Is that a big deal? Depends on whom you ask.

Search Engine Land’s Danny Sullivan, who sussed this out yesterday, has two big problems with the notion.

The first is that in at least one case a blogger’s post linked to Google in seeming violation of Google’s policy against so-called “paid links.” Sullivan’s bigger beef is that the content of the posts themselves consists of a video ad and some barely sensical text — the kind of thing that Google is trying to flush out of its search results by tweaking its algorithms.

So what’s going on? I’ve asked Google reps for comment, but I’m still waiting for them to get back from vacation. [UPDATE - they have, see below] But Unruly Media, the London-based company which ran the campaign for Google, was happy to answer. (Yup – Google, which dominates both Web advertising and Web video, relies on an outsider to promote its Web video ads.)

There’s nothing wrong here, says Unruly CEO Scott Button, except for what appears to be a one-off technical mistake by a single blogger. Here’s his email response:

Yes, it’s a campaign we were running at the end of December.

There’s a good response by Andrew Girdwood here.

Andrew’s absolutely right — we don’t ask bloggers to link to the advertiser’s site. It’s just not part of our business model. We help advertisers distribute video content and that’s what we get paid for. All links from the video player itself are wrapped in Javascript, so although Google can follow them, they don’t influence search engine rankings. Even though we don’t ask bloggers to link, we do advise them to use nofollow if they do link to the advertiser’s site. This is really important and they should do it to protect themselves as much as the advertiser.

As far as I’m aware, there was one link in one post that was not marked nofollow. This was corrected as soon as we became aware of it.

We’re always completely upfront and transparent with bloggers that we are running commercial campaigns and who we’re working for. We always require that bloggers disclose any commercial incentive to post video content. We always require that bloggers disclose even on related tweets that they might do off their own bats.

It’s also a key part of how we operate that we don’t tell bloggers what or how to write. It’s really important that opinions expressed and the tone of voice belong to the author not the advertiser. Occasionally that leads to human error, as here, so we’re always really happy to have these kinds of example flagged and will sort them out as quickly as we possibly can.

Note that Button doesn’t address Sullivan’s complaint that the text in the bloggers’ post is barely better than garbage. That stuff may not be elegant, but it does seem to work — Unruly says its ad network reaches 725 million people a month.

UPDATE: Google has offered a response, and it doesn’t sync with Button’s. Here’s a quote from a Google spokesperson:

“Google never agreed to anything more than online ads. We have consistently avoided paid sponsorships, including paying bloggers to promote our products, because these kind of promotions are not transparent or in the best interests of users. We’re now looking at what changes we need to make to ensure that this never happens again.”

And here’s more along those lines, via Essence Digital, another Google ad vendor, this time posted on a Google+ page:

“We want to be perfectly clear here: Google never approved a sponsored-post campaign. They only agreed to buy online video ads. Google have consistently avoided paid postings to promote their products, because in their view these kind of promotions are not transparent or in the best interests of users.

In this case, Google were subjected to this activity through media that encouraged bloggers to create what appeared to be paid posts, were often of poor quality and out of line with Google standards. We apologize to Google who clearly didn’t authorize this.”

All of this back-and-forth finger pointing might seem odd to the outside world, but it’s not uncommon in online ads, where money and marching orders pass through multiple points on their way from the original customer to the site that runs the ad.

Here’s the video ad, by the way. I guess I should disclose that Google is not paying me to post this:

This morning, Goldman Sachs (GS) and Bernstein both had good things to say about the company, noting that investors may have underestimated its potential for growth. “Discussions with advertising agencies, including a dinner we hosted with senior agency executives, point to rising spending on Google since June, led by travel, clothing and home improvement advertisers,” Goldman said in a research note issued this morning.

Bernstein analyst Jeffrey Lindsay was similarly bullish. “We expect Google’s results to show some signs of cyclical improvement in Q3, as easier comparisons and more favorable currencies should benefit topline trends,” he wrote in a research note. “Paid search is an early cycle advertising format given the immediacy of keyword auctions, and Google has maintained its dominant position within the category.”

Also bolstering Google (GOOG) shares today are the recent comments of company CEO Eric Schmidt, who told journalists at a roundtable discussion last week that the economy is starting to turn around. “The worst is behind us and we clearly see aspects of recovery, and what is notable is we’re seeing aspects of recovery not just in the United States but also in Europe,” Schmidt said. “We are increasing our hiring rate and our investment rate in anticipation of a recovery.”

This morning, Goldman Sachs (GS) and Bernstein both had good things to say about the company, noting that investors may have underestimated its potential for growth. “Discussions with advertising agencies, including a dinner we hosted with senior agency executives, point to rising spending on Google since June, led by travel, clothing and home improvement advertisers,” Goldman said in a research note issued this morning.

Bernstein analyst Jeffrey Lindsay was similarly bullish. “We expect Google’s results to show some signs of cyclical improvement in Q3, as easier comparisons and more favorable currencies should benefit topline trends,” he wrote in a research note. “Paid search is an early cycle advertising format given the immediacy of keyword auctions, and Google has maintained its dominant position within the category.”

Also bolstering Google (GOOG) shares today are the recent comments of company CEO Eric Schmidt, who told journalists at a roundtable discussion last week that the economy is starting to turn around. “The worst is behind us and we clearly see aspects of recovery, and what is notable is we’re seeing aspects of recovery not just in the United States but also in Europe,” Schmidt said. “We are increasing our hiring rate and our investment rate in anticipation of a recovery.”

You can get the link to the company’s 10-Q, filed this morning, over here. But here’s the nugget you want:

“Although the Company’s Board of Directors has not made any decision, the Company currently anticipates that it would initiate a process to spin off one or more parts of the businesses of AOL to Time Warner’s stockholders, in one or a series of transactions. Based on the results of the Company’s review, future market conditions or the availability of more favorable strategic opportunities that may arise before a transaction is completed, the Company may decide to pursue an alternative other than a spin-off with respect to either or both of AOL’s businesses.”

Yup, there’s a to-be-sure caveat there. But this is about as clear as a publicly traded company can get about this stuff. Time Warner (TWX) wants to cleave this thing off and that’s why it brought on Tim Armstrong.

Other good nuggets from the filing: Time Warner intends to buy back the five percent stake that Armstrong’s former employer, Google (GOOG), owns and wrote down earlier this year.

I missed the company’s earnings call this morning, but sounds like there weren’t lots of other details released. But PaidContent’s David Kaplan does have a breakdown of AOL’s (lousy) ad performance on a sector-by-sector basis:

• Display: Down 17 percent to $158 million
• Paid Search Down 12 percent to $152 million
• Third party Down 29 percent to $133 million

Yesterday, Yahoo celebrated the fifth anniversary of the launch of its own search engine with some good news about its market share and by jazzing up its paid listings today with a plan to include pictures and video.

Will the “rich” ad search product work better, a digital little engine that could?

We’ll see, although it seems the troubled Internet company is already doing better without all the bells and whistles.

After years of declines, according to a new report from comScore, Yahoo’s share in the U.S. continued to scratch its way back slowly, from a low of 19.6 percent last June to 21 percent in January.

Better still, according to comScore (although not in other recent surveys like Nielsen), Google (GOOG) lost some juice, declining to 63 percent from 63.5 percent in December of 2008.

Microsoft (MSFT) search rose a tiny bit to 8.5 percent. But that’s still essentially pathetic for a company that is spending so much and trying all sorts of new iterations of its search product–from giving cash back to creating more niche search–to boost share.

For its part, Yahoo (YHOO) has decided to integrate images and video with its search ads, which have long been text-based. Yahoo has been working on various versions of this and other improvements to search for a year.

Both Google and Microsoft have tested similar versions, but have not launched them widely, for a variety of reasons.

Thus, it is Yahoo that will be first in a major rollout of what one company insider jokingly described to BoomTown as “a mutant marriage of search ads and display.”

Paid search, a business where advertisers pay for relevant links on a larger search page, has been largely dominated by Google, with Yahoo’s share one-seventh the size, even as it dominates in selling online graphical advertising called display.

But the display business has been hard hit in the weak economy as advertisers have pulled back drastically on banner advertisements and the like, and as evidenced by a decrease in that business that Yahoo announced in its most recent quarter.

Thus, the idea is now to apparently make paid search richer, giving it the cool-looking attributes of display and the more measurable qualities of paid listings.

But whether this yields better click-through rates on Yahoo–and, more to the point, fends off calls by investors to take a giant sum of money from Microsoft to hand over its search business–is still unclear.

Still, it’s nice to see Yahoo search–which also recently added a “search pad” for users to conduct online research more easily–trying to compete with a little more panache after, badly, copying Google for so long and with so little result.

In other words, after five years of losing, it’s about time for some new moves.

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.

Read the rest of this post

This isn’t a total shock. The previous quarter, AOL had only been able to manage two percent advertising growth, and the company had already signaled since then that both its display ad business and its ad network were struggling. But given that these results cover the three-month period that ended Sept. 30, which only included a couple weeks of flat-out economic collapse, there will be worse news in store for the last quarter of the year.

Total revenues at the unit, owned by Time Warner (TWX), dropped 17 percent, to $1 billion. The bulk of that is attributable to its declining (down 26 percent) subscription business, so that number is less relevant–except to whoever may be in the market for one or both parts of the unit, like Yahoo (YHOO). Things would have been even worse, by the way, if AOL’s paid-search business hadn’t ticked up.

Overall results at Time Warner were flat for the year, with revenues of $11.7 billion and earnings of 30 cents per share. CEO Jeff Bewkes also announced that 2008 earnings would be lower than previously forecast due to restructuring charges, but that cash flow would actually be higher than the company had predicted.

Revenues at its to-be-shrunk Time Inc. publishing unit dropped seven percent, pushed down by an eight percent drop in ad revenue. The good news is that online revenues of $13 million, driven primarily by SI.com, People.com and CNNMoney.com, helped cushion some of the blow. The bad news is that those numbers are down from $19 million in the previous quarter.

Other results:

• Cable: Revenues up eight percent; adjusted operating income up nine percent.
• Movies: Revenues nine percent (“The Dark Knight” did great, but not as well as “Harry Potter,” “Rush Hour 3″ and “Hairspray” last year).
• Cable TV networks: Revenues up seven percent. Both subscription fees and ad revenues were up.

“We are deeply concerned that the Department of Justice may be considering a preemptive lawsuit to block Yahoo’s nonexclusive online advertising agreement with Google,” the letter says. “If such action were taken, we believe such an unprecedented [lawsuit] would detrimentally affect the online advertising market and electronic commerce. … We believe that robust competition serves the public interest but if the DOJ blocks this agreement we fear that the threat of additional scrutiny may chill future agreements. Similar agreements are commonplace in many industries and standard among Internet companies.”

Well, not exactly, as Norman Hawker of the American Antitrust Institute points out. “Contrary to the letter, similar agreements are not commonplace because industries with this level of concentration are not commonplace,” Hawker said. “If you ignore the economic text when you read the words, you can easily be misled into thinking the agreement is harmless. Read in context, however, the words of the agreement explain how Google could easily acquire Yahoo’s paid-search business.”