After months of trying, BoomTown was finally granted an audience with the two key execs who are now responsible for one of the diciest digital jobs going right now: Microsoft’s Greg Nelson and Yahoo’s Mark Morrissey.

The pair’s two-year task is to coordinate the massive search and online advertising partnership the companies struck last year, a job that is perhaps one of the more complex and critical to their businesses going forward.

The deal was finally approved by government regulators in February, and that started the clock for Nelson and Morrissey to get it cooking with gas.

Although it is not as if either Microsoft (MSFT) or Yahoo (YHOO) had a choice but to join together in order to make a dent in the dominant market position of Google (GOOG) in search, the companies are hoping their combined share of close to 30 percent will make a difference to both advertisers and consumers.

The integration will be ongoing, with hopes that the U.S. market will see a unified backend for search technology by the end of the year. Paid search will follow, as will the rest of the global markets.

As part of the shift, some staff from the Yahoo search technology group have either left, been laid off or have been moving over to Microsoft in the transition.

That has meant a Silicon Valley-to-Seattle area back and forth commute for Nelson and Morrissey, both longtime employees who have worked on a variety of other jobs at both companies, including heading MSN and major advertising platform initiatives, respectively.

But this effort is bigger than any of that, since it essentially is the search equivalent of herding cats–by creating a seamless search and online advertising product that works quickly and well across two major Web properties.

Thus, here is the first of two parts of an edited transcript of much of my hour-long interview with both, in which we talked about a range of issues from operations to culture to codependency.

Part Two of of the interview is posted here.

GREG NELSON: So, you want to hear how I got into this thing?

BOOMTOWN: Yeah…explain it to me.

GREG NELSON: So, you know me from the MSN days. And [Microsoft search head Qi Lu] said, “I like what you’re doing with your team, but I have this assignment. And I said, “Qi, I really respect what you’re trying to do. I don’t know if I’m the right guy for you, but go ahead and talk to everybody you want to talk to. And if you come back and ask me to do it, I’ll say yes.”

So, he went out and interviewed a bunch of people and then came back and said, I want you to do it. That was hard, because I loved my MSN team, and I loved what I was doing. But, you know, when Qi asks, you say yes.

BOOMTOWN: Had you been doing any search business?

GREG NELSON: Well, only through the MSN lens. I was a publisher in a way, because I had the responsibility to drive search volume through MSN as a publisher. So, I would work with our editorial staff in all these different markets to think about search experiences in the context of a portal or a media property, and how you turn search into content or how you drive premium content experiences that add value to search, whatever it might be.

So, I thought about it only from that point of view. The algorithmic part of search, like the way that you generate relevance in search, the way that you attach it to advertising in search, that’s sort of my…that’s what I get to learn out of this job, which is great.

MARK MORRISSEY: When he started, both of our executives got our top level teams together. We wanted to be really on the ground running by the time they got regulatory approval.

GREG NELSON: Just to give you a sense of what I walked into, there were hundreds…I don’t remember exactly how many, probably 200 people that had expressed interest in working on that Yahoo partnership by the time that I was asked to take it on. And they were people from all different parts of the company and division; not necessarily all at senior levels, but people that had said, “Wow, I think that’s really interesting, I’d like to come work on it.”

So, I went through a review of all those resumes and all that talent, and then also did additional sort of looking around and picking people one at a time to build what we thought we would be a great team.

BOOMTOWN: And how many people are working on it from Microsoft?

GREG NELSON: All up?

BOOMTOWN: Yes.

GREG NELSON: Thousands.

BOOMTOWN: No, of course, but…

GREG NELSON: Yeah, I mean, there’s about 25 on my team, 25, 30, something like that.

MARK MORRISSEY: But even after you got your team together, one of the things that we’ve continued to do is find some key talent at Yahoo that has moved over to also be part of the Microsoft team.

GREG NELSON: That’s been really key.

MARK MORRISSEY: Yeah. So, we want people that really understand the search business and have extensive experience at Yahoo and can really help bridge not only the cultural differences, but the technical differences and the way we’ve approached the market.

BOOMTOWN: You’ve done a lot of these.

MARK MORRISSEY: So, yeah, about five years ago, they brought me into the product portion of Panama….And then that’s probably the closest comparable effort in the industry, because we did have to move our 400,000, plus or minus, global advertisers over from the platform over to Panama.

When [Yahoo CEO Carol Bartz] came on board, she asked me to be part of a small team that worked directly with Microsoft from the very beginning to figure out what the right thing was for us to do at the company, and obviously then to do…figure out what the right aligned incentives and the right structure would be for a long term, 10-year, global agreement between the two companies.

So, I did that, and that was a big portion of my responsibility last year. And then similar to Greg, as soon as it became clear that we were going to get an agreement signed sort of in the October timeframe, maybe a little bit sooner than that, Carol sat me down. I had another position in the company, and she said, it’s the right thing for you to do, and she asked me to do it.

So, she asked me to take on this role, and I just have had a long term affinity for search and search advertising. I wanted to make sure with all the work that we did on Panama and all the investments we made in search that we really ended up with the right future. Search is critical to Yahoo’s future, and yet we’ve got to make sure that we do this transition in a way that really puts us forward of all of our different customers.

BOOMTOWN: When you say Yahoo’s future, how do you look at it in search?

MARK MORRISSEY: It’s a critical part of our business today, and a critical part of our consumer experience, and it always will be. What the market deserves is it really needs a true alternative to Google. And the best way for us to achieve that is to acknowledge things that we do well, and the things that Microsoft does well, and to leverage those things together, as opposed to us trying to do everything ourselves, particularly in the areas that we’re maybe not so good at.

So, between Microsoft’s experience and focus on delivering great global platforms with true scale, Yahoo’s strength in terms of working with advertisers and understanding of the market, I really believe that in the mechanics we set up from the very beginning of this that by leveraging both of our strengths, that we can really deliver a true competitor to Google.

Not only does our scale combine to really give them much better liquidity that is huge, right, getting up close to 30 percent in the U.S., big, but then the focus that we have really helps out.

[We're not going to be in] the search platform business, the crawling, the ranking and the indexing of the Web. There is a lot of search-related technology that we’re still going to do, because we believe that the search experience…where the market needs to go for search, it’s still a relatively young market, at least from my perspective. But the search experience really needs to evolve significantly.

So, rather than us with less resources than what Google or Microsoft have had in the past trying to do all the back-end platforms and do search experience, now we’re going to take our best talent and focus on search experience and the overall consumer experience.

And then some of our talent is moving over to Microsoft. There’s about 400 people in the products organization between the search technology and paid search that are moving between Yahoo and Microsoft.

BOOMTOWN: And how successful have you been recruiting those [to Microsoft]?

GREG NELSON: Oh, really. Yeah, very successful.

BOOMTOWN: And they’re staying down there [in Silicon Valley]?

GREG NELSON: Yeah, most of them are in India. Some of them are in Silicon Valley, and other places. We’ve had a super-high acceptance rate.

So, we’ve made that quite a big priority, including a lot of executive visits, and a lot of kind of, “Hey, welcome to Microsoft, we’re excited to have you.”

BOOMTOWN: So, then you brought up over about 400, is that right?

GREG NELSON: They come in waves actually, because Mark had talked about Panama, if you want, but they still have to continue to run Panama over a period of time, across all these different markets.

So, as they are closing down Panama in various places, then we’re bringing waves of employees over and training them on adCenter.

MARK MORRISSEY: And that was one of the things that really started to demonstrate and build a lot of confidence in the execution portion of the partnership. There’s two very competing objectives: Get the employees over as fast as you possibly can, because getting that talent into Microsoft not only puts more key talent on developing the things that we need to have done for the future of the platform, but also helps in just the transition itself.

And yet we don’t want to move the talent so quickly that we’re not able to continue to the platform all the way through.

So, we went through a very rigorous…I think it took about five or six weeks with the senior leadership at Microsoft on what employees can go in what locations with what skill sets to allow us to balance between the two, and I thought it went fantastic.

Employees are engaged; the Microsoft team did an excellent job of helping to explain their level of investment and give those employees…because employees, they want to beat Google, and knowing that they have a future at a company that is going to invest significantly to make that happen was a big deal.

BOOMTOWN: And, Greg, when you’re saying, when they move over, there’s not a flipped switch, I understand that, but what’s the time line at this point?

GREG NELSON: I think we’ve brought over 100 or so.

MARK MORRISSEY: A big chunk went last week.

BOOMTOWN: When does it switch over?

MARK MORRISSEY: Beginning of next year.

BOOMTOWN: The U.S. moves first and then…

GREG NELSON: Yeah. Well, U.S. and Canada, North America.

BOOMTOWN: Right, and then? Then the rest of the world?

GREG NELSON: You can kind of do it by size of market. So, Europe next.

MARK MORRISSEY: Basically, there’s 59 total countries and the objective is to get all countries done by Q2 of 2012, the first few markets being U.S. and Canada.

GREG NELSON: It’s 24 months after commencement, which is February 18th.

BOOMTOWN: Right, but it begins next January, correct?

MARK MORRISSEY: The principle is to transition with quality. That’s the overriding factor. And that’s based on the consumer experience and the yield and performance of advertisers and publishers in our owned-and-operated properties, right, because the intent here is make sure that, as we make the transition to going forward, we want the business results to get nothing but better and better.

We set a goal for both of our teams, if we can possibly move U.S. and Canada over before the holiday season, with quality, this year–this year, we want to do so.

BOOMTOWN: Quality, what does that mean?

MARK MORRISSEY: The first one is the experience. For consumers we want to deliver the same quality experience–basically the look and feel before and after the transition.

And the results will get nothing but more and more relevant over time. But the overall experience, the speed, the performance need to be as good or better going forward. For advertisers, there are capabilities that they’ve really enjoyed in Panama that are not in adCenter today. We’re not promising them one-for-one capabilities, but there are investments that we’re making together with Microsoft to bring adCenter up for advertisers and publishers.

In terms of the first one is experience–experience for consumers, advertisers, publishers, and we want the capabilities to be what they expect or better.

Then secondly, it’s around the business metrics….We want to make sure that again for not every single advertiser, not every single publisher, but if you look at in aggregate the groups of major marketplaces, we want the overall performance and business metrics, particularly going into the holiday season, it needs to be as good or better going forward.

So, quality is about the experience itself, measured probably in terms of capabilities, and then there’s the business metrics, and we need to make sure that their yield is as good.

GREG NELSON: And there’s great alignment on that. It’s a 10-year partnership at minimum, hopefully longer, and you want to get off on the right foot with everybody: Consumers, advertisers, publishers. You want them to feel like this is a strong launch, it’s a credible alternative, and we’re in.

So, we’re not going to rush it. If the companies don’t feel ready, like we can really achieve that, then, of course, we’re better to wait.

BOOMTOWN: Well, there is some pressure.

GREG NELSON: The time line that we started to communicate to–publicly, specifically–our advertisers and publishers, is our goal is to have, you know, as pretty confident, algo transition, U.S. and Canada, will happen this year.

We want the paid transition to happen this year, if we can do so with quality, before the holiday season. We’ve got to protect the holiday season at all costs here. And then the next big part of the goal is we have to have it all done by Q2 of 2012.

So, right now we’re finalizing with each of our markets what that sequence will be in terms of the countries, starting in the first quarter of next year, and then we just roll all the way through to that last year.

BOOMTOWN: And how have the cultural changes [been managed]?

GREG NELSON: It’s interesting, because, of course, walking into this I had sort of a point of view and some apprehension, like “Wow, is this going to be really hard.”

It’s been far easier than I had expected, and I think part of that is just that Mark and I get along very well. We’re both kind of pragmatic and it takes a lot to kind of get us ruffled. So, I think we have similar styles. And the people that we’ve hired, we’ve really focused on finding people that are resilient and emotionally mature, and it will sort of steer something of this complexity over a long period of time.

So, I think you often read about, oh, Microsoft has this one culture, Yahoo has another. In practice, at least between these teams, I haven’t found that to be true.

MARK MORRISSEY: Well, right, and the interests here and the incentives that sort of reinforce those interests are very aligned. The way that the partnership was put together, we all have this one big goal, and we’ve hired people that are just really strongly committed to getting that done, and you have support from both companies at the CEO level down. It’s the top priority for both companies. It’s been far easier than I thought.

BOOMTOWN: But in terms of disgruntlement at Yahoo over not being in search technology anymore, how did you cope with that?

MARK MORRISSEY: So, first, we are in search, we’re always going to be in search. There’s an element of that particular part of the search technology that we’re not going to be in. Yeah, there were some disgruntled employees, there always will be when you make a hard decision.

But, in general, employees have responded very well, and the level of commitment that we’ve seen from the Yahoo end, work that we have to do, because this is an extraordinarily complex transition process where we have to connect our front-end to Microsoft’s back-end, and it’s got to work at tremendous scale.

I don’t know if you had a chance to see my presentation from investor day, but one of the things that I showed was some of the screenshots of what we already have in test. February wasn’t that long ago. To have gotten regulatory approval for us, to get through the mountain of requirements and use cases that we had to figure out, to have gotten the API, agreement on the APIs, and to get the coding behind those APIs and get into test by June is phenomenal.

It’s really just a long way of saying that doesn’t happen unless the Yahoos that are working on this are incredibly committed to the future of where Yahoo is going, and the future of working together with Microsoft to achieve this objective.

So, while there will always be disgruntled employees, if you look at the larger population, I mean, we have people that are not just working, they’re working unbelievably hard to make this happen.

BOOMTOWN: Now, the search experience teams are competitive teams.

MARK MORRISSEY: Some are competitive and there are some places that we’re working together. It’s a mix of both.

BOOMTOWN: Such as? Bing has been very impressive in terms of their innovation.

MARK MORRISSEY: Absolutely.

GREG NELSON: Right, and then there’s a separate conversation which is longer term, and, you know, it’s the sort of thing that would feel great to work on if we could do it right now, but right now we’re sort of just trying to ship.

But, both companies have unique assets that we’d love to put into the search alliance, and we want to drive that conversation. And right now we just want to make sure that we get Yahoo to parity of their existing experience, and then we also want to have that conversation about how do we build strength.

MARK MORRISSEY: Another way of looking at it is this is the first agreement in the industry where we have full parity in the platform.

So, as Microsoft invests in innovation around the experience, that’s going to require changes in the platform. As Yahoo invests in things that we want to do in the search experience, that will require changes in the platform. So, we’re always going to meet in the middle at the platform anyway.

Now, that’s not to say that every single thing that we decide to do around entertainment will be the same things that Microsoft decides to do. Some of the things we want to innovate independently, because we’ll discover more things and really move the ball forward. But we already have established a very strong working relationship around how we make those platform decisions, because there are things that Yahoo does today that are quite different than the way Microsoft does them today.

In order for us to get to that comparable experience, this could have been a fight to the death, right? Why would we want to do that in the Microsoft platform? And they’d say, well, “No, we don’t want to do it.”

What we did–and again I think it speaks to the maturity of both of our teams–is we just worked through use cases. Well, what are consumers really trying to do here, how has Microsoft been approaching solving that problem, how is Yahoo doing that. I thought we worked not just agreeable solutions, but ones that moved the ball forward for both of us.

But I’m anxious to get into those future conversations much more. But right now we’ve got to ship.

GREG NELSON: That’s the next chapter. The chapter right now is everybody’s head is down trying to just land Yahoo properly on the platform, and with the great equivalent searching experience.

BOOMTOWN: And when you have complaints? [Microsoft is the] vendor essentially and [Yahoo] the customer.

MARK MORRISSEY: The structure of the agreement, we really worked hard. This goes way back to the very first discussions that we had. We wanted to have aligned incentives where we set up this codependence that kept us really working well together through each of our respective roles. So, by and large, the issues or concerns, why isn’t this working, why don’t I have this capability, you know, it’s Google does it this way…we are going to be a major voice of the customer to the Microsoft teams.

In the structure of the agreement we have both this operational rigor of how do we bring those things in, how do we make marketplace decisions, which are really important. They have the technology, we have the customer-facing piece–and then how do we make road map decisions.

So, throughout transition I have approval authority in Microsoft’s platform road maps, and then going forward then we have a way of we keep providing that type of input.

It’s not a typical vendor-customer complaint process, it’s much more of a partnership, but we each have respective roles where one of us is more the vendor and one of us is more the customer.

So, for the platform they’re more the vendor, we’re more the customer. For sales we’re the vendor, they’re the customer.

And that keeps us again this kind of healthy codependence. And again to leverage–that aligns with each of our strengths.

BOOMTOWN: Is there such a thing as a healthy codependence?

GREG NELSON: Just watch.

Extrapolating from metrics provided by CEO Steve Jobs during his Worldwide Developers Conference keynote earlier this month–$1 billion paid to developers for five billion free and paid app downloads–Munster figures the App Store has contributed only $189 million to Apple’s total gross profit since it launched.

That’s about one percent of Apple’s (AAPL) $33.7 billion gross profit during the same period.

“Using a pricing scheme similar to iTunes, with 70 percent ($1.04) to the developer, $0.20 plus 2 percent of the ASP ($0.23) to the credit card company, and 1 percent ($0.02) per app for processing (storage & delivery), Apple’s App Store gross margin on revenue from paid apps ($428 million since launch) is about 44 percent, or $189 million in gross profit,” Munster explains. “This does not factor in the roughly $81 million Apple has spent since launch to store and deliver the 4 billion free apps that have been downloaded.”

So while App Store sales are through the roof, Apple is certainly not making a killing from them. But that’s never been the point, anyway. Like iTunes itself, the App Store’s purpose is to drive hardware sales. It’s a secondary business.

Said Munster: “We see a virtuous cycle of Apple’s robust app ecosystem adding features and functionality to the iOS devices, which drives sales, which makes the ecosystem more robust, which encourages more developers to write apps, and the cycle repeats itself.”

Yesterday morning, the pair of Stanford University graduate students who made the hot news-reading iPad app, Pulse News Reader, were ecstatic to be mentioned first–for being among the most promising developers for the new tablet device–by Apple CEO Steve Jobs in his keynote speech at the Worldwide Developers Conference in San Francisco.

But by the afternoon, that flush of entrepreneurial success had turned sour, after Apple (AAPL) informed the two that Pulse was being pulled from the App Store after it received a written notice from the New York Times Company (NYT) declaring that “The New York Times Company believes your application named ‘Pulse News Reader’ infringes The New York Times Company’s rights.”

In an unusual coincidence, the Times Web site was on prominent display on a huge screenshot of the iPad during Jobs’s speech.

Ironically, the Times wrote a big wet kiss about Pulse last week in a blog post titled “The iPad Pulse Reader Scales the Charts,” by tech writer Brad Stone.

“Pulse is a stylish and easy-to-use news aggregator,” wrote Stone. “News organizations still puzzling over their iPad strategies can perhaps derive some hope from Pulse’s success–or at least its price tag.”

No longer. Pulse was down completely by 6:30 pm PT last night.

Reads a notice on iTunes now: “Your request could not be completed. The item you’ve requested is not currently available in the U.S. store.”

“I don’t blame Apple, because they have to respond when contacted by lawyers from the Times,” said Akshay Kothari, a 23-year-old student of well-known Silicon Valley investor Michael Dearing’s Launch Pad class at Stanford, of the letter the media giant sent to Apple (which is below, along with the take-down notice).

“But it was definitely a roller coaster of a day.”

In fact, it has been all up for the past four weeks, since Kothari and 22-year-old Ankit Gupta released the Pulse iPad app, creating it for the class, which requires students to develop and put out a product.

Both are at Stanford’s Institute of Design and created a company called Alphonso Labs.

The app was quickly approved after about four weeks of development. Since then, it has taken off strongly, downloaded 35,000 times at a $4 price tag, even rising to No. 1 in paid apps several times, as noted prominently in the lead of the Times story.

Kothari said that the pair plan to contact Apple in the morning and take steps to remove Times material from the feeds.

It is not immediately clear why they need to, since Pulse draws from publicly available Times RSS feeds, as do many other apps, and does no scraping.

In fact, Pulse is little more than a really well-designed RSS reader, which is what the Times said it was in its write-up. You add feeds to it and it visualizes them in a way that’s easy to get through.

The Times story did have one ominous-in-retrospect note about Pulse: “It also lets people easily share articles through Twitter and Facebook–bypassing the individual sharing tools presented by each news site.”

But Pulse is pretty basic and is similar to many others readers.

In the New York Times case, as with others, one view is plain text and only shows whatever the Times puts in its RSS feed, which isn’t much. And its Web view seems to be just an in-app browser that takes you straight to the page that is in the link with the RSS feed.

You can see both here below:

The Times lawyer, Richard Samson, sees it differently, apparently, since it is a paid app rather than a free one, noting in the Times June 3 notice to Apple, which came two days after the newspaper’s article about Pulse:

“The Pulse News Reader app, makes commercial use of the NYTimes.com and Boston.com RSS feeds, in violation of their Terms of Use*. Thus, the use of our content is unlicensed. The app also frames the NYTimes.com and Boston.com websites in violation of their respective Terms of Use.”

Samson also complained about how Pulse was marketed in the App Store, a screenshot of which you can see below:

BoomTown sent an email to Samson, as well as to Apple, for comment.

Until I hear back, here is the email from the App store to Pulse, including the letter from the Times lawyer–I removed personal email addresses and phone numbers, along with the number of the Pulse case Apple gave it–as well as a lovely video of Pulse in action:

From: App Store Notices
Date: Mon, Jun 7, 2010 at 3:09 PM
Subject: Apple Inc. (our ref# APPXXXX)
To: Akshay Kothari

Dear Sir or Madam,

**Please include APPXXXX in the subject line of any future correspondence on this matter.**

We received a written notice from The New York Times Company that The New York Times Company believes your application named “Pulse News Reader” infringes The New York Times Company’s rights. A copy of the notice is attached.

Accordingly, we have pulled your application from the App Store. Please contact The New York Times Company directly regarding any questions or concerns you may have.

For any technical questions, please contact iTunes Connect: www.apple.com/itunes/go/itunesconnect/contactus.

Thank you for your immediate attention.

Sincerely,

? iTunes Music Marketing & IP Legal | Apple | 1 Infinite Loop | Cupertino | CA | 95014 | AppStoreNotices@apple.com

Begin forwarded message:

From: “Samson, Richard S”
Date: June 3, 2010 10:51:23 AM PDT
To:”‘appstorenotices@apple.com’”
Cc: “Samuels, Robert”, “Manning, Michael”
Subject: infringing “Pulse News Reader” iPad app

Hello-

I am writing again, on behalf of The Boston Globe, Boston.com and The New York Times Company, about the infringing iPad app, “Pulse News Reader” produced by Alphonso Labs Inc. (please see pertinent details, link and screenshots below).

The infringing app is available on the iTunes store here: http://itunes.apple.com/us/app/pulse-news-reader/id371088673?mt=8

The Pulse News Reader app, makes commercial use of the NYTimes.com and Boston.com RSS feeds, in violation of their Terms of Use*. Thus, the use of our content is unlicensed. The app also frames the NYTimes.com and Boston.com websites in violation of their respective Terms of Use.

I note that the app is delivered with the NYTimes.com RSS feed preloaded, which is prominently featured in the screen shots used to sell the app on iTunes.

I hereby declare, under penalty of perjury, that the information contained in this notification is accurate to the best of our knowledge and that I am authorized to act on behalf of the owner of the copyrights and trademarks of The Boston Globe, Boston.com and The New York Times Company. We hereby demand that you immediately and permanently remove this app from the iTunes site.

Please let me know if you need any further information or have any questions. I can be reached directly at this Email or at the phone number below.

Thank you.

Sincerely,

Richard Samson

Richard Samson
Senior Counsel
The New York Times Company
620 Eighth Avenue
New York, New York 10018

* NYTimes.com Terms of Service, paragraph 2.2: “The Service and its Contents are protected by copyright pursuant to U.S. and international copyright laws. You may not modify, publish, transmit, participate in the transfer or sale of, reproduce (except as provided in Section 2.3 of these Terms of Service), create new works from, distribute, perform, display, or in any way exploit, any of the Content or the Service (including software) in whole or in part.”

* Boston.com Terms of Service, paragraph 2.2: “The Service and its Contents are protected by copyright pursuant to U.S.and international copyright laws. You may not modify, publish, transmit, participate in the transfer or sale of, reproduce (except as provided in Section 2.3 of this Agreement), create new works from, distribute, perform, display, or in any way exploit, any of the Content or the Service (including software) in whole or in part.”

[All Things Digital intern Drake Martinet contributed to this report.]

Like Apple’s (AAPL) iTunes App Store and Google’s (GOOG) own Android Market, the Chrome Web Store will showcase free and paid videogames, magazines, productivity apps and the like. As Web applications, they’ll run on most modern browsers. But if you happen to be running Chrome, you can “install” the apps directly in the browser so that they can be accessed via a sort of “super-bookmark.”

“Once installed, a Web app gets a big icon in Google Chrome’s app launcher area, as well as some integration with the host OS,” Google explains in its documentation for the store. “When running, an installed Web app has a special frame and other UI enhancements to make the Web app easier to distinguish from other Web content.”

That sounds like a nice enhancement, but will it be enough to convince people to pay for Web apps they’re used to getting for free?

Who wants to bet on a Web company with lots of users but very little revenue? The same people who bet on it before. Spark Capital and Union Square Ventures have poured another $5 million into Tumblr, which lets people quickly and easily set up lightweight blogs.

Three-year-old Tumblr doesn’t charge its 4.5 million users for the service. It doesn’t sell advertising on the page views they generate. And it is only now beginning to generate “meaningful” revenue, says founder David Karp. (That’s Karp, flanked by two employees, engaged in some kind of new-fangled xtreme sport, on the cover of this week’s New York Magazine)

But this hasn’t dissuaded Spark and Union Square, the sole investors in the company’s C round, as well as its B round in 2008.* The company has raised $10.2 million to date.

So now what?

Karp, who turns 24 this summer, says his company has “carved out a real and substantial niche” in the last year, and he brandishes numbers to bolster his case. The service, for instance, is now generating one billion page views a month. Here’s a chart! (Click to enlarge.)

But until recently, Tumblr’s growing popularity hasn’t done much beyond racking up big infrastructure bills. Now Karp says the company is changing this by rolling out a series of paid services.

The Los Angeles Times has a nice summary of new services, and Karp says there are a “dozen more in the pipeline.” But the short version is that these are primarily bells and whistles–like digital “stickers” you buy for your friends at a buck a pop–that passionate Tumblr users may like, but don’t need.

This is a switch from the company’s earlier plan to bundle lots of must-have features into a “Tumblr Plus” subscription service aimed at its most passionate users.

The new strategy is a little more seat-of-the pants, but the bet is that it may be easier to coax money out of people a couple dollars at a time.

Not coincidentally, this is the same model that’s working out very well for social gaming companies like Zynga, which is also funded by Union Square Ventures (and to a lesser degree OMGPOP, which is backed by Spark).

Zynga is reportedly profitable, and many have it pegged for an IPO in the near future. I don’t see that in Tumblr’s cards, but if Karp and crew were interested, I can see them attracting interest from the likes of Google (GOOG) and Yahoo (YHOO) sooner than later.

Maybe sooner in Yahoo’s case, if it can’t snap up another company whose CEO also graces New York Magazine’s cover this week.

*“Inside rounds” like these are supposed to be no-nos in the VC world because existing investors traditionally want to find new money to validate their wagers. For the counterargument, consult Tumblr investor Bijan Sabet’s blog (hosted by Tumblr, of course).

Twitter has quietly been reaching out to marketers about its new ad platform for a few months, but now it’s a full-fledged marketing blitz. The messaging service rolled out its ad strategy to the press last night; today it’s going directly to the ad industry, via COO Dick Costolo’s presentation at Ad Age’s Digital Conference.

I’m not sure how much more Costolo will reveal that Twitter hasn’t put out already–or may be waiting to talk about at tomorrow’s Chirp conference. But since I’m here I’ll liveblog it anyway.

Liveblog

Costolo says he has been waiting five or six months to give this presentation. It’s time to walk through the rollout, he adds, making note of his “fascinating nontraditional” prediction last fall.

He explains the Twitter ecosystem. The ad platform has to go everywhere, not just to Twitter.com. He refuses to call the ads, “ads.” They’re “just tweets.”

“Promoted tweets,” that is.

He walks through the @hashtagtees example.

There’s a menu from which ad buyers can pick search terms and associate them with specific tweets they’ve already published.

Promoted tweets look and act like regular tweets except that they’re labeled as promotions and stay at the top of the Twitterstream.

A promoted tweet “combines earned media and paid media in one space,” Costolo says.

“Earned” media are free, Costolo reminds the audience. That is, if people retweet your paid tweet, there’s no charge additional charge.

The pitch continues: Ads are “real time,” and so are analytics–you can see how ads are performing second-by-second.

Twitter will start with Twitter.com search. That’s phase one. The plan will roll out more broadly, but the company is doing it this way because it wants a “thoughtful, user-centric approach” to figuring it out. “We will quickly expand into syndication…all of our syndication partners.” And here, Costolo specifically mentions UberTwitter in the list of partners.

Important: Twitter will definitely expand into the regular timeline at some point. That is, you will be getting ads in your stream whether you search or not. Ad-free Twitter is over.

Costolo talks about the “resonance” metric Twitter will use to figure out which promoted tweets show up and where.

Each ad partner will see a scoreboard with different metrics: Retweets, @replies, #tag click, avatar clicks, link clicks, views after RT.

Advertisers won’t pay for ads that don’t resonate with users.

Next, Costolo describes communication on Twitter as both “one to many” and as a “real-time interest graph.”

Pricing will start as CPM. Twitter is doing this because it doesn’t know how to correlate “resonance” with value yet. As the company figures this out, it will move to a pricing model based on ROI.

Here comes Porter Gale, VP of marketing for Virgin America, a launch partner. She notes that @jack is flying VA right now.

[You're not missing anything here.]

Um, here’s a free ad for two-for-one tickets on Virgin. Don’t really follow it but sure you can figure it out if you’d like.

And here’s Ellen Stone, SVP of marketing at Bravo.

She is also excited!

[You're not missing anything here, either.]

Stone describes some sort of live, real-time convergence between shows broadcast and users’ tweets. Makes my head hurt. Hope it doesn’t pop up during “Top Chef.”

Back to Costolo: More monetization coming. Commercial accounts coming after promoted tweets will “feather into this platform very very nicely.” One dashboard will manage both products.

Q&A

Will tweets be syndicated to Google (GOOG), Yahoo (YHOO), and other partners that take the stream?
Costolo says yes, without mentioning any specific search engine or media pub.

Will there be revenue-sharing with publishers and bloggers?
Yes, with developers and publishers. Costolo says Twitter will talk about this at its Chirp conference and focus on the syndication piece there. Revenue sharing will be “very transparent,” he adds.

Early reaction from consumers?
Yes, Twitter is getting a “wait and see,” Costolo notes. [From whom? Who's seen it?] The company will take its “learnings” from search and go forward. Twitter ads should be live and running now.

What CPM are you charging?
Twitter is playing around with different numbers, trying to figure it out. When a term is owned or created by a client, like Virgin America, should it have “rights” to that hashtag, whereby no one can outbid it? Some hashtags only have value at certain times. Like “Super Bowl,” which is only useful for a couple hours in the year. So we have to play around and test different kinds of pricing. “We don’t know the answer to that yet.”

What kind of reactions are you looking for from users?
Costolo says Twitter is looking to see whether people click or interact with ads and paying attention to the tenor of reaction: Positive or negative, etc. Think about the iPad launch this month. People were having battery issues. Someone could have jumped in in real time and bought a promoted tweet that dealt with that. Twitter’s hope is that when people see these, they’ll get why they work.

Please talk about search volume.
“Massive. It’s huge.” Will talk about hashtags tomorrow. But on Twitter.com, it’s a small piece of traffic. So we’re not maximizing revenue now. We’re figuring it out.

How will location work with ads?
“We think significantly.” There are lots of opportunities down the road. As this gets more sophisticated, will see opps for small and big business.

Will marketers be able to get resonance scores for companies that aren’t using promoted tweets?
Not at first. But possibly.

Will you share revenue with TweetDeck, etc.?
Yes. We’ll talk about this tomorrow so we can save something for those guys. Revenue-sharing will be very transparent. Costolo name-checks Iain Dodsworth of TweetDeck and Loïc Le Meur at Seesmic.

Finished up. I will have some questions for Costolo myself, a little later this afternoon.

Bill Gross is widely considered the man responsible for the invention of paid search advertising, which heralded such Web powerhouses as Google (GOOG).

Now, in a can-lightning-strike-twice effort and armed with $3.5 million in venture funding from a group of leading investors, the well-known entrepreneur has decided to monetize Twitter on his own.

Thus, Gross has just launched a public beta of TweetUp, a keyword-based bidding marketplace akin to the innovative Overture/Goto.com he created a decade ago.

Gross will be the CEO of TweetUp, which will also offer an organic search service to surface the best tweets from the microblogging site.

Coincidentally, Twitter is now aggressively moving to take over key parts of its ecosystem, which has largely been left to third-party developers. It is also expected to announce some kind of advertising system of its own this week.

Tweet fight, anyone?

Here are two video interviews I did with Gross last week at his Idealab offices in Pasadena, Calif. The first is an interview about TweetUp and the second, below it, a tour of the well-known incubator where he came up with his latest scheme:

]]> http://allthingsd.com/20100411/exclusive-video-bill-gross-talks-about-tweetup-and-gives-a-tour-of-idealab/feed/ 1 http://allthingsd.com/20100411/paid-search-inventor-bill-gross-moves-to-monetize-tweets-with-tweetup-and-without-twitter/ http://allthingsd.com/20100411/paid-search-inventor-bill-gross-moves-to-monetize-tweets-with-tweetup-and-without-twitter/#comments Mon, 12 Apr 2010 04:00:45 +0000 Kara Swisher http://kara.allthingsd.com/?p=26418

Just as Twitter finally prepares to announce its plans to make money–after what has seemed an eternity–the man responsible for the invention of paid search is beating the microblogging site to the potentially profitable punch, and without its involvement.

Armed with $3.5 million in venture funding from a group of leading investors, well-known entrepreneur Bill Gross is launching a public beta of TweetUp, a keyword-based bidding marketplace akin to Overture/Goto.com, the first paid search system he created a decade ago.

Gross will be the CEO of TweetUp, which will also offer an organic search service to surface the best tweets, a move that seems to put it in competition with Twitter’s own search service.

This comes just as Twitter is aggressively moving to take over key parts of its ecosystem, which has largely been left to third-party developers.

TweetUp could now give these developers a chance to make money on Twitter without relying on Twitter.

TweetUp is backed by Index Ventures, betaworks, Revolution LLC, First Round Capital and other investors, including Mahalo’s Jason Calacanis and BuzzMachine’s Jeff Jarvis.

And TweetUp has struck a number of distribution deals with well-known Twitter search clients and Web sites–such as Seesmic, Answers.com and others–and will pay them half its revenue.

Gross has been working on the service since February at his Idealab start-up incubator in Pasadena, Calif.

He said he got the idea after he was struck by how hard it was to sort through good tweets from the TED conference, as well as how quickly a substantive tweet he posted, which was related to the global climate change event, disappeared as more recent ones replaced it in real time.

Said TweetUp in a press release about its system:

“In addition to an algorithm that combines a variety of factors to determine relevance, tweeters can bid on keywords in a competitive marketplace very similar to what now occurs at Internet search engines. This sophisticated combination of factors pushes the best tweets to the top of the results of users’ searches, allowing them to find the most compelling tweeters, and it enables serious tweeters to expand their following quickly and cost-effectively. TweetUp search will work alongside Twitter’s traditional search to provide a richer array of results.”

Twitter is also making several moves to monetize itself of late, with most observers expecting an advertising system to be announced soon.

The company has also been adding tools, which puts it in direct conflict with outside developers. On Friday, for example, Twitter announced it was purchasing Tweetie, maker of a popular Apple (AAPL) iPhone client for the messaging service.

The start-up has traditionally relied on third-party developers to build apps for the service, much as Facebook did at its start.

But Twitter management and key investors have recently been signaling that the company would be taking over key aspects of its business. This has caused tensions, obviously, in the wider Twitter ecosystem.

Thus, it will be interesting to watch how Twitter reacts to what Gross is doing with TweetUp.

(BoomTown also did an exclusive video with Gross about it all, which is posted here, as well as a tour of Idealab.)

Here are a few screenshots of TweetUp (click on images to make larger):

TweetUp Client

Answers.com

Business Insider

Business Insider Search #1

Business Insider Search #2

And here’s the official press release from TweetUp:

TweetUp Establishes Twitter Marketplace Where the Best Tweeters Rise to the Top

Unique Combination of a Relevance Algorithm and Bidding System Increases Number of Followers and Improves the Quality of Twitter Searches

PASADENA, CA–APRIL 12, 2010–TweetUp, Inc., announced today a new Twitter marketplace designed to showcase the world’s best tweeters and enable them to grow a highly targeted following. TweetUp is a new patent-pending platform that combines the popularity, relevance and influence of tweets and tweeters with a bid-based marketplace. Major partners, including leading Twitter search clients and top web sites, will display the results, enabling users to easily find the best tweets and tweeters in the world.

TweetUp was founded by Bill Gross at Idealab, where he also devised the first model for paid internet search, Overture/Goto.com, over a decade ago. TweetUp is backed by Index Ventures (investor in Skype, last.fm, Myheritage and Playfish), betaworks (investor in Twitter, TweetDeck, Bit.ly), Revolution LLC (founded by Steve Case, investor in Zipcar, LivingSocial, Everyday Health), First Round Capital (investor in Mint.com, StumbleUpon, CoTweet), Jason Calacanis (founder of Mahalo) and Jeff Jarvis (founder of BuzzMachine).

“Twitter has such tremendous potential as a real-time information network far beyond what has been realized to date,” said Bill Gross, Founder and CEO of TweetUp. “For most people, though, 80% or more of the tweets that fly by them when they’re searching for something are useless noise. For serious tweeters, the task of attracting interested and relevant followers is equally daunting. TweetUp will change all of that.”

TweetUp has addressed the needs of both users and tweeters in a single search mechanism. In addition to an algorithm that combines a variety of factors to determine relevance, tweeters can bid on keywords in a competitive marketplace very similar to what now occurs at Internet search engines. This sophisticated combination of factors pushes the best tweets to the top of the results of users’ searches, allowing them to find the most compelling tweeters, and it enables serious tweeters to expand their following quickly and cost-effectively. TweetUp search will work alongside Twitter’s traditional search to provide a richer array of results.

Danny Rimer, a partner with Index Ventures, TweetUp’s lead investor, said, “TweetUp is an opportunity to bring real-time information to the entire Web, and to do it in a way that creates value for everyone concerned. We feel that TweetUp can dramatically improve both the utility and ubiquity of Twitter, and in doing so build a monetization mechanism for real-time search that rivals that of traditional Internet search.”

TweetUp’s search results will be available to hundreds of millions of individuals through revenue-sharing distribution agreements with leading Twitter clients, including one of the leading multi-platform clients, Seesmic, one of the leading Android clients, Twidroid, the leading source of tweets, TwitterFeed, and the leading social media authority and influence ranking system, Klout, as well as popular web sites including BusinessInsider.com, Answers.com, and PopURLs.

Together, these clients and web sites will bring TweetUp search results to more than 40 million unique users per month and serve more than half a billion impressions per month.

“Increasingly, people looking for answers want more than just black and white facts, but also real-time insights relating to the issues surrounding their questions,” said
Bob Rosenschein, Answers.com CEO. “We are at the forefront of meeting that demand, and partnering with TweetUp is an exciting new way to add value to the
Answers.com user community.”

“I have been sharing in social networks and blogs for ten years and realized the power of having a true community,” said Loic Le Meur, CEO of Seesmic. “This is why
I was immediately attracted to working with Tweetup. People who are serious about sharing and having a community around themselves are also often those who have the most interesting ideas to contribute.”

“We believe that the impact of the real-time web, and of Twitter in particular, has only just begun,” explains John Borthwick of betaworks, a major investor in TweetUp, as well as in TweetDeck and Bit.ly. “Because TweetUp will be accessed on mainstream websites across the world, Twitter will be introduced to hundreds of millions of new people. Furthermore, these new users will experience thoughtful tweets, in context, targeted to them according to their areas of interest, and delivered from serious tweeters who care about building a passionate audience.”

“When we created AOL 25 years ago, we believed in the power of community and built a significant company around it,” said Steve Case, AOL co-founder and founder
of Revolution LLC. “Twitter is proving the power of community continues to thrive, and I am excited to be backing Bill Gross and TweetUp as they innovate in the social
media space by making Twitter more useful to a mainstream audience.”

With today’s announcement, TweetUp launches a public beta period in which tweeters can open an account and begin adding search keywords to their profile. For the first 1000 who sign up, the company is providing a $100 in credits to allow tweeters to see how TweetUp’s network can improve their standing in search resultsand attract more followers.

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