Google’s Chief Business Officer Nikesh Arora, however, indicated at the Dive into Media conference in southern California that the company has no intention of changing course. Arora brushed off a question I posed about whether Google would reinstate the more granular ad options, and emphasized that the new AdWords system meant advertisers would no longer have to run hundreds of different ad campaigns to target all demographics and devices.

The changes to AdWords are important since Google has such an out-sized footprint in online advertising and because everyone is watching how the company is responding to internet users’ large-scale migration to mobile devices. So far, ads on smaller screens have proved much less lucrative than desktop ads — frustrating publishers and worrying Google investors.

Google announced its response last week in the form of a blog post describing the new “Enhanced Campaigns.” The new system means mobile ad purchases will be a default option when people sign up to buy Google AdWords (though they can turn the mobile part off). Another major change is Google’s decision to treat tablets and desktops as the same device for ad purposes. This goes against the philosophy of advertisers and publishers who consider the experience tablet a distinct, more immersive experience (though the distinction may be less when, as here, it concerns internet searching).

Ad industry blogs like 360i and AdExchanger have noted that Google is moving away from more granular forms of marketing while advertisers have complained about a loss of control.

On the flip side, some Google watchers have praised Enhanced Campaigns as a much-needed way to consolidate ad campaigns, and to make it easier for small ad buyers to join the mobile ad-buying landscape. At the All Things D event, Arora described how Google is also making it easier for advertisers to take advantage of distinct, new ad options associated with mobile — such as overlaying time and geographic location onto search queries.

In this context, the simplified options make sense, especially as advertisers right now confront the prospect of having to run hundreds of separate AdWords campaigns to account for all demographics and devices. And the Enhanced Campaigns will no doubt juice Google’s ad prices as more people join the mobile auction market, creating more competition for local searches such as “pizza Brooklyn Park Slope.” 

But overall, the new system still seems to shortchange publishers and advertisers. Tablets provide a unique user experience and could be a fount of advertising innovation; Google’s decision eliminates some of this potential. A better option would have been to unveil the Enhanced Campaign system but to also make the older, more granular options available to those who ask for it.

(Note: We’re going to be talking about alternative monetization strategies at our paidContent Live conference in New York on April 17).

It’s true that the network wants to do away with the voting process that it implemented as a way of improving its governance policies, which required it to get 30 percent of its users to support something before it could make a significant change. But this approach was mostly a failure before it could even get started, since the last vote the company held saw .03 percent of users participate — and as more than one person has pointed out, getting 30 percent of Facebook users to vote would mean 300 million people, which is more than twice as many as voted in the recent federal election in the United States.

Soon, Facebook ads could follow you around the web

In any case, the company has other goals it needs to meet first, and one of those is generating enough revenue to make Wall Street and other investors happy with its $50-billion market capitalization. And that has put a lot of pressure on Facebook to come up with a winning mobile strategy, among other things, since its clickthrough rate for traditional ads is abysmal.

Sponsored stories (which have been criticized in a number of jurisdictions, and could become illegal soon in Norway, according to one recent report) are one way of trying to solve that problem. An external advertising network — one that uses information about users and their activity on Facebook as a way of targeting external ads on other websites — is another way. Chris Dixon, the Hunch founder who just became the newest partner in Silicon Valley venture-capital firm Andreessen Horowitz, has described this as an “embedded option” for Facebook investors, meaning it could stand to significantly enhance the company’s financial prospects if it is handled properly.

“An external ad network is inevitable. Google proved this model with Adsense. With an already huge base of advertisers bidding on CPCs, it is impossible for most other ad networks to compete on publisher payouts. But Facebook’s traffic is so great now that an external ad network might increase their revenues by 2x or so.”

To put this in perspective, if an external ad network did manage to double Facebook’s revenues, that would take them to almost $10 billion a year from their current level of about $5 billion. Theoretically at least, it could push them even higher if Facebook manages to attract enough advertisers with its targeted data.

Your activity on Facebook = ads outside of Facebook

There have been hints that the company was planning to roll out such a network: earlier this year, Facebook experimented with sponsored stories on Zynga’s website that were governed by the data that the social network had about users based on their activity inside Facebook. And the company also provided a preview of the latest changes in May, although most of the attention at that time was focused on the privacy implications. Now it has become even more obvious that an external ad network is the goal — and Facebook’s Chief Privacy Officer said as much in a comment to Forbes magazine about the new rules:

“Everything you do and say on Facebook can be used to serve you ads. Our policy says that we can advertise services to you off of Facebook based on data we have on Facebook.”

As Quartz points out, the first outcome of this new approach could be the introduction of ads into Instagram, which was acquired by Facebook earlier this year for $735 million. But the social network is sure to extend that to other websites and services it could partner with — if only because the kind of data that Facebook has on user behavior (even though it is anonymized) is one of the biggest potential treasure troves of ad-targeting that exists online. Access to information about the browsing and liking habits of a billion people isn’t something that comes along every day.

Google has built a multibillion-dollar advertising business around showing people relevant ads while they search, and so far nothing has been able to match the effectiveness of that approach. But if Facebook is able to target ads on external websites and services based on the data that it has, we could see one of the first major challenges to Google’s ad dominance.

Post and thumbnail images courtesy of Flickr user Balakov

From their AdWords dashboard, advertisers can now choose to have their display ads appear in mobile apps. They can also now target specific device models, manufacturers or app categories in the Google Play and Apple App Store. The AdWords campaigns on AdMob will only cover cost-per-click campaigns for now but will incorporate CPM campaigns later.

There’s no guarantee that this will solve the mobile monetization problem, but it should make it much easier for certain advertisers to give mobile a try, providing them access to more than 350 million mobile devices in AdMob’s network. And for AdWords advertisers who stick with mobile, they can manage all of their campaigns from one interface. This is big news for mobile developers and publishers, many of whom are still struggling to make big money from mobile.

Many advertisers have been slow to embrace mobile, out of ignorance or inertia, while some are still aren’t convinced of mobile’s efficacy or haven’t set aside a budget for mobile ad spending. And with the explosion in mobile, there’s been a lot more supply of mobile ad inventory than demand.

But advertisers are realizing that users are spending more and more time on mobile devices, which are even more personal than computers and can provide more context for targeting such as location. Consumers spend about 10 percent of their time with mobile devices, but only 1 percent of U.S. ad spend currently goes to mobile, Meeker said. That suggests there’s a big upside to mobile advertising once advertisers start catching up to where their audiences are.

The news comes shortly after the two-year anniversary of Google’s formal $750 million acquisition of AdMob and shows how it is incorporating the mobile ad network into its existing businesses. Google in the past year has brought AdMob’s mobile app inventory to the Doubleclick Ad Exchange and also shifted AdMob’s CPC campaigns to an AdWords-style auction. Advertisers can now also serve ads from Doubleclick for Advertisers into AdMob’s network. The latest step has been a long time in the making but it shows why Google was interested in paying so much for AdMob. It now has a better way to take its success in online advertising and convert that into more mobile ad revenue.

In a ruling on Thursday, U.S. District Judge Edward Davila said he would not allow the class action to go forward because it was more appropriate for companies who had bought the ads to show any alleged harm on an individual basis.

The case, which was filed in 2008, said Google’s ad-selling practices were unfair and deceptive under California law. The ads in question were those which appeared on “parked domains” which are registered but undeveloped websites, and on placeholder pages that appeared instead of error messages.

The plaintiffs claimed that these sites left a negative impression and that Google (NSDQ: GOOG) had failed to inform them their ads would appear there. The search giant replied that a clicked-through ad on these sites was equally valuable and that its policies disclosed where the ads would appear.

Part of Google’s ad business is a large network on which it helps other web sites host ads.

The company has been dinged by major advertising-related class actions in the past. In 2006, it agreed to a $60 million settlement to compensate ad buyers who had been harmed when malicious third parties clicked on their ad in bad faith, a practice known as click-fraud. And in 2009, Google paid $20 million to settle a suit that alleged it over-charged for ads. The company denied it was at fault but it said it was easier to pay and move forward.

The company is also enmeshed in a series of lawsuits over whether it is legal for one company to buy another firm’s trademark for advertising purposes. So far, courts have sided with Google.

A Google spokeswoman said the company was pleased with this week’s ruling

A lawyer for the plaintiffs declined to comment.

Google Parked Domain Class Action

The “Google is in bed with the pirates” theory is hardly new and is often aired by publishers and copyright lawyers. It has bubbled up again in the last two weeks as a debate rages in Washington over the controversial Stop Online Piracy Act (SOPA).

SOPA’s sponsor, Rep. Lamar Smith (R-Tx) on Monday explained Google’s motives for opposing the law by saying, “That’s because they’ve made large profits by promoting rogue sites to U.S. consumers.”

And last Monday a senior copyright lawyer unleashed a screed against Google on Huffington Post, concluding that investors are losing faith that the search giant can support a legal revenue model.

This last bit, at least, is complete nonsense. Google’s share price is through the roof after the company’s October earnings report showed staggering quarterly revenues of nearly $10 billion and a profit of $2.3 billion. To claim that these numbers were driven by selling ads on fake Tiffany sites is stupid even by the standards of some financial analysts.

But that still leaves the question of how much money Google is making from the hundreds of “rogue” websites worldwide that flog everything from fake NFL jerseys to pirated versions of Hollywood blockbusters.

For those unfamiliar with Google’s business model, the company makes nearly all of its money in one of two ways. The first is by using auctions to sell keywords like “flowers” or “personal injury lawyer” to companies whose ads appear when a user searches those terms. The other way the company makes money is through its AdSense program which helps website owners place ads on their site. In return, Google gets a cut of the ad revenue.

This means Google could (in theory) make money by selling keywords like “football” to companies that want to advertise counterfeit Cowboys jerseys for sale. In fact, earlier this year, the company paid a huge fine for letting Canadian pharmacies buy keywords to advertise drugs without a prescription.

But the pharmacy episode appears to be a one-off blunder. There’s no evidence that Google has a habit of selling keywords to shady partners. A Google spokesperson said by email that the company has strict policies to ban inappropriate ads and companies that try to buy them.

“These policies and guidelines are enforced by both sophisticated automated systems and manual reviews,” wrote the spokesperson.

Still, it’s inevitable that Google makes at least some money from rogue websites that sign up for its AdSense program. Google says it doesn’t let these type of sites use AdSense but that unscrupulous companies try to get around the company’s ban.

The spokesperson didn’t provide numbers about how much revenue Google receives from rogue sites. But she did say that Google provides a refund to any advertiser whose ad inadvertently appears on one of these sites and that the company also keeps a blacklist of thousands of webpages that are prohibited from using the ad services.

If all this is true, it’s hard to see how Google is different from any other major company that provides a service that some people abuse. If we want to blame Google for rogue websites, then we should also blame UPS when someone ships drugs and blame Visa whenever one of its clients use the payment service to perpetuate rip-offs.

The ultimate question is whether Google is actually colluding with the bad guys that use its ad services. So far there is little evidence it does.

Some people claim Google has other, deeper motives for opposing the SOPA law. Scott Cleland, an analyst who has testified before Congress and who consults for Google’s competitors, says the company fears a flood of users will desert it if it removes certain websites from its search listings. For now this claim seems speculative at best (where would all these users go instead? Bing?)

Finally, common sense implies that Google is not in a conspiracy with the rogue sites. If the company is making money hand over fist from legitimate companies, why would it risk the government’s fury by going into the piracy business?

Conspiracy theories make for fun explanations. But in this case the straightforward story makes more sense: Google and the other tech companies are opposing SOPA because they think it’s bad policy (others may disagree) not because they wish to protect pirates.

Google got in trouble for allowing Canadian pharmacies to purchase AdWords ads targeting U.S. consumers. Importing Canadian drugs is illegal under U.S. law.

The massive fine represents the sum of Google’s ad revenue from Canadian pharmacies, as well as revenue made by the pharmacies themselves. That makes it “one of the largest financial forfeiture penalties in history,” according to a statement issued today by the Department of Justice.

The DOJ said that Google was aware the drug imports were illegal since 2003, and that from 2003 to 2009 the company actually offered customer support to the pharmacies, helping them with placing and optimizing AdWords purchases.

While importation may be illegal, the comparatively low cost of drugs in Canada has driven U.S. consumers to purchase them-both online and in-person-for years now. But the authorities note: “While Canada has its own regulatory rules for prescription drugs, Canadian pharmacies that ship prescription drugs to U.S. residents are not subject to Canadian regulatory authority, and many sell drugs obtained
from countries other than Canada which lack adequate pharmacy regulations.”

In February 2010, Google changed its policies so that only online pharmacies accredited by professional groups would be allowed to advertise through AdWords.

The investigation was led by the U.S. Attorney’s office in Rhode Island.

Contacted about the settlement, a Google spokesman told paidContent: “We banned the advertising of prescription drugs in the U.S. by Canadian pharmacies some time ago. However, it’s obvious with hindsight that we shouldn’t have allowed these ads on Google in the first place. Given the extensive coverage this settlement has already received, we won’t be commenting further.”