For millions of websites, publishers, and online businesses, search is still the king. While social media may have the media’s attention and Twitter and Facebook are garnering a lot of the hype, search still trumps them when it comes to driving traffic and being discovered by potential new customers.

Because of the importance of search traffic to online business, there is an entire industry dedicated to improving websites’ visibility in search engine results: Search Engine Marketing (SEM).

SEM is a complex topic that focuses on search engine optimization (SEO), but also includes the use of paid advertising and contextual advertisements in order to bring a website’s articles or product pages to the top of search engine result pages (SERPs).

While I could write dozens of articles on the art of search engine marketing and SEO, I’m going to focus on some of the key issues and best practices for optimizing your site for search.

Optimize your site

Here’s a video on Yahoo’s CEO Carol Bartz explaining about the new deal with Microsoft.

Video after the jump!

You may also want to hear from Microsoft CEO Steve Ballmer on the deal with Yahoo. Video in WMV and MP4 formats

After 18 months of on/off offers, withdrawals, contacts and discussions, Microsoft and Yahoo have announced a ten-year agreement that will create a new number two in the Internet search market behind Google.

The deal strengthens Yahoo (for the present) and gives Microsoft a better position to gain a healthy share of the advertising revenues. The agreement is good for advertisers, innovation in search technologies and ultimately the consumer.

Below is the full transcript of Yahoo(Carol Bartz)  & Microsoft (Steve Ballmer) with the journalist on a conference call take took place on July 29, 2009.

(Operator Direction.)

ERIC BROWN (Senior Vice President, Global Communications, Yahoo!): Good morning, and welcome to today’s joint Yahoo! and Microsoft conference call. My name is Eric Brown, and you will hear from Yahoo! and Microsoft CEOs Carol Bartz and Steve Ballmer, who will make remarks about the agreement announced earlier today. This agreement promises to dramatically change the Web search experience for consumers and advertisers, and deliver sustained and accelerated innovation to the industry. After their remarks, we will open the call up to Q&A.

Yahoo! and Microsoft will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed during this conference call, in the company’s joint release issued today, and in the risk factor section of each company’s form 10K, form 10Q, and other reports and filings with the Security and Exchange Commission. Neither company undertakes any duty to update any forward-looking statement.

Yahoo! will also discuss the non-GAP financial measure operating income before depreciation, amortization, and stock-based compensation expense, which will be referred to as operating cash flow or OCF. Reconciliation of this non-GAP measure to the most comparable GAP measure is included in the same press release.

But first, Carol Bartz.

CAROL BARTZ: Thanks, Eric.

This is a great day for Yahoo! The agreement between Microsoft and Yahoo! is a game changer, and I’m glad to finally be able to talk with you about it.

Let me start with why this deal is great. Then Steve will talk about it, and then I’ll cover the financials of the agreement.

First let me talk about the benefits for Yahoo! Yahoo! is a great business. You all know that half the Internet users come to us on a daily basis.

But we face a formidable competitor in one aspect, and that aspect is search. It became obvious to us that working with another great technology company would help us share the investment expense to scale the market. This deal enables us to keep a healthy revenue stream and invest in areas critical to our future, while Microsoft invests in search technologies.

We want to invest in what is really important to our future success, including winning audience properties, display advertising capabilities, and mobile experiences.

Through this agreement, Microsoft will provide the search technology that will enable us to innovate for an even better user experience for all those who come to Yahoo!

Our vision is to be the center of people’s lives online, and we must deliver on our vision to be the best possible, whether through popular products and technology like our new homepage or by working with other innovators like Microsoft.

Yahoo! is a place where millions go every day to see what is happening with the people and things that matter to them most. We’re the largest online media company in the world. We’re number one in news, sports, and finance, and a leader in key entertainment properties.

This deal, combined with our leading properties, massive reach, and display ad business, creates an extremely compelling opportunity for advertisers and publishers in the industry. That is what we want to focus on. That is how we create a strong and healthy future for Yahoo!

So, quickly about the deal. This deal only covers the company’s search and search advertising businesses. Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s adCenter platform, and prices for all search ads will be set by adCenter’s automated auction process.

Search will continue to be an integral part of the Yahoo! user experience, and we will continue to integrate search throughout all our properties, and invest in making our user experience even better based on search functionality. But the back-end technologies will be powered by Bing.

Finally, this agreement does not include display ads or other areas of our business. In these areas both companies will still compete.

What this deal is really about for everyone is scale. By combining the scale and technology of both companies, we can offer a real, viable alternative for users and advertisers, which is good for everyone.

For users this agreement will ultimately deliver better search experiences and more relevant ads.

Again, to be clear, Yahoo! will continue to offer search for Yahoo! properties and users. When people search with us, it will still be prominently Yahoo! branded, as it’s always been. At the bottom of the results page it will state “Powered by Bing.”

Advertisers want an alternative that has scale. They will get the benefit of combined marketplace through a single platform.

This deal will create a significant competitive alternative in search. Everyone wants a real alternative, and advertisers are no different.

Significantly, Yahoo! will serve as the exclusive worldwide relationship sales force for both companies’ premium search advertisers. As a pioneer in digital advertising and the number one market leader in display, Yahoo! is uniquely positioned to help advertisers succeed.

For publishers our combined search marketplace will provide better avenues to reach the users they care about. It will also create more competitive bids for search syndication deals than either Yahoo! or Microsoft could offer today.

The combination of Microsoft and Yahoo!’s search businesses will provide the scale for rapid improvement in relevancy, and put choice back into the hands of consumers, advertisers, and publishers, who are increasingly anxious about the influence of a single player.

With that, I’d like to turn the call over to Steve.

STEVE BALLMER: Thanks, Carol.

Let me start by saying how really excited we are to be working with Yahoo! This agreement has been a long time coming, and we are so delighted to see it come to fruition.

This is great news I think for all of our customers. The bottom line is that the agreement will really create and enable us to create more innovation in search, better value for advertisers, and real consumer choice.

At its heart, as Carol said, the deal is about realizing efficiencies through an expanded and more competitive search and advertising marketplace, providing consumers and advertisers with greater transparency and choice, and creating really a strong number two player in search and search advertising.

The agreement allows for both companies to focus on key areas, Microsoft’s deep investments in search and search advertising platform technology, and Yahoo!’s deep focus on consumer online experiences.

The search scale we will get for Bing through this agreement will enable us to provide greater innovation actually in search for consumers and advertisers.

The agreement will provide great momentum for Bing, which has been well received in the marketplace since its launch just over a month ago.

Advertisers and publishers get a competitive alternative, and more opportunities to see their investments go farther.

This really is a win-win agreement for Microsoft and for Yahoo! Both companies benefit from scale and from positive economics. Consumers really will get better products, advertisers will get more value, better return on their investments, and I think it will help the industry as a whole to prosper. It’s a great example of what can be accomplished with shared vision, shared values, and we are super excited to see this relationship flourish and come to life over the next months and years ahead.

And with that, I’m going to turn things back over to Carol.

CAROL BARTZ: Thanks, Steve.

We’ve talked a lot about the big picture benefits to Yahoo! and our users, advertisers, and publishers. Now let me dive into some of the terms of the agreement, and how we expect Yahoo! to benefit financially.

First, some of the operational terms. Our agreement gives Microsoft an exclusive 10-year license to Yahoo!’s core search technologies. They will integrate our technologies into Bing and adCenter, which will serve both our search networks and theirs.

Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers, but we’ll each maintain our own separate display advertising businesses and sales force.

We’ll continue to use our technology and data to enhance other areas of our business, like the user experience and our display capabilities.

And finally and best for all of our users, Yahoo! will continue to innovate and own the search user experience across our network to continuously enhance how users enjoy Yahoo!

Financially this is great for both companies as well. Microsoft will pay us TAC at a rate of 88 percent of search revenues, generated on Yahoo!’s owned and operated sites during the first five years of the agreement. We will also continue to syndicate our existing search affiliate partnerships.

Microsoft will also guarantee Yahoo!’s O&O revenue per search for the first 18 months following implementation in each country.

So, what does all this mean for our financials? While our revenue will come down a bit due to the revenue share, we expect our operating income will be roughly $500 million higher, and we’ll save about $200 million a year on cap-ex. We believe operating cash flow will benefit by approximately $275 million a year. These estimates represent our assumptions at full implementation.

I’m excited that this agreement provides us with the focus and the resources to invest in our audience properties, display advertising leadership, and mobile experiences. But I want to be clear that we haven’t included any specific reinvestment amounts in these estimates.

So, what’s next? Well, this deal won’t happen overnight. We will work with regulators to ensure that they have the information and time necessary to evaluate the transaction.

More broadly, we anticipate closing the deal by early 2010. We will then jointly execute a quality transition to Microsoft’s search platforms in all global markets. We will begin with major markets including the U.S., with transition to Bing in three to six months after close, and with planned migration to all advertisers from Panama to adCenter in about 12 months. Full global transition will take up to 24 months.

Before I turn the call back to Eric, on behalf of Steve and I, I’d like to thank the teams that have worked on this deal tirelessly, with a lot of help from Steve and I, not always so. So, really we’ve had a lot of great Yahoo! and Microsoft bonding already, and we expect the partnership to continue as a great partnership.

And with that, I’ll turn it back to Eric.

ERIC BROWN: Thank you, Carol and Steve. At this time, I’d like to remind everyone that information can be found at our joint Web site, www.choicevalueinnovation.com.

We will now open the call for your questions. Operator?

(Operator Direction.)

MARK MAHANEY (Citigroup): Great, thank you. A question from the me and from Brent Thrill.

First, why not a display advertising component to the deal? It should be a nice win-win given Yahoo!’s strengths in display advertising.

And secondly, can you help us quantify how big the RPS gap currently is and how much financial exposure or how much risk is there to Microsoft that if they can’t, if Microsoft can’t match that, how much payment there could be, fixed payment there could be there? Thank you.

CAROL BARTZ: I’ll start. I’m sure, knowing Steve and I, that we’ll both comment on all this.

On the display side, frankly, we wanted to keep this as straightforward and simple as possible. There is already a lot of technology that the two companies are merging together – not the two companies, Microsoft – and so it just made sense to be straightforward and do the search business.

Steve, do you want to comment on that and the RPS?

STEVE BALLMER: Yeah, I would say just to complete that, I think Carol is right in saying we’re taking a big bite here. What it also allows us — you know, search is a more well-known thing when it comes to automation in the ad selling process. There’s still a lot of innovation to have that on the display side. You get Yahoo! now innovating, and whatever innovation we bring at Microsoft, and I think that’s probably a better way to serve the market, both with common datasets coming out of the search experience. So, that part I think makes sense.

In terms of the RPS gap, there’s sort of, ‘Where are we and Yahoo!,’ and ‘Where are we and Yahoo! versus market leader?’ We and Yahoo! are sort of close, and we both lag Google, and some of that, a little bit of that, is technology no doubt, and some of it, frankly is scale. Having more advertisers participate in the marketplace makes it more relevant, more places to serve up relevant ads and more bids. And I think the deal in and of itself upon implementation will let us close the gap with the market leader.

I don’t — I anticipate with smart use of technology from Yahoo! plus our own current work currently, which is quite good. We have a guarantee. I’m not expecting it to have negative consequences for our P&L, but it’s a risk we’re prepared to undertake.

CAROL BARTZ: Mark, really we have confidence in Microsoft’s plans and their technology and their willingness to invest in this. As much as anything, I would say this is more to make the outside world feel comfortable, because I think we really do feel comfortable with each other.

ERIC BROWN: Next question, please.

(Operator Direction.)

YOUSSEF SQUALI (Jeffries & Co.): Thank you very much.

Carol, you moved from a deal that would generate a boatload of cash to a deal that generated a boatload of value, in your words. Why wasn’t there an upfront fee, and at what RPS run rate would the guarantees be for the first 18 months? I think you guys talked about that, but I’m not sure if there is a way for us to kind of quantify that, which I guess is a quick follow-up on Mark’s question.

And then what is the TAC post the five years? I think the first five years you’re talking about 88 percent, but this is a 10-year deal. So, where do we go year six to 10? Thank you.

CAROL BARTZ: Let me first start with boatloads of value.

What was really important to Yahoo! is that we had a deal that flowed successfully through our P&L. Having a big cash payment upfront doesn’t really help us from an operating standpoint. We really wanted … what was most important to us was a significant TAC rate so that we could therefore have revenue that supported an expense line so that we could invest in the business.

So, I mean, listen, it’s easier to talk about boatloads of cash than value because you guys understand that, but as far as we’re concerned, the boatload of cash is us preserving our revenue line.

As far as the TAC after five years, the reason we didn’t get into it, because it really just adjusts somewhat. It’s not a big adjustment, and that’s depending on whether after five years Microsoft elects to go back and do some of the premium sales. So, it’s nothing significant. It’s just that it’s too hard to explain in this kind of forum.

Gosh, what was the other? I think that was it, right?

YOUSSEF SQUALI: Just the RPS run rate for us to try to triangulate some numbers around it.

STEVE BALLMER: Well, let me try a conceptual, and Carol can add on specifically to what it means.

I think the basic proposition is you take the current revenue mix, search mix, et cetera, that Yahoo! has, and there’s an RPS that they derive from that, and essentially we’re guaranteeing it, which is again there’s the TAC rate, so there’s the 12 percent that goes away but there’s also cost that goes away associated with that.

So, the way I would think of the RPS is saying if it’s the same query mix in the same market at the same time, if everything looks identical at the time of implementation as it looks today, it ensures that revenue only varies by the TAC amount and nothing else. That’s a floor. It’s not a ceiling, but it’s a floor.

CAROL BARTZ: That’s right.

ERIC BROWN: Next question, please.

(Operator Direction.)

ADAM HOLT (Morgan Stanley): And congratulations on getting this deal done.

My question is for Steve. There’s some pretty specific financial targets for Yahoo! in the release. Could you walk through how you think about the financial targets for Microsoft?

STEVE BALLMER: Yeah. The best way to think about this is, you know, we paid a high TAC rate, there’s no question, and so in the short run there’s a little bit of transition costs, a little bit. There will be several hundreds — a couple of hundreds of millions probably over about the first two years of implementation of transition costs that we’re sort of betting into the future.

The upsides for us really come as we’re able to improve the relevance of our search products because ads are part of being relevant, and we have a chance to do a better job of relevance. And then, as we can improve the monetization on both the Yahoo! sites and the Microsoft sites, there’s good opportunity for upside for us in that.

So, we clearly see an upside, but our upside comes as execution really builds. Carol gets some upside in terms of costs in the short run, and then gets this upside.

For us, the investment in the near term will be a few hundred million over the first couple of years, because there’s a lot of work involved in this transition to our platform, and we’re stepping up to that, but there’s a lot of expense associated with it.

ERIC BROWN: Next question, please.

(Operator Direction.)

SARAH FRIAR (Goldman Sachs): Good morning. Thanks for taking my questions, and congratulations, too.

Again, Steve, my question is more for you. On that cost side – other than the transition costs of a couple hundred million, you as a company have recently given guidance on the capex side, and we see that actually scaling back from some of the huge investments you’ve done over the last couple of years.

How should we think about capex going forward as you look at Yahoo!’s datacenters, particularly outside the U.S.? Do you need to go back and make reinvestment there over and above the $2 billion mark that you’ve given as a target for FY10 or can that all be assumed to be encompassed within some of the numbers you’ve already given?

STEVE BALLMER: Yeah, we have some extra capacity we’ll use in terms of the physical datacenters. There will be some additional capex as we get into the thing, nothing that affects the FY ’10 period for us. You’ve got to remember one of the big reasons our capex is down year over year is we’re not building as many buildings in Redmond. Independent of datacenters, that’s not affected by anything we’re talking about here.

So, from an op-ex perspective we have a plan in which over time some Yahoo! engineers may move to Microsoft, but that’s kind of in part of our budgeted thinking. We’ll just have better talent, if you will, to help us. But we definitely will have to invest proportionate to volume, and the ongoing increase in the number of Web documents that need to be indexed, et cetera, and some of that will certainly be incremental to what’s in our current plans. I don’t think we will knock you off your feet with any changes we may make in our guidance, and it won’t be for FY10.

SARAH FRIAR: Okay, good. Glad to hear it. Thanks a lot.

ERIC BROWN: Next question, please.

(Operator Direction.)

MICHAEL LEARMONTH (Advertising Age): Hi. Can you guys describe what if any opposition you expect to face or what kind of convincing you’ll have to do in Washington to make this all happen?

STEVE BALLMER: Yeah, let me start, and then others can throw in.

There really are two different issues. We’ll certainly face — we suspect we’ll face some opposition from the competitor — I would say competitors but it’s really the competitor who may not like more competition, because we actually think this is one of these cases where us coming together will actually provide more effective competition to the market leader, not less. So, certainly we would expect the competitor to be aggressive.

Now, you know, obstacles, I don’t know, we think we have a good case on how this improves competition in the market. It’s good for consumers, the advertiser and the publisher. And obviously we’ll be called upon to present that case in D.C. and Brussels and other places. But it’s been looked at extensively by counsel both at Microsoft and at Yahoo!, and I don’t know if Brad Smith or Mike Callahan, the GCs, want to add on to that, the view of the regulatory.

CAROL BARTZ: Brad, do you want to add?

BRAD SMITH: Yeah, this is Brad Smith.

The only thing I would say is we look forward to moving forward very quickly to provide information to the antitrust authorities in Washington and Brussels and in other places around the world. We’ve been working together. We expect to start the filing process in Washington, D.C. next week.

As Steve said, there is a compelling case that this is going to increase competition. We anticipate that advertisers are going to recognize the better value that this generates. Web publishers are going to recognize the more innovation this is going to unleash.

As to what a company like Google may do, that will obviously be their call. They have 78 percent of the market worldwide for paid search. I don’t know of any other instance where a company with that kind of market share has ever sought to oppose a deal where two smaller companies come together, but they’ll make their own decision, and we’ll look forward to the debate.

(Operator Direction.)

TIM WEBER (BBC): Good afternoon from London, good morning to California.

I’ve got a question, does it have any impact on jobs? Do you envisage that people working on search at Yahoo! move to Microsoft, work for Microsoft or will the Microsoft teams take care of all that and Yahoo! will then see redundancies in its teams?

CAROL BARTZ: I’ll take that one. There’s actually three variables here. Yes, there are certainly many Yahoo! search employees that will be asked to take jobs at Microsoft as they integrate the technology and combine the search market, and frankly run a very good search market. So, there will be that bucket of employees, if you will. There will also be search employees that we look to, to help us on the display side of our business, another aspect of globalizing our audience products in Yahoo! And then unfortunately there will be some redundancies in Yahoo!, so that’s the third bucket.

What I would remind you though is that this is a transition over the next two and a half years. So, virtually nothing will change for the first — well, until we get regulatory approval, which we hope is in early 2010. And then after that it’s on the outside 24 months for transition. Hopefully together we can do it faster, because we’re all anxious to get this going. But yes there will be redundancies; it just is in the future.

TIM WEBER: If I may ask, do you have a number to go with this?

CAROL BARTZ: You know, that’s all still in the planning, and frankly now that it’s finally public inside the company we can be more active in the planning with management at all levels. So, we have no numbers to announce at this time.

But what I would tell you is the reason we gave you what we could call the run rate financials, so think of those are the financials three years from now, so that you all could get an idea of what Yahoo! looked like financially after this deal has totally transitioned.

TIM WEBER: Thank you.

ERIC BROWN: Next question, please.

(Operator Direction.)

THOMAS KUHN: Thank you very much. Congratulations to you both.

Everybody is speaking a lot of financials. What I would like to understand is how much does this affect the part that search plays in your service offerings in general to the consumers, I mean information such as the place, location where people are while they’re using your site such as the Live Services, maybe mobile, or the mobile Yahoo! services, affect businesses where you still compete? How do you want to keep these parts of the business separated?

STEVE BALLMER: The way the deal is constructed, which was actually probably the most complex part of all the discussion, is to ensure that for our engineers on both sides we can essentially have the same ability to innovate around and about and using search as part of other things as the other company can, and that we can treat both of our respective users properly with respect to the privacy, et cetera, that they would expect and deserve in those relationships.

And that means you really have to say what data gets shared and how does it get shared and how does it get shared properly from a privacy perspective, what APIs and technologies need to be equally open and visible to Microsoft engineers and Yahoo! engineers to create value add that embeds and includes and build on the shared technology.

And during at least the last many months that Carol and I were getting these questions, frankly the big thing was to work through not just the high level financial principles but precisely the details and the working process around the issues that you just mentioned, Tom.

CAROL BARTZ: Yeah, we were very, very careful and systematic to understand how data information flowed, as Steve said, for the privacy of our customers, but also so that both of us could innovate and have a unique experience for our users, whether it be PC based or mobile based.

THOMAS KUHN: Sorry, to add, with IBM being in the lead for the development of the search technology, and part of that is, for example, the availability of location information, how can Yahoo! then be innovative?

CAROL BARTZ: Well, I think you meant Microsoft, not IBM, but –

THOMAS KUHN: Ah, Microsoft, yeah, sorry for that. (Laughter.)

CAROL BARTZ: Yes, there’s a lot of innovation that happens above just the search results. It’s how it’s integrated with search that goes on in the Yahoo! site, it’s the kind of learning that we can use from search data for display targeting and for relevancy and matching. So, without getting too technical, there’s a lot that can happen.

THOMAS KUHN: Okay, looking forward, what you see –

CAROL BARTZ: We’ll be talking about that in the future.

STEVE BALLMER: Yeah.

THOMAS KUHN: Thank you.

ERIC BROWN: Next question, please.

(Operator Direction.)

STACY KRAMER (Paid Content): Hi, this is Stacy Kramer (ph) from Paid Content.

I was wondering if you could talk about what this means in terms of mobile and platforms beyond the Web.

CAROL BARTZ: Well, we certainly — again we spent time talking about mobile. We have the option of using the Microsoft technology for the mobile Web experience. It’s not exclusive as it is on the PC. But we certainly have the benefit of it, and we will start, in fact, exercising that right to do it.

So, the only difference is it’s not exclusive. If somewhere down the road we wanted to switch, we could, but there’s no intent in that arena.

STACY KRAMER: What are the benefits of using Microsoft for the mobile?

STEVE BALLMER: I think all of us would say we don’t know what we don’t know about all of the scenarios that we’re going to try to invest in, in the mobile case. If — and Carol can speak for herself, but it won’t make sense to do a whole separate crawl of the Internet for Web sites to do mobile search, and yet what that really looks like, even whether the ad model for mobile search looks like the ad model frankly for PC search, I think that’s an interesting question, and this gives Yahoo! flexibility to consider that broadly.

CAROL BARTZ: I think the thing is for us is what we’re very interested in, just like by the way with PC-based, we’re very interested on doubling down on the mobile experience to integrate search as part of that, to integrate our content such as our normal finance, news, sports, homepage, that sort of thing. So, being able to have an integrated search is important, and it also frees us up to, as I said, really invest in the other areas of the mobile experience.

So, again it’s a partnership that is very supportive, and allows Yahoo! to do what it does well, and that’s really be the center of information, entertainment, friends, family, activity, and that sort of thing, both the desktop and the mobile experience we’re looking for.

STACY KRAMER: Thanks.

ERIC BROWN: Next question, please.

(Operator Direction.)

SCOTT DAVIS (JPMorgan): Yeah, hi, good morning.

I think I have three questions. The first is you said what the TAC rate was for Yahoo!’s O&O search, but what is the TAC rate to be paid or the revenue split to be paid for when Yahoo! does selling on Bing.com is the first question.

The second question is, Carol, in your projections for what the financial implications will be, what assumptions are you making for the risks surrounding your affiliate relationships with others, and do you see that in jeopardy?

And then the third question, which is probably the hardest, is I think both you and Steve spoke about the importance of scale for advertisers, and it seems like it’s easy to envision Microsoft increasing its advertisers, at least up to the Yahoo! level, but the hard part is there’s probably 800,000 other advertisers that are solely with Google. So, what are your expectations for getting some of those extra 800,000 to say it’s not worthwhile running a multiple campaign because of the combined Yahoo!-Microsoft?

CAROL BARTZ: Yeah, okay, let me — I’ll start with that. What is sold on — as part of the marketplace that is Bing is there is no TAC on that, that is Microsoft’s revenue.

STEVE BALLMER: Yeah, one thing that’s interesting to say is when our salespeople — well, our salespeople — when ours, the Yahoo! salespeople who are our salespeople, when the salespeople sell –

CAROL BARTZ: Their salespeople.

STEVE BALLMER: They’re the salespeople they are — you don’t know when you sell a campaign whether that keyword bid is actually going to show up on a Yahoo! — it’s a combined marketplace, so you’re — actually you’re buying the keyword in both environments, you’re not buying the keyword in one environment or the other.

So, in a sense having — it’s just sort of a weird anomaly to say what’s the TAC on the back-end. So, we built it into one integrated set of economics, I would say.

CAROL BARTZ: That’s exactly right. So, it’s — and the good news actually for both of us is it’s not as though either in the automated search market or the face-to-face market, you’re really selling a combined market, and so it’s the strength of the properties as to where the money actually lands.

As far as the affiliate relationships are concerned, we have worked with Microsoft to work with us on the affiliates, and that’s why we actually have an agreement around affiliates for the first five years, because it’s very logical once arrangements end and that the affiliates will go straight to Microsoft, and that’s part of the financials that we have in here.

As far as the scale for advertisers, it really is — first of all, I want to say two things. One is advertisers, especially as you would say the smaller advertisers, want to make sure that there is enough meaningful market for them, and they don’t want to learn three platforms necessarily.

So, what’s really important is that there is scale and, you know, let’s face it, they all — because we all know by the 70 plus percent market share, they know how to enter into the Google system. This, by having one system, adCenter, as opposed to both Panama and adCenter, we really expect — and Microsoft’s commitment to an ease of use platform, we really expect that we can provide a much better experience for this tail of advertisers and, in fact, win them over to this bigger marketplace.

STEVE BALLMER: When you give the total number of advertisers for Google, you’re highlighting an issue, which the gap between where we will be when we put our marketplaces together and Google in the U.S., we’ll be there but it’s not 800,000. The bulk of the 800,000 problem actually occurs in — primarily actually in Western Europe but outside the United States where our combined share is not the close to 30 percent combined share or 25 to 30 percent share we have in the U.S., but it’s significantly lower. I would estimate on paid search Google is something like 92 percent of the market in Western Europe, and at least there’s a clear alternate choice, and so those 800,000 advertisers, many of them who are in the U.S., at least knows now clearly here’s the second place to work, and hopefully that helps us get those guys to come into the system so we can serve up their ads in a relevant fashion as part of our joint offers.

SCOTT DAVIS: Hopefully that’s right. Thank you.

ERIC BROWN: Next question.

(Operator Direction.)

THERESA HOWARD (USA Today): Hi, Steve and Carol.

I had a couple questions. One was just confirming that separate teams are going to remain for display but exclusive search is going to Yahoo! That’s the setup for that, correct?

CAROL BARTZ: That’s correct.

THERESA HOWARD: Okay.

Two other questions then. I’m a little curious, with the development of Bing — and Steve, I heard you talk about Bing at Cannes, you did a great presentation overall for Microsoft there. Can you guys give me a little bit of the thought between Microsoft picking up the exclusive 10-year license to Yahoo!’s core search versus flip-flopping it with Bing sort of being the new innovative search tool?

And then the second question is — I forgot at the moment, but I’ll get back to that. Can you answer the first one?

STEVE BALLMER: Okay. Our engineers know Bing, and so obviously our engineers will build from the Bing platform. But, there’s a lot of both engineering know-how, code, et cetera, and in the details, no, we haven’t looked at Yahoo!’s code, and blah, blah, blah, blah. But we wanted to make sure that we could put together the integrated value of our expertise and code and Yahoo!’s expertise and code. So, when Carol talks about engineers joining the team, that’s expertise. We have a license to code. There are smart things, certainly I think it’s well-known that Qi Lu, who runs our online business, spent a lot of time at Yahoo!, has a lot of respect for the intellectual property and value that’s been built into Yahoo!’s site. Exactly what that looks like, whether it’s rip and replace the six lines of code, or choose the expertise, and integrate, but we’ll build from Bing, integrate good value, good technology from Yahoo!, but because it’s not the way the deal is structured, the burden is on us to deliver the goods and to enable Yahoo! to be successful, and make the RPS guarantees, but we’re very pleased that it’s not just a rip and replace. We have the luxury of getting full integrated value out of this thing.

CAROL BARTZ: And Theresa, what I would also say is, that’s the Bing side. On the pay search side, actually, which is Ad Center and our Panama, we actually are the provider for Microsoft now in most of the international geographies. In fact, it is a Yahoo! technology there that Microsoft is using. So, there’s both platforms to consider, the algo platform, which of course is Bing, and the pay search platform. So, there’s a lot of, I think, respect for both technologies, and it just behooves Microsoft to take the talent and the technology that will move this market forward as fast as possible.

QUESTION: Great. And I remembered what my other question was. You guys have both mentioned innovation. Can anybody share any for instances of what you foresee in terms of the innovation as part of the deal?

STEVE BALLMER: Well, let me start, and I think Carol should also have a chance to talk about the UI innovation. We’re moving along. What it means we have access now to two of the best sets of technology in this area; and hey, the third one is a market leader with a lot of experience. Do we think we will have better algorithms for relevance because we have the combined opportunity? Yes, we do. That’s number one.

Number two, it turns out there’s a feedback loop in the search business, where the most searches you serve, or paid ad searches you serve, the more you learn about what people click on, what’s relevant, and it turns out that scale drives knowledge which then can turn around and redrive innovation and relevance. So, actually even our ability to understand our customers and innovate around that is enhanced by putting the two assets together. It’s not just putting them together, but putting them together in this business, which is unlike other businesses, there is a return to scale from seeing that much more Internet activity than either Yahoo! or Microsoft sees independently.

CAROL BARTZ: The other thing I would say is, and we don’t talk about this very often, but I think we should talk more often about the innovation on the sales and marketing side of it, because online advertising is in its pre-infancy, and how we work together with the large CMOs and the large marketeers, and the large agencies to really bring digital advertising to single digits, to where it should be considering the amount of time the consumers are spending online is also innovation that certainly Yahoo! is ready to step up to as the premiere sales force, but also you combine that with ideas on UI in the backend, and it’s what we can get consumers interested in. So, it’s not all this innovation in technology, it’s innovation in how it’s used, it’s innovation in how it’s bought, it’s innovation in how we attract customers. And all of that, by the way, as Steve said, is just enhanced by the fact that it’s a bigger marketplace.

QUESTION: Okay. Great. Thank you.

ERIC BROWN: Next question, please.

(Operator Direction.)

MIKE LIEDTKE (Associated Press): Hi, Steve and Carol. I was just wondering if you could talk about why this particular deal is better than the one that Microsoft had on the table for Yahoo! last year in the May, June, July period?

CAROL BARTZ: Well, I’ll talk about that, since Yahoo! is at the receiving end. First of all, I’ve done some exploring of that, and there’s actually more fiction in the market than there is fact, but nonetheless the big difference in the deal, or the perceived deal was that it was considered more of an up-front payment, and a low TAC. And that, again, as I said earlier, was not interesting to us because we really are trying to run a long-term business here that we can invest for our success and our future. We feel that this is a true partnership with the technology and the selling. We have control this time as opposed to last summer over the Yahoo! user interface. And, frankly, both of us have real skin in the game, and I think real excitement around it.

Now, I wasn’t here last year, and Steve can certainly comment, but the most important thing for us is, Yahoo! needed to get focused, and we needed to focus again on what our mission is, and that’s to be the center of people’s lives online, and that is about great content on our audience properties, great mobile experiences, and really powered by, again, the technology that Microsoft has stepped up to, this deal makes a lot of sense right now.

STEVE BALLMER: The deal last summer was not worked on between operating management in Yahoo!, and operating management at Microsoft. So, it was, I would say, the way it was tailored was far more kind of with an investor as opposed to an operator. And you can create long-term shareholder value, frankly, either way. I look at it from Microsoft’s standpoint, and I say the deal is different. But for Microsoft, this deal is not better than the last deal, it is different than the last deal. It’s definitely a higher TAC rate, there’s no question about that, and it’s less up-front. And any reasonable analyst will tell you, those things trade off, and operating management had a clear set of principles here, Carol did, for what she and the team here at Yahoo! wanted to do.

And, given that we’re working with operating management this time, our job is to try to find a deal that’s good for our shareholders, which I think this is, and good for the Yahoo! shareholders, and actually made sense in terms of a mission for the ongoing operating business that’s Yahoo!. So, it is different, there’s no question it’s different, but from an economics standpoint, NPV, whatever kind of numbers people are going to run, I think it shakes out to be more similar than different.

ERIC BROWN: Next question.

(Operator Direction.)

KARA SWISHER (All Things Digital): Hi, you guys. Thanks a lot. Congratulations. I wanted to talk a little about execution and speed, and who is going to be in charge of doing this coordination, because I would assume right after approval you’ve got to be ready to hit the ground running. Then secondly, I want you to sort of talk looking backwards, what was the thing that sort of pushed this finally through from your perspective? There’s been a lot of water under the bridge here, so to speak.

CAROL BARTZ: From my position on speed, the team will consist of people from both sides, Kara, because frankly we’re interested in having a very smooth transition. Algo is one thing that’s just much more of almost an automated process. But, transferring the paid search so that people are comfortable with the platform that they can actually the platforms actually work for them and so forth.

So, that will be a team on both sides, not that different, for instance, than when I wasn’t here, but when Yahoo! went from Overture to Panama. So, we’ve already had experience in that. It doesn’t make it any more fun, but we’ve had experience in that. And the good news is, Qi has had experience in that, on the Microsoft side when he was here at Yahoo!. So there’s just a lot of people with how to move these markets. So, it’s a team on both sides.

As far as who’s in charge

STEVE BALLMER: Yes, and then on the sales side we have less experience, but there’s also on this thing clear leadership. On the sales side, Yahoo! leads and Microsoft is working obviously, we’re working together and care a lot about it. But, Yahoo! has got the execution responsibility. Flip, on the engineering side we clearly have the we have the execution responsibility, the financial guarantees, et cetera. So, we’ll both we both take the lead, but we’ll both have participation.

Certainly the team that put this thing together on our side looked like the leadership of that business, Satya Nadella, Qi Lu, Yusuf Mehdi, I mean, it’s the people who run our search and online business, and the people we were working with, Hillary and other people here at Yahoo!. I mean, it’s the people who run the business on this side, as well. And this is not a minor project, this is a major execution challenge that both teams are signed up from the top down to execute on professionally, obviously.

CAROL BARTZ: And Kara, as far as what finally pushed this through, it’s not that it’s any one thing, it was really more about understanding and trusting that we really could have a partnership. And that takes some time. It takes some time in defining things, and stepping back and looking at them again. So, there’s on one certain thing, it’s just finally the comfort level was there. And it just started making more, and more sense. So it’s like the proverbial snowball down the hill that once it gained momentum, and people actually said, yes, this is going to work.

STEVE BALLMER: One thing I’ll add, and I’ll probably get in a little trouble with somebody, but I’ll add it anyway, it’s not like we come in here with like a two-page terms sheet.

CAROL BARTZ: Yes, it is a little bigger than that.

STEVE BALLMER: I think we have well over 100 pages written to describe what we’re doing. So this wasn’t just, hey

CAROL BARTZ: That Steve and I can tell you in about 30 seconds, so that’s our support staff.

STEVE BALLMER: Right, but it’s important to say, this is what we’re spending our time on, wasn’t the sort of high-level abstractions. We actually kind of worked through what does the operating principles of cooperation look like in the partnership, as Carol said, and that made us confront a lot of issues. And I think it was great.

KARA SWISHER: Just one more, does that create a distraction? How do you cut through the distraction when you have, you keep calling it the competitor and the market leader, but Google as one company. How do you it has to come from the highest level, presumably.

CAROL BARTZ: You mean, how do we stop distraction going forward?

KARA SWISHER: Yes, doing a partnership is harder, in terms of keeping together.

CAROL BARTZ: Well, sure it is. That’s why we had to make sure we were really committed. I mean, dating is one thing, but having a partnership is another. We wanted to make sure we were really committed. And you’re right, I mean, it is a distraction, and we have to be clear about that, and therefore be clear about how we operate going forward, especially on the Yahoo! side, Kara. This is I mean, this is just one of Microsoft’s businesses, but the good news is we’ve got the right organization, we think, to manage all of the businesses, and we’ll put the right team in place to work the transition. So, the good news is, once we reached the point where it was believed to be advantageous for both companies we could move forward. That’s how partnerships work.

ERIC BROWN: Operator, we have time for one last question.

(Operator Direction.)

DANNY SULLIVAN (Search Engine Land): Hi, thank you.

Can you explain a bit more what’s going to happen with other aspects of search around Yahoo!, for example, Yahoo! news is going to be powered by search, is that suddenly going to be powered by Bing news search? What happens with Delicious, is that a search property or not? What happens with the Yahoo! Directory? Is paid inclusion going to continue with Bing taking over? Does that go away? I mean, search is spread out all over the place, and mostly we’ve been talking about Web search.

CAROL BARTZ: yes, we’ve been talking about Web search, and we talk about internal Yahoo! search, both as we call it sort of horizontal and vertical, that is some of the innovation that we’re looking at doing. So, it is and that’s, by the way, one of the issues that we really needed to work out is at what point do we just take the 10 link algo information from Bing, and do something on top of it as opposed to what we do horizontal.

Let me see, Mark, what would you add to that? And I think the other thing you asked about paid inclusion, we’re going to decide on that later. So, there’s still some of the aspects of these parts of the issues that we’ll have. But we have full flexibility, we’ve worked this out with Microsoft. We have full flexibility on what to do inside our site. So that’s the important thing is we wanted to really understand what to do inside our sites, because our properties have there’s a lot of value in being able to search our properties, sports, finance, that sort of thing, and to add a different search experience to them.

STEVE BALLMER: We, to the degree possible, because we’re anxious to see Yahoo! take full advantage in various parts of its network to our search technology, and that’s why it was important for us to be able to structure the agreement that gave Yahoo! full flexibility, and so that was actually an important principle on both sides, and now exactly where that will play off the Yahoo! team I’m sure will tell you over time.

ERIC BROWN: Great. We’d like to thank all of you for joining us today. And remind you that you can find more information on both the Yahoo! and Microsoft Web sites. I would also like to encourage you to check out our joint Web site at www.choicevalueinnovation.com. Thank you again, and have a great day.

STEVE BALLMER: Thank you.

CAROL BARTZ: Thank you.

Microsoft has launched its new search engine called Bing (www.bing.com) to replace Live Search.

Still in Beta, users typing in www.live.com or searching at MSN.com will be diverted to Bing.

Know as a “decision engine”, according to the largest software maker in the world, you can use it to search the web, news, images and the best part is xRank which shows you the top searches.

Personally, I tested out Bling and it does not seem to impress me. What about you?

Fact Sheet from Microsoft:

Making Search Easier

Almost any search engine can provide basic results, but with Bing, we’ve improved many aspects of the search experience.

• Home page. Because you may not always know about the range of content a search engine can find for you, the Bing home page includes a beautiful new image daily, information hotspots embedded in that image, and clear links for starting your searches for video, news, shopping, travel, images or maps.

• Autosuggest. Bing examines what you are typing in the search box and will automatically suggest similar terms or common refinements related to the term you are typing. For example, when searching for “California,” you will see common related searches, including “California DMV,” “California lottery” and “California ski report.”

• Best Match. The Bing Best Match feature is designed to make finding relevant information easier by cutting down the number of clicks and getting you to your final destination faster. Best Match results include customer service numbers for retail sites, the ability to track a package right from the search page, deep links to common pages within the site and much more.

• Document Preview. Nearly one-quarter of searches result in rapid click back, when you realize that the search result was not what you were looking for.2 Document Preview lets you hover over a search result to see a preview of the site’s content, which helps you determine whether the site is likely to contain the information you’re looking for — before you click.

• Instant Answers. Bing provides Instant Answers that immediately return highly relevant direct answers in response to a specific search. For example, entering a flight number will return the most recent flight information and display it prominently in the results, saving the hassle of going to a separate page. Other Instant Answers on Bing include stock prices, local weather, sports scores and more.

Making Search More Organized

Our research indicates that 72 percent of people surveyed said current search results are too disorganized.

To provide order to the chaos of search, Bing analyzes search results for certain types of search terms and organizes them so they’re easy for you to navigate. These categories include travel, shopping, health, technology, autos, entertainment, sports, animals and more.

• Explore Pane. Located on the left side of the screen, the Explore Pane lets you easily filter search results. Features in the Explore Pane include categorized search results called Quick Tabs, links to related searches and past searches in Session History. The Explore Pane also can be used in the local, travel and shopping experience for powerful refinement of your search results.

• Quick Tabs. Half of all searches are eventually refined to find more specific results.4 Quick Tabs anticipate your intent when searching and offers easy access to some of the most common refinements for a given search. For example, when searching for a favorite musician, Quick Tabs let you filter results by albums, biography, videos and images. These tabs change dynamically based on the search term. Searches for a certain city name yield Quick Tabs for tours, travel and images; searches for a car model generate categories on reviews, accessories and videos.

• Related Searches. When searching for a specific result, our research has shown that people also like to expand their search to explore related topics. After making an initial search, Related Searches provides a list of related search terms, helping you easily expand a search to find more great results.

• Session History. Nearly half of all searches are a repeat of a previous search.5 Session History provides easy access to searches from your current search session so that you don’t need to initiate a new query to get back to an earlier result.

• Video search. Bing video search helps make finding, previewing and watching videos easier. Bing indexes content from video sites across the Web and our own index of full-length television shows. It also includes filtering tools to narrow a search to make it easier for you to find the exact video you’re looking for.

• Image search. Bing image search includes infinite scroll, which lets you easily browse image results without clicking to a new page. Bing also has powerful filtering tools for images to make it easier to find just the right image.

• News search. Bing news search lets you search the latest news from across the Web and receive news alerts.

• Bing Maps. Bing Maps lets you easily find, discover, plan and share location information, including maps and directions and engaging bird’s-eye,6 3-D and aerial imagery.

Providing Tools to Help You Complete Tasks

Bing was designed to help you make smarter, more informed decisions faster. Bing focuses on four main areas:

• Shopping. Bing combines many of the shopping features available across the Web into one intuitive and easy-to-use experience. In addition to providing many product search refinement tools, Bing also scans the Web for user and expert reviews, organizes them by product attribute, and then ranks the sentiment in the reviews as either positive or negative. This enables you to filter quickly through lots of information to inform a purchase decision.

• Travel. BingTravel analyzes billions of pieces of airfare and hotel data to offer you flight Price Predictors and hotel Rate Indicators. Based on science, not marketing, Bing Travel enables you to make smart, well-informed decisions when planning a trip, every time.

• Local. Today’s search engines don’t always help people make informed decisions about the quality of a restaurant or the best way to contact a local mechanic. Bing presents relevant content including user reviews aggregated from local content sites, hours of operation for local businesses, one-click directions, maps and traffic reports.

• Health. Bing helps people find health information online. While there is no substitute for the expertise of a trained physician, Bing provides you with easy access to medical information from nine trusted resources to help you make more informed decisions about personal care.

Here is the official press release from Microsoft:

REDMOND, Wash. — May 28, 2009 — Microsoft Corp. today unveiled Bing, a new Decision Engine and consumer brand, providing customers with a first step in moving beyond search to help make faster, more informed decisions. Bing is specifically designed to build on the benefits of today’s search engines but begins to move beyond this experience with a new approach to user experience and intuitive tools to help customers make better decisions, focusing initially on four key vertical areas: making a purchase decision, planning a trip, researching a health condition or finding a local business.

The result of this new approach is an important beginning for a new and more powerful kind of search service, which Microsoft is calling a Decision Engine, designed to empower people to gain insight and knowledge from the Web, moving more quickly to important decisions. The new service, located at http://www.Bing.com, will begin to roll out over the coming days and will be fully deployed worldwide on Wednesday, June 3.

The explosive growth of online content has continued unabated, and Bing was developed as a tool to help people more easily navigate through the information overload that has come to characterize many of today’s search experiences. Results from a custom comScore Inc. study across core search engines show that as many as 30 percent of searches are abandoned without a satisfactory result. The data also showed that approximately two-thirds of the remaining searches required a refinement or requery on the search results page.

“Today, search engines do a decent job of helping people navigate the Web and find information, but they don’t do a very good job of enabling people to use the information they find,” said Steve Ballmer, Microsoft CEO. “When we set out to build Bing, we grounded ourselves in a deep understanding of how people really want to use the Web. Bing is an important first step forward in our long-term effort to deliver innovations in search that enable people to find information quickly and use the information they’ve found to accomplish tasks and make smart decisions.”

A New Approach to Internet Search

Based on the customer insight that 66 percent of people are using Internet search more frequently to make complex decisions,* Microsoft identified three design goals to guide the development of Bing: deliver great results; deliver a more organized experience; and simplify tasks and provide insight, leading to faster, more confident decisions. The new service, built to go beyond today’s search experience, includes deep innovation on core search areas including entity extraction and expansion, query intent recognition and document summarization technology as well as a new user experience model that dynamically adapts to the type of query to provide relevant and intuitive decision-making tools.

The new brand portfolio will include the following changes to existing Microsoft programs:

Microsoft is committed to building better tools to help people find the shortest distance from their initial search query to the point of making an informed decision. Bing is an important first step toward this long-term vision and a strong indicator of Microsoft’s commitment to move search technology forward for customers.

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

I am sure you have seen people who are that lazy to lift their fingers and find that simple answers or information via Google.

EDUCATE THEM!!!

It is time to tell them that they can find the info they need by doing a simple Google Search.

Meet “Let Me Google That For You”

To educate these people who are lazy to Google, visit http://lmgtfy.com and type in a search. You will then be given a URL which you can forward it to the person who is lazy to do that simple search.

When the person opens up the URL, he/she will see how a Google search is performed with a message “Was that so hard” and then the person will diverted to the real Google results.

Isn’t this a simple way to educate a person who is too lazy to Google something?

Under pressure from regulators, policymakers and privacy advocates around the world, Google said late Monday that it would further tighten its data retention policy. In its official blog, the company said it would “anonymize” search records after 9 months, rather than the current 18 months.

Google has always kept logs of all queries conducted on its search engine, along with IP addresses — digital identifiers linking those searches to specific computers and Internet browsers. Before last year, Google’s retained those logs indefinitely. But in March of 2007, the company said it would begin anonymizing those logs after 18 months. Other search companies quickly followed suit, unveiling their own, more privacy-friendly policies.

Google’s move of last March did not please all privacy advocates, and clearly, it was not enough to placate regulators, especially in Europe. In its blog post, Google said it adopted the tighter rules reluctantly, as data retention allows it to offer a better service for users. “While we’re glad that this will bring some additional improvement in privacy, we’re also concerned about the potential loss of security, quality, and innovation that may result from having less data,” the company said. And the company suggested that a further shortening of its data retention period would do little to protect users’ privacy.

Chris Hoofnagle, a privacy expert and senior fellow at the Berkeley Center for Law and Technology said the new policy was in line with Google’s approach to privacy. “Google has a vision for privacy where individuals will not hesitate to share even sensitive personal information in exchange for access to good products and services,” he said. “Key to achieving that vision is the removal of consequences for liberal sharing of personal data. Shortening the identifiable storage time reduces the risk of unintended, unforeseen uses of the data.”-NyTimes

Looks like Singapore is ahead of South East Asia countries including Malaysia with the launch of its new local search engine-Rednano.

Rednano is Singapore’s first local search and directory engine.

It allow you to search the web, images, maps, directory, news and people from Singapore. You can also use it for searching the world wide web which the results are powered by Yahoo.

A local mobile search engine is also available. More here.

Download the rednano tool bar here to search from your web browser.

If you run a .sg website, rednano will definitely crawl your site., if not make a request here.

Although it is still in Beta, at least Singapore has one. When will Malaysia have its own local search engine? Probably 2020?

AOL in US is shutting down some of its Web and mobile based services because it is not gaining enough attention in the US.

I think that AOL should look in other parts of the world for new business opportunity. For an example, service like Xdrive and AOL Pictures that it plan to shut down will work in Asia since there are not many such services based in Asia.

If AOL could launch services such as Xdrive and host it in Asia, users will definitely use it since it is localized and the files that users are uploading and downloading don’t have to travel across the other part of the world(US), thus ensuring good user experience.

The world is changing, even bigger companies like Yahoo! is trying get attention in Asia with localized services and partnership.

It is time for AOL to look out the box, if not, AOL will disappear within the next few years.

Here’s an article from NYT:

AOL will phase out several online services as the Time Warner unit continues to struggle in its transition from a business model based on subscription fees to one based on advertising revenue.

AOL will put out to pasture Xdrive, a hosted-storage service for individuals; AOL Pictures, a photo sharing and management site; and Bluestring, designed for sharing photos, music and videos, according to an internal memo obtained by technology news site TechCrunch.

In the memo, AOL Executive Vice President Kevin Conroy said these and mobile services AIM World and MyMobile will be “sunset” because they haven’t gained enough popularity. A source close to AOL said the leaked memo is legit and that it was intended solely for Conroy’s team.

AOL’s popularity problem among end users and advertisers seems widespread, judging by the anemic growth AOL achieved in advertising revenues in the first quarter: 1 percent, when compared with the same quarter last year.

AOL has been on a years-long shift away from its traditional business, based on charging people for dial-up Internet access service and for exclusive online content. It has been trying to move to a model based on online advertising, which has been experiencing strong growth in the past five years.

However, while some of its services are undeniably popular, like its AIM instant messaging, AOL has failed to develop innovative services in growth areas, resorting to acquiring or creating many “me-too” services in markets where dominant players are already entrenched.

For example, AOL Pictures, its original photo upload and management service, couldn’t compete against more technically advanced competitors like Flickr, which was founded in 2004 and acquired by Yahoo the following year. Meanwhile, Bluestring seems very similar to much more popular services like Photobucket, Slide and RockYou.

Unable to gain an edge through technical innovation, AOL has been investing heavily on acquiring advertising service providers like Advertising.com, Tacoda, Third Screen Media, Quigo, Lightningcast and AdTech, hoping to capture a piece of the action that way, but that strategy doesn’t seem to be working too well either.

In its first-quarter earnings announcement, Time Warner stated that AOL’s ad business had done well in sales to external sites and in paid search, but that it had been hurt by a decline in display ads.

AOL’s ad revenue growth fell way below the U.S. rate. According to the Interactive Advertising Bureau (IAB), U.S. online ad revenue grew 18.2 percent in the first quarter.

This is the latest trimming of online services at AOL, which last year eliminated about 50 of them, as the company has become much more selective about maintaining only products that directly support the online advertising strategy, the source said.

AOL will try to sell Xdrive, AOL Pictures and Bluestring so that existing users of those services will be able to transition to a new provider, but if no buyer is found, the products will be shut down by the end of the year, according to the source.

If the services are closed, AOL plans to either burn end users’ content into CDs and DVDs and send it to them or walk them through how to save the photos, videos and other media to local hard drives, the source said.

According to the memo, AOL also plans to merge its Video Portal with its AOL Programming Video Experiences by the beginning of the fourth quarter, as well as try to boost the online ad revenue generated by the AOL browser toolbar, desktop software, Webmail service and Truveo video search engine.