The announcement signals a change from Google’s initial plan for the video service shutdown. Google had initially planned to shut down the service and cut off access to the videos last week. The company had also planned to offer refunds through its Google Checkout service, an online payment system that rivals eBay’s (EBAY) PayPal and Amazon.com’s (AMZN) new payment system.

Critics saw the refund tactic as self-serving, and let Google know. From a post on the Official Google Blog that explains the company’s change of heart:

We planned to give these users a full refund or more. And because we weren’t sure if we had all the correct addresses, latest credit card information, and other billing challenges, we thought offering the refund in the form of Google Checkout credits would entail fewer steps and offer a better user experience. We should have anticipated that some users would see a Checkout credit as nothing more than an extra step of a different (and annoyingly self-serving) kind. Our bad. Here’s how we’re hoping to fix things:

* We’re giving a full refund — as a credit card refund — to everyone who ever bought a video. We’ll need you to make sure we have your most recent credit card information, but once we know where to send the money, you’ll get it.

* You can still keep the Google Checkout credit that you’ve received already. Think of it as an additional ‘we’re sorry we goofed’ credit.

* We’re going to continue to support playing your videos for another six months. We won’t be offering the ability to buy additional videos, but what you’ve already downloaded will remain playable on your computer.

We take pride in moving quickly, and we think this philosophy helps to create lots of new and innovative products. But it also leads to errors that — upon reflection and your feedback — we need to rectify. This was one of them. We make mistakes; we do our best not to repeat them — and we really do try to fix the ones we make. That said, the very least that our users should expect from us is that our mistakes be new and innovative, too. ;)

It had frankly surprised me that Google thought its initial plan would fly with consumers. To me, it suggested that a company that’s brilliant with search algorithms isn’t so bright when it comes to old-school business concepts like customer service. This apology and policy change are probably the right moves – but we’ll have to wait and see whether Google has truly learned its lesson when it comes to user expectations.