith talks. He can get out a lot of words in a relatively short time.

I also had a quick chat with CBS CEO Les Moonves, who made many of the points Smith did, but with less verbiage: I’ll get you that transcript shortly, too.

Peter Kafka: Since you’re going to be advising CBS’s Web video strategy, why don’t you lay out, for the record, where things stand?

Quincy Smith:

We recognize that the Web is two things. It’s both a new medium…and there my example has always been, look at fantasy football: When you’re nice enough to watch the Jets just pound the snot out of the Raiders on Sunday, on a CBS channel…on fantasy football on CBSSports.com, you start on the Tuesday before and end the Wednesday after.

And what are you doing? You’re personalizing it, you’re becoming more of a fan of the game [Smith goes on to praise CBSSports.com's feature set]. All of those things are additive, so when Sunday comes in, you’re actually more of a fan, and you’ve even more convinced you’re going to watch that broadcast show.

Now, I realize that sports is reasonably bulletproof, and a good case study to begin with versus some of the other programming, but the fact is, the Web is a new medium. So what do I also mean? Tech reviews on CNET, Money Watch being watched on BNET. GameSpot videogame reviews.

Access to content that CBS didn’t already have, that are additive–both in their own right online, with the margins that the CNET business is used to, and where we’re getting just stronger and stronger from a margin perspective–and potential content that can also be applied to our [local TV stations owned by CBS], our affiliates, our broadcast news, as well as the radio. So that’s the side of our business that is $600 million revenue and $50 million-plus profit on the bottom line.

The other side of the Web, the side that is most thought of by many journalists, is the threat of an IP-deliverer of video. And how you turn that threat into an opportunity.

And so, from that perspective, as  you know, we didn’t go ahead and say, “Okay, we’re going to lock down and stream, with all of our other peers in broadcast, and come up with the same rules, and embed and right-click this and go away.” I’ve never had a beef with Hulu. Hulu’s always worked as a great service. That’s part of the problem.

As a network, we need to make sure that our content is being seen where the dollars matter. And right now that’s on air. Opportunities like TV Everywhere–we’re not putting all of our eggs in that basket, though we are big advocates of it–are ones where you can actually take and expand and extend the television market online, so it doesn’t matter what screen you watch “CSI” on; what matters is that you watched it, it counts and you saw the ads.

But until that happens, it’s crazy to just stream the shows for zero economics. When in fact you can make a lot more money doing things that are additive and complementary to the rest of the CBS line. That’s where CBS interactive comes in now.

Kafka: But TV viewers are showing an increasing interest in watching their programs on the Web, whether from legal services like the Web or illegal torrents and pirate sites. Don’t you need to reach them where they are?

Smith:

Now, if you really look at those numbers, what they’ll say is [online and offline video are] both growing, right? We’re having the best year ever as America’s largest broadcast network, and I think that 99.9 percent of that–this is the quote I’ve never been able to get in there–is that’s [because] of the great content that we have. There’s some infinitesimal basis point that’s relevant [to CBS ratings because] we are making sure that when people watch it, they’re more inclined to watch it on television. For now.

Once that solution moves, once those economics move–whether that’s more ads, [higher] CPMs, more ad buyers….You and I can say all day long, “We’re sold out on Web video. That’s going really well. It’s sold out.” Well, no kidding, it’s sold out. It’s a $700 million market. The television market is $120 billion. And of that, $700 million, half of those [ad buyers] are spending  90 percent of their time doing Google keywords, not buying online video.

The key is, how do you turn television buyers into video buyers? And that’s where a solution like TV Everywhere comes into play.

And by the way, looking at [Hulu CEO Jason] Kilar’s comments the other day, in Colorado [at an industry convention], he sees that too. He’s more sophisticated on this stuff than most anybody. From the perspective of, he understands that’s where the big dollars are. And so he probably went at it as, “I’m going to aggregate all the people first, so hopefully things like TV everywhere come to us.” From our perspective at CBS, we’ve got to go to them.

I don’t hate Hulu. Hulu’s world-class video viewing. What I don’t understand is, why license all that content to something that works that well, that seamlessly, yet–without the economic model around it?

Google (GOOG) took a step toward cracking that nut Tuesday, releasing an upgrade to its technology that better understands associations and concepts related to search. The feature is based on technology called Orion that was developed by Ori Allon while he was a Ph.D. student in Australia. Google acquired it in 2006.

Mr. Allon, who now works at Google, said in an interview that the technology–-which seeks to understand the context around a query–is a key part of Google’s effort to provide more useful and trustworthy results beyond matching keywords with Web pages. Eventually, Google wants to be able to provide trustworthy answers to questions like “What is good pain medication after eye surgery,” he said.

It’s starting slow, by using it to suggest conceptually related searches at the bottom of the search result page, where it already highlights related searches the user might to try. So a search for “principles of physics” will recommend “physics angular momentum” as well.

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Munster says the move could have a small negative impact on Baidu (BIDU), the China-based Internet search service. He notes that at the end of 2008, the company had 197,000 customers. He figures that about half of the Web sites that the government is shutting down were likely buying keywords from Baidu, or about 2.5 percent of its customers.

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As I noted in several posts yesterday, a CCTV report broadcast on Nov. 15 and 16 asserted that some unlicensed medical companies appeared high in the company’s search results due to their willingness to pay for popular keywords. Baidu’s search engine mixes paid and unpaid search results. The company was also accused of pulling from its search index some organizations that declined to buy keywords.

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