“Microsoft and Yahoo!’s share of online paid search advertising queries in Australia was limited,” the Australian Competition & Consumer Commission said in its notice of approval. “In combining search engine platforms, Microsoft and Yahoo! may have been able to achieve the necessary scale to provide effective and sustainable competition to Google, which had a very large share of online paid search advertising queries.”

Great news for the two companies, whose plan to consolidate two of the search market’s three largest players is currently under review by antitrust regulators at the U.S. Justice Department. Should it be approved, Microsoft (MSFT) and Yahoo (YHOO) will together control nearly 30 percent of the U.S. search market, giving them a better chance to compete with Google (GOOG), which holds a roughly 65 percent market share.

“We continue to believe that this deal will create a true, competitive alternative in the marketplace that will benefit consumers, advertisers and publishers,” the companies said in a joint statement. “We remain hopeful that the agreement will close in early 2010.”

“The big steps we’ve been out and after for the last several years in search [have] not been achieved and you’d have to say that the future is speculative. We’ve been asked a lot whether we’re open to consolidating transactions in the area of search. The answer is yes and it’s unlikely that we would be the consolidator.”

– IAC CEO Barry Diller

If Barry Diller is looking for somewhere to unload IAC’s Ask.com search engine, he’d be wise to consider Microsoft–if he doesn’t have that in mind already. Analysts reflecting on Diller’s recent remarks about Ask’s “speculative future” say Microsoft is the most likely buyer if IAC (IACI) is truly serious about dumping the little search engine that couldn’t.

Ask, analysts note, has about four percent of the domestic search market, which would give Microsoft (MSFT) a nice little bump up from the 9.4 percent market share it currently claims. And it certainly wouldn’t hurt that a Microsoft acquisition would undoubtedly mean the end of Ask’s relationship with Google (GOOG).

“Right now, Microsoft wants share so they could pick up those points from Ask,” Colin Gillis, an analyst at Brigantine Advisors, told Reuters. “Plus it has a double impact since Google powers Ask’s paid search.”

And speculative is an apt word for it. With just four percent share of the search market, according to comScore (SCOR), Ask has long been the inveterate fourth-place player in a contest increasingly dominated by Google (GOOG). And though it has certainly tried, Ask just can’t seem to make any headway. It isn’t fighting a losing battle, it’s fighting one that was lost long ago. No surprise then to hear that Diller is tiring of it.

Asked during an earnings call Tuesday if IAC (IACI) would consider selling the search engine, Diller said it most certainly would. “We’ve been asked a lot whether we’re open to consolidating transactions in the area of search. The answer is yes,” he said. “And, it is unlikely that we would be the consolidator.”

Obviously.

So Ask is for sale. The question now is who wants it?

Why? As research house Jefferies & Co. explains in a research note to clients today, if Twitter hasn’t yet managed to transform its popularity into significant revenue, how will Microsoft (MSFT) or Google (GOOG)?

“While we believe Microsoft pulled off a little bit of a media/PR coup by announcing the Twitter deal and forcing Google to rush into a similar deal, we do not believe Microsoft will be able to capitalize on its first mover advantage in the short run since neither search engines nor Twitter have figured out how to monetize the data streams from Twitters (affectionately known as Tweets),” Jefferies analysts wrote.

“We believe that users focused on real-time data would be less tolerant to advertising,” the research note adds. “That said, we can see new business models emerging down the line where the realtime tweets blended with local information (traffic conditions, flight arrivals, etc.) could be more easily monetized and where ‘premium’ tweets from celebrities could be included for a premium subscription. For now, the real-time data integration would mean more refreshes from the users to get up to the minute updates, which should translate into higher query volume, all else equal.”
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In a 13-page letter to the Federal Communications Commission Wednesday, the carrier again said that Google should play by the same rules as its telecom competitors. AT&T also took issue with the search giant’s claim that Google Voice restricts calls to certain rural areas to avoid the so-called traffic pumpers that route calls there to drive up charges.

“Contrary to the public pronouncements of Google and its allies, Google’s rural call blocking regime is not limited to Google simply blocking calls to ‘adult sex chat lines’ and ‘free’ conference calling services to avoid high access charges,” wrote AT&T’s senior vice president, Bob Quinn, in the letter to the FCC’s wireline bureau. “In fact, Google is blocking calls to, among others, an ambulance service, church, bank, law firm, automobile dealer, day spa, orchard, health clinic, tax preparation service, community center, eye doctor, tribal community college, school, residential consumers, a convent of Benedictine nuns, and the campaign office of a Member of the U.S. House of Representatives.”

My God. Google, the company whose business philosophy proudly proclaims “you can make money without doing evil,” blocking calls to small businesses? To Benedictine nuns? Don’t be evil?

Don’t be evil, my ass.

“We can now see the power of Internet-based applications providers to act as gatekeepers who can threaten the ‘free and open’ Internet,” Quinn continues. “Google’s double standard for ‘openness’–where Google does what it wants while other providers are subject to Commission regulations–is plainly inconsistent with the goal of preserving a ‘free and open’ Internet ecosystem.”

That established, Quinn goes in for the kill, arguing that the FCC should regulate the search giant not just on the wires, but on the Web as well.

“Google’s call blocking begs an even more important question that the Commission must consider as it evaluates whether to adopt rules regarding Internet openness,” he writes. “If the Commission is going to be a ’smart cop on the beat preserving a free and open Internet,’ then shouldn’t its ‘beat’ necessarily cover the entire Internet neighborhood, including Google? Indeed, if the Commission cannot stop Google from blocking disfavored telephone calls as Google contends, then how could the Commission ever stop Google from also blocking disfavored websites from appearing in the results of its search engine; or prohibit Google from blocking access to applications that compete with its own email, text messaging, cloud computing and other services; or otherwise prevent Google from abusing the gatekeeper control it wields over the Internet?”

An interesting question. And one for which Google (GOOG) is presumably already preparing a long-winded answer. This is far from over yet, and we’ll continue to go round and round until the FCC puts a stop to it.

Troubling news for Microsoft (MSFT). Hitwise’s latest numbers are the second set of metrics from a Web analytics firm showing Bing’s market share in decline. Last week, StatCounter claimed Bing’s share of the U.S. search market in September had slipped to 8.5 percent from 9.6 percent in August.

As I noted then, while a month of slight decline might herald the beginning of a trend, it certainly doesn’t guarantee one–especially in search, where surges and lulls in market share are quite common. That said, this is the second set of data suggesting that Bing’s traffic may be leveling out. Whether this reflects the end of the big Bing marketing campaign or falling consumer interest remains to be seen.

Incidentally, Microsoft’s new search partner, Yahoo (YHOO), also saw its search share slip for the month, according to Hitwise. Yahoo claimed 16.96 percent in August. In September, it claimed 16.38 percent. Meanwhile, Google (GOOG) took 71.08 percent share for the month, up from 70.24 percent in August.

Bing’s share of the search market leaped to 10.7 percent in August, from nine percent in July–a month-over-month increase of of 22.1 percent. Meanwhile, Google’s (GOOG) share grew to 64.6 percent–a month-over-month increase of of 2.6 percent. And Yahoo (YHOO) lost share to its new partner, falling 1.1 percent to 16 percent, a month-over-month decline of 4.2 percent. (Click on table below to enlarge.)

Which makes Bing the fastest-growing search outfit around, with a growth rate more than eight times greater than Google’s. Quite an achievement given Google’s de facto monopoly over search and the fact that Bing launched just a few months ago. Clearly, Microsoft’s new offering is picking up momentum despite Google’s repeated dismissals of it.

“Microsoft has announced a Google killer search product about once a year for the past six years,” Google CEO Eric Schmidt said of Bing after it debuted. “And they need to offer a better product than the one they did last year. I think it’s too early to say with Bing how well it will do. They have some advantages because of the Windows monopoly where they can encourage people–in our view unfairly–to use Bing, but let’s see what the end users choose. We always start from the premise ‘what do the end users want’ and we continue to find in our studies that what Google offers is what they want.”

Yeah, until someone comes along and offers them something better.

“A study conducted by Microsoft Research shows that consumers can process results with images 20% faster than text only results,” Microsoft’s Todd Schwartz explained. “So it’s clear that images play a big part in helping consumers with a variety of search activities….Visual Search allows you to quickly scroll through the galleries or do a one-click refinement using the quick tabs on the left, which are specifically relevant to the type of results you are browsing through.”

Think of Microsoft’s innovation as iTunes Cover Flow for search. And though it currently works only for mainstream queries (celebrities, dog breeds, iPhone apps, FBI’s Most Wanted, etc.) it’s quite impressive. And if Microsoft (MSFT) works quickly to extend it beyond its currently limited purview, Visual Search could do much to differentiate Bing from Google (GOOG). Certainly, Google doesn’t offer anything quite like it at the moment.

Twitter has already had repercussions in the courtroom. Now it has had them at Microsoft’s annual company meeting as well. Employee tweets from the gathering Thursday revealed that we may see a major update to the company’s Bing search engine as early as next week.

“Saw the demo of Bing 2.0, super imressive! Watch out its release next week,” said one catalogued by All About Microsoft’s Mary Jo Foley Yes, “impressive” is not spelled correctly in the tweet–maybe someone needs to Google (GOOG) a dictionary stat!

“BING 2.0 terrific,” enthused another.

“Watch out guys ! bing + silverlight in maps = amazing !! goodbye google.”

And another: “Bing 2.0’s upcoming search visualization is pretty sexy…”

Finally, my favorite: “wondering if the Bing team really wanted everyone at the company meeting to announce on twitter when Bing 2.0 is going to be released?”

Evidently not. Reached for comment, Microsoft (MSFT) had only this to say: “We’re very excited about some of the new Bing features set to roll out over the next few months, but have nothing to announce today.”

But perhaps next week.

Among the enhancements to Yahoo’s search page design–the features that, in the company’s words, “exemplify how Yahoo! is continuing to innovate in search technology and the user experience”–are the following:

• a unified, Bing-like design
• an enhanced search assistant
• the ability to play video within search results
• a set of filters that allow users to refine their searches based on prior queries or follow-on searches of other sites like YouTube, Facebook, LinkedIn and Twitter (click on image below to enlarge).

“The Web is huge, billions of pages, millions and millions of sites and domains,” explained Larry Cornett, Yahoo’s VP of search products and design. “You do not care about all of it. We are bringing front and center the features that are going to make it easier and safer to search.”

Which is all well and good. But isn’t that exactly what Google and Microsoft claim to be doing as well? Doesn’t everyone have a search assistant these days? Doesn’t Microsoft’s Bing already offer in-line video viewing in its search results? (Google once did as well, but disabled the feature over performance issues.) And aren’t Yahoo’s filters basically another version of Google’s “Show More Results” feature? They certainly appear to be.

So these things aren’t true innovations; rather, they’re innovations of the new-to-Yahoo sort. They’re table stakes at a search game that Yahoo has already lost. So “bringing front and center the features that are going to make it easier and safer to search” doesn’t really mean much when they’re already front and center in market-leading offerings, as Danny Sullivan notes over at Search Engine Land.

“There are certainly some aspects that are becoming commoditized in the foundation in search,” Cornett said. “You can either overwhelm people and give them millions and millions of results or show them what they care about the most. That is exactly where we’re going to continue, building a search experience that understands what they’re looking for.”

That sounds great–except it’s not anything different from what Microsoft says. And if Google doesn’t say it, that’s because searchers are voting with their actual search activity that Google’s already doing it. In addition, while Cornett suggested that Yahoo is somehow spending huge amounts of time and money coming up with a better personalized experience over competitors, the fact remains that Google has long offered personalized results that outdistance Yahoo.

The company has once again achieved top rank among Internet search engines and portals in the American Consumer Satisfaction Index, the seventh time it has done so in eight years. This year Google (GOOG) received 86 points, out of a possible 100, besting Yahoo’s (YHOO) 77 points, Microsoft’s (MSFT) 75, Ask.com’s 74 and AOL’s 70.

That’s a nice lead and one Google should have no trouble maintaining if it stays its course. This, in spite of Microsoft’s new search effort, Bing, and its “boatloads of value” search deal with Yahoo.

Though the latest ACSI scores don’t reflect either (they were complied prior to Bing’s launch and the Microsoft-Yahoo announcement) Larry Freed, president and CEO of ForeSee Results, which compiles the rankings, doesn’t see them doing much to undermine Google. As Freed notes, Google is unquestionably king of search and the only competition in ACSI’s search category is for second place.

“Where will Bing’s market share come from? From Yahoo and MSN initially and maybe from Ask.com, though Ask is a niche player with stable customer satisfaction and market share,” Freed said. “It seems unlikely that customers will actually leave Google in enough numbers to allow Bing to seriously challenge Google’s market dominance, given Google’s extremely high customer satisfaction.”

Freed adds: “People are happy with Google, so why would they switch? They might switch if Bing is better, and that’s a tall order considering Google is the second-highest scoring ACSI service-sector company, behind Newegg.com. Bing has been called a search engine war ‘game changer,’ but Google’s game will be very hard to change at this point. If anyone can do it, it’s the combined resources and market share of Yahoo and MSN.”

Good thing Wall Street wasn’t expecting much from Microsoft. Because it didn’t get it.

After market close Thursday, the Redmond, Wash.-based tech giant reported that fiscal fourth-quarter net income fell to $3.05 billion, or 34 cents a share, from $4.3 billion, or 46 cents a share, in the same period a year earlier.

Revenue for the period ended in June fell 17 percent to $13.1 billion. Wall Street had been looking for earnings of 36 cents a share on $14.37 billion in revenue, according to data compiled by Thomson Reuters.

Online advertising revenue decreased $86 million, or 14 percent, to $529 million, primarily reflecting a decline in display advertising.

The company missed estimates by $1 billion. Gruesome.

“Our business continued to be negatively impacted by weakness in the global PC and server markets,” CFO Chris Liddell said in a statement. “In light of that environment, it was an excellent achievement to deliver over $750 million of operational savings compared to the prior year quarter.”

Microsoft shares are trading down more than eight percent at $23.50, as I write this.

Below is the full earnings release. BoomTown’s Kara Swisher will be liveblogging the earnings call later this afternoon.

Microsoft Reports Fourth-Quarter Results

The company delivered operational efficiency and innovation in a difficult environment

REDMOND, Wash., July 23, 2009–Microsoft Corp. today announced revenue of $13.10 billion for the fourth quarter ended June 30, 2009, a 17% decline from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $3.99 billion, $3.05 billion and $0.34 per share, which represented declines of 30%, 29% and 26%, respectively, when compared with the prior year period.

“Our business continued to be negatively impacted by weakness in the global PC and server markets,” said Chris Liddell, chief financial officer at Microsoft. “In light of that environment, it was an excellent achievement to deliver over $750 million of operational savings compared to the prior year quarter.”

The financial results for the fourth quarter ended June 30, 2009, included the deferral of $276 million of revenue related to the Windows 7 Upgrade Option program that was announced on June 25, 2009. This revenue deferral reduced earnings per share by $0.02.

The fourth-quarter financial results also included $193 million of legal charges, $108 million of impairments to investments and $40 million of additional severance charges related to the previously announced plan. Operating expenses were reduced by $105 million of capitalized research and development expenses due to the technical milestones reached for Windows 7. Combined, these items also reduced earnings per share by $0.02.

Significant product milestones were achieved in the quarter including the releases of Windows 7 release candidate, Windows Server 2008 R2 release candidate, as well as Bing, Microsoft’s search engine designed to help people make faster, more informed decisions.

For the fiscal year ended June 30, 2009, Microsoft reported revenue of $58.44 billion, a 3% decline from the prior year. Operating income, net income and diluted earnings per share for the year were $20.36 billion, $14.57 billion and $1.62, which represented declines of 9%, 18% and 13% respectively.

“While economic conditions presented challenges this year, we maintained our focus on delivering customer satisfaction and providing solutions to our customers to save money,” said Kevin Turner, chief operating officer at Microsoft. “I am very excited by the wave of product and services innovations being delivered in this next fiscal year.”

Business Outlook

Microsoft is providing operating expense guidance of $26.6 billion to $26.9 billion, for the full year ending June 30, 2010.

Management will discuss fourth-quarter results and the company’s business outlook on a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today.