All Things Digital

AOL announced today that it has forked over the $850 million dollars in cash for Bebo–presumably in small bills in big bags, so all the fully vested Bebo employees can’t run away quite as fast–completing its acquisition of the quirky No. 3 social-networking site.

As part of the process, it has also created a new business unit, called the People Networks, which will be headed by Bebo President Joanna Shields.

Her new title is EVP at AOL and President of People Networks and Shields will be reporting to AOL President Ron Grant.

The People Networks will combine Bebo with AOL’s AIM, ICQ and other community platforms that AOL said reaches about 80 million users worldwide.

While the new moniker might sound as if AOL (TWX) has become a new Communist Party, the company has obviously placed high hopes in the division to make a lot of capitalistic dough.

More importantly, AOL has got to be betting that the new unit will finally bring its moribund community elements back to the vivacious life they all previously enjoyed.

Consider the slow death of AOL’s once-mighty “people” parts, which clearly dominated the scene early on in the online space.

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Project Granola?

Apparently, that’s the jokey nickname that’s been given by some in the company to Microsoft’s (MSFT) new online strategy, in the wake of its failed efforts to acquire Yahoo (YHOO) that ended in a big heap of mess this past weekend.

Now, sources tell BoomTown, it is all about “organic”–hence the image of a healthy handful of granola (except for the fact that, in my experience, nobody really likes granola after eating it as much as they think will before).

In any case, it is a word Microsoft folks have been slipping into the conversations with BoomTown over the past few days, so much so that I have started to feel like I was talking to execs from Whole Foods.

Now Microsoft’s greenness has gone public.

Case in point: Brian Hall, Windows Live General Manager, who trotted out the organic word in front of Merrill Lynch analysts yesterday, as reported by CNET’s Ina Fried, saying: “We’ve withdrawn the offer and moved on, and now are focused on how we grow as fast as possible organically.”

But what does organic mean exactly?

Two things, it seems.

First, stepping up spending on marketing, technology and research to try to find ways to differentiate from Google (GOOG) and get into the No. 2 spot now held by Yahoo.

Of course, that plan has not worked out so well as yet for the software giant, with Microsoft spending billions of dollars with no profits and little gain in online search or ad market share, while its archrival Google keeps growing stronger.

Even so, while in Korea today, Microsoft Chairman Bill Gates backed Microsoft CEO Steve Ballmer’s do-it-yourself path and his move to walk away from Yahoo.

“The key decisions on that will be made by Microsoft CEO Steve Ballmer, who took a look at Yahoo and decided that, on our own, he likes the stuff that we’re doing,” said Gates.

Gates also added what amounts to the second option for Microsoft. “I wouldn’t rule out some partnerships, but we don’t have anything imminent there,” he said.

While a return to Yahoo is a possibility, in fact, buying up Web 2.0 stars is likely to be a bigger focus of the company.

“Yahoo can twist,” said one source. “Microsoft has lots and lots of other options.”

According to sources close to the company, for example, Microsoft’s bankers had been putting out subtle signals to Facebook to see if it would be open to a full buyout.

Microsoft already invested $240 million in the hot social-networking site, an investment that gave Facebook its kooky $15 billion valuation.

And its execs have long told Facebook execs they wouldn’t mind a bigger bite–um, like all of it.

“We just wanted to gauge their interest, more than any real effort,” said another source, who expects Facebook to stick to its longish path to an eventual IPO.

But, as is no secret, Microsoft has selections all over Silicon Valley to help it improve its Internet chances.

Those would include buying bigger vertical sites in strong categories like autos or jobs or finance, and also scooping up smaller but fast-growing socially oriented sites like Digg, Meebo, Yelp or focusing on ad plays like Spot Runner (which just got another big dollop of funding).

There might even be some sense in spinning some of these and all Microsoft Web units off into a separate Internet company, which would be another way of integrating even bigger deals for properties like Time Warner’s (TWX) AOL or News Corp.’s (NWS) MySpace (which are longer shots, I think).

In a post I did in February right after Yahoo rebuffed Microsoft for the first time, I suggested such a course for the company.

As I wrote:

Here’s a list: LinkedIn. Digg. Flixster. Slide or RockYou. Veoh. WordPress. Sphere. Sugar. Some international stuff. And more.

Then, some noted, Microsoft would have to give massive financial incentives to those entrepreneurs to stay and thrive. Most importantly, it would have to keep its Redmond hands from interfering.

Now that would send shivers up the spine of Larry and Sergey.”

And that, most of all, would be more like icing on the cake for Microsoft and be much more tasty than a bowl full of granola.

And, as Martha Stewart says: It’s a good thing.

Spot Runner, the online ad agency, delivered yet another Web 2.0 miracle today, raising another $51 million in funding from a diverse group of investors.

Among other services, Spot Runner makes and places low-cost television and radio ads for small businesses and is trying to bridge the gap between the traditional and online ad market.

In this round, those stepping up to invest in the Los Angeles-based start-up include international media giants Daily Mail and General Trust (DMGT.L) and Grupo Televisa (TV), investment company Legg Mason Capital Management (LM) and, curiously, luxury conglomerate Groupe Arnault/LVMH (MC.PA).

This group, along with existing investors, forked over the $51 million to add to the $60 million already raised. This appears to give it a massive valuation of upward of $500 million.

Well, at least in the land of Web 2.0 it does. In the real world, it still remains to be seen. But that has not stopped the nonstop investment party of late for Web 2.0 start-ups.

Web-based instant messaging company Meebo recently raised another $25 million at a reported $250 million valuation, while widgeteer Slide got $50 million for a $550 million valuation.

Of course, the champ of them all has been the social-networking site Facebook, which now has a $15 billion valuation.

Wheeeeeeeeeeeeeee! Or maybe not so much, but obviously no one in Silicon Valley is listening to BoomTown at this Kool-Aid carnival.

Spot Runner’s previous investors are: Allen & Company, Battery Ventures, Comerica Bank (CMA), Lachlan Murdoch, Vivi Nevo, Capital Research and Management, CBS (CBS), Index Ventures, Interpublic Group, Tudor Investment Corporation and WPP.

So far, this group has invested $60 million in Spot Runner. Its board includes Index’s Danny Rimer and former AOL exec Bob Pittman.

“We want to use the investment to make a real penetration in the market,” said Nick Grouf, chairman and CEO of Spot Runner. “We want to expand both organically and through acquisitions, as well as expand our staff, and these strategic investors will help us do that.”

Spot Runner has already been doing that. For example, it recently bought Weblistic, a local search listings creator, and hired former Microsoft exec Joanne Bradford.

The Daily Mail is a large media company based in the United Kingdom, with newspapers, online and radio assets, while Grupo Televisa is one of the largest media conglomerates in the Spanish-speaking world.

Groupe Arnault/LVMH owns some of the world’s toniest brands, including Moët & Chandon, Hennessy, Louis Vuitton and Givenchy.

Grouf, again along with partner David Waxman, also previously founded PeoplePC and Firefly Networks.

In the spirit of the funding, here’s one of my favorite Kool-Aid commercials:

Last night, dressed in my kindergarten soccer-coach best (sneaks, sweats and athletic socks–glam!), I ventured over to the Tenderloin district of San Francisco to attend VentureBeat’s party in honor of the launch of its new digital media blog.

Held at the Ambassador club on Geary Street, it was as if 1999 had never ended, and the huge crowd was partying like it was, well, 1999.

Shoulder to shoulder–or, in my puny case, shoulder to stomach–entrepreneurs, PR folks and a healthy smattering of press jammed into the venue, chattering about valuations, venture deals and other vacuous topics of Web 2.0.

Attendees included Mashable’s Pete Cashmore, Craigslist’s Jim Buckmaster, blogger Dan Gillmor and Microsoft-man-in-Silicon-Valley Dan’l Lewin (who gave us bupkis info about the deal, as you can see in the video).

Also in the video, in order, Meebo Co-Founder Seth Sternberg (fresh from a big funding); VentureBeat’s new editor of its digital media blog, Eric Eldon; Lewin; Gillmor; Valleywag’s Owen Thomas; and, finally, VentureBeat Editor and Founder Matt Marshall.

And, as BoomTown wrote yesterday, so the war of attrition for Yahoo begins.

Not with a bang, but a whimper. And so much whine, I am considering serving up a nice plate of cheese to all players.

But while the first moves by Microsoft (MSFT), which is seeking to take over Yahoo (YHOO), seem a bit weak, it is likely the more significant bombs will start flying next week.

But not quite yet.

First, came a not-so-subtle insinuation from Microsoft Steve Ballmer that he could take his marbles and go home any time.

He noted yesterday in a speech in Milan (Milan? OK, we’ll go with it) that the software giant is “prepared to move forward alone without Yahoo.”

A show of hands of who actually believes this claim, please, a classic go-fish negotiating ploy? No one? We thought so.

Then, comes the artfully worded Wall Street Journal story today, in which it is revealed that some at Microsoft are skeptical of the deal.

Apparently, Microsofties are worried that the job of merging Yahoo into Microsoft will take precious attention away from, well, them!

Well, that’s been the biggest open secret at Microsoft. Almost anyone you talk to notes that the Yahoo deal is risky, but it would be done no matter what due to Ballmer’s determination to use Yahoo to better hammer at rival Google (GOOG).

“This is Ballmer’s war,” said one Microsoft employee to me recently, who also noted that it is still a good move for Microsoft, despite the slowness of the attack. “I doubt he will surrender.”

Well, BoomTown suggested Microsoft do so back in mid-February in a post, noting that Ballmer might do better to use the $41 billion to buy up every hot start-up in Silicon Valley–Digg, Meebo, Slide and even the hopelessly high-valued Facebook–and still have money left over to buy everyone a tank of gas.

The Journal story also listed previously reported names of possible directors for a proxy slate Microsoft must nominate to replace Yahoo’s current board.

They include, noted the story, “former Nextel Partners Inc. CEO John Chapple, former Grey Global Group Inc. CEO Edward Meyer, Jaynie Studenmund, the former chief operating officer of Overture Services Inc., which was later acquired by Yahoo, and former Adelphia Communications Corp. Chief Financial Officer Vanessa Wittman, according to people familiar with the matter.”

Not to be whiny about it or anything, but with no truly prominent Internet executive or figure among these director possibilities so far, BoomTown would have to say we are profoundly underwhelmed by the list.

Thus, we await more powerful forces.

And that might be sooner than later. Microsoft will announce its earnings this afternoon, which–if they are strong and lift the price of Microsoft stock and, therefore, the Yahoo offer–could be the first big gun to fire in the proxy fight.

Last week, I visited Meebo, the Web-based instant messaging company, at their headquarters on Castro Street in Mountain View, Calif.

Why? Well, like a lot of Web 2.0 companies, because it’s a hot and hyped little start-up with a fast-growing audience for its–wait for it!–widgets!

But Meebo makes actually useful widgets, such as its flagship unified instant-messaging offering. Thus, in an endless sea of useless and juvenile apps, that immediately makes BoomTown happy and interested.

And, backed by Sequoia Capital and Draper Fisher Jurvetson, it also has a solid team, although it is one still in search of a much more solid business plan.

Which is: Advertising, of course! (Which is: Web 2.0’s possibly dubious mantra of mantras! Presumably, if you say it enough times, it will come true!)

How hot and hyped Meebo is was in evidence, when this article in VentureBeat posted yesterday claimed that the company was raising $25 million to $30 million at a valuation of $250 million.

Meebo’s last $12.5 million round valued the company at an already kooky $60 million to $70 million. The company was started in 2005.

Ouch, my head hurts from the bubble atmosphere that persists in Silicon Valley, even as our economy is tanking and the Fed can barely prop it up. But I was already in pain at the $850 million that AOL forked over for the very-nice-but-very-not-worth-$850-million Bebo, so please pardon my deep and unfulfilled need for sanity.

Still, it is hard not to like what Meebo is doing, which is a million times more useful than some widget makers. Basically, it solves the interoperability problem in instant messaging, by allowing a user to chat across the most popular sites–AIM, Google (GOOG) Talk, Yahoo (YHOO) Messenger and Microsoft’s (MSFT) chat service.

It also offers chat rooms to sites across the Web, branded as Meebo Rooms, like the one below on Meebo’s valuation, with lots of cool features, such as the ability to play videos that are embedded in them.

These products have attracted tens of millions of unique monthly users, trading over 100 million messages a day, although–as I said–it is not clear how money will be made providing this useful service.

Meebo, like a lot of similar companies, has struck some interesting ad partnerships, including with record companies, but–no matter what anyone says–it is obviously too soon to tell how effectively it will perform.

Luckily, in this video, two of Meebo’s founders–Seth Sternberg and Sandy Jen (the other is Elaine Wherry, who is not in this video)–as well as recently hired CNET vet Martin Green, who is handling business development, explain it all for you!

Here’s the video:

I first ran into Sequoia Capital venture capitalist Roelof Botha in the green room of our recent D5 conference, where he was there to see the demo being done by Jason Calacanis for Mahalo, a “human-powered” search service that Botha had recently invested in.

Though I jokingly congratulated Calacanis on the investment from a “toddler VC,” because of the 33-year-old Botha’s freshly-scrubbed and youthful looks, I’d be pretty pleased if my two sons–2 and 5 years old–could be involved in a multibillion deal after only a few years on the job.

“You have to put yourself in a position to be lucky,” said the South African-born Botha over lunch at the Sundeck on Sand Hill Road in Silicon Valley recently.

Here’s a video I did of my visit with Botha, where I both incorrectly note the address of Sequoia and willfully refuse any effort at pronouncing his name with any grace:

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