As the economy continues its very drastic downward slide–part of a binge and purge cycle that is almost classic in its psychology–it is, of course, no surprise to see Web 2.0 finally wise up.

While the quarter-dropping-in-the-slot was a bit slow, I think no one now doubts the impact of the tech and Internet business, going forward, from large companies to small start-ups, and all the rest of the ecosystem that relies on the virtuous circle of digital life.

Much has been made here and all over the blogosphere about various prescriptions to hunker down by venture capitalists and plans by companies to cut costs in this downturn.

That includes the realization that, as one Web exec wrote me yesterday, “no more eyeballs=business.”

Of course, this change in tone is a good thing and much needed, given how frothy things had become in Silicon Valley over the last two years.

While the excess was by no means anything like the last bubble–where inane start-ups actually had the audacity to IPO and, thereby, essentially take cynical and sometimes criminal advantage of an ignorant investing public–the maxim of Web 2.0 that basics like revenues or positive cash flow do not matter compared to growth has been a dangerous one.

And though growth is key too, part of an investment and belief in the future of important trends like social networking and the ubiquity of online advertising, the go-go strategy had taken too much of the attention of entrepreneurs.

And while the crash is certainly not due to that focus, and tech is indeed getting unfairly hurt, given how healthy much of the sector is, Silicon Valley needed an attitude adjustment.

In other words, while the recent excess is not the culprit, its departure is a very good thing.

The problem is, that does not matter at all, given the situation and where it is headed.

And where is that?

Onward, of course, although maybe not upward for a while.

In what is a typical shift in the zeitgeist this past week, TechCrunch’s Michael Arrington penned an interesting rumination today about what he calls the “ignoble but much needed end to Web 2.0.”

Like me, he references the dopey lip-synching video made by a bunch of Web 2.0 folks while on a vacation, which will surely become a classic example of how profoundly out-of-touch and egregiously silly their mindset has become.

Arrington writes:

“Goodbye, Web 2.0. I hope I never have to type those words again. Now can we please get back to work? There’s still a ton left to do before we get to Matrix-style virtual reality, the Singularity, and mobile phones with batteries that last a whole day.”

Although it might feel like it, I think calling it an “end” is probably too dramatic for what is happening now.

But I would have to agree wholeheartedly that moving on to what really matters is perhaps the silver lining in this decidedly difficult time.

Apparently not, from this aggressively pro-Sen. Barack Obama video that has become a huge hit on the Web and seen by many millions of viewers.

It’s called “The Great Schlep,” which is also a political advocacy organization she supports.

In it, the viciously funny Silverman plans to blame–I am not kidding–old Jewish grandparents if Democratic nominee Obama loses the Presidential election. And she advises a very clever kind of blackmail as a way to prevent it.

You have to experience her logic to understand–and please be aware that Silverman pulls no punches.

And, if Republican VP candidate Sarah Palin goes on “Saturday Night Live”–as is rumored–to impersonate Tina Fey, BoomTown will get it right up.

Here’s the video (and below it, the other huge hit online spoof video Silverman did about her–um–friendly relationship with actor Matt Damon):

The Great Schlep from The Great Schlep on Vimeo.

I am sure this will be the dumb-as-a-box-of-hammers reasoning this group of Web 2.0 folks gives for this odd video effort, doing a lip-synch romp on their group vacation in Cyprus to Journey’s “Don’t Stop Believin’,” and then posting it for all to see on Vimeo.

It is titled: “20 world Internet citizens met in the Turkish Republic of Northern Cyprus in October of 2008 for a week of reflections on life, love, and the Internet.”

Um, kids, here’s a reflection: While you swim in that pricey infinity pool in your luxury villa, Silicon Valley is tanking all over the place. You might want to check your email and see if Sequoia Capital or Ron Conway has cost-cutted you out of a job!

Oh, sorry, BoomTown’s karma is so negative, isn’t I?

But the video gave me flashbacks to heedless-partying-until-the-bomb-fell attitude before the popping of the Web 1.0 bubble. It obviously still burns.

The group rollicking includes Blip.tv’s Mike Hudack, Facebook’s Dave Morin, Drop.io’s Sam Lessin and–well, um, eek, bad idea, awkward!–tech reporter Jessica Vascellaro of The Wall Street Journal.

Here is the video:

Cyprus Lip Dub - Don’t Stop Believing from Brittany Bohnet on Vimeo.

Yahoo shares dropped yet again yesterday, closing at $12.65, in a vicious day across Wall Street.

That’s a decline of 8.07 percent or $1.11, a worse performance that the 7.3 percent decline in the overall market.

This means that Yahoo’s market cap is now at $17.53 billion, which has to make one wonder if perhaps a foreign company, a private equity firm or some outfit with some cash to spare will swoop in and grab it.

But, so far, Microsoft has shown no interest in revisiting its failed takeover bid for the troubled Internet giant.

It should, given the severe valuation drop Yahoo (YHOO) has suffered, which is much more than the other tech shares have suffered in the continuing decimation of the stock market.

Google (GOOG), for example, was off 2.7 percent or $9.13, closing at $328.98 today. Microsoft (MSFT) dropped to $22.30, down 3.1 percent or 71 cents. And Apple (AAPL) lost 1.2 percent, or $1.05, closing at $88.74.

What’s fueling the Yahoo plunge? The same worries about Yahoo’s graphical advertising business, its leadership’s ability to do anything to turn the company around and, of course, simple panic.

Despite its troubles, Yahoo remains one of the top sites on the Web, has a big share in the search business and a lot of valuable products and services.

Yahoo’s third-quarter earnings are coming on Oct. 21, and most expect execs to outline some indication of cost cuts that have been called for across the company recently.

While current results will likely not include the impact of the ongoing economic downturn, meaning they will not be as bad, most expect Yahoo’s fourth-quarter to be brutal.

How brutal? Well, it’s still a long way to zero. But these macroeconomic trends are surely troubling, as Yahoo seeks to right itself.

Famous-for-being-famous celebrity Paris Hilton continues her comic run for “fake” President of the United States, with a new online video for the Funny or Die comedy site.

She is pictured here in a photo from a current spread in Harper’s Bazaar, part of her ongoing “Paris for President” campaign.

In that article, Hilton said of her foreign policy platform: “I will carry out a foreign policy platform that will transform America’s role in the world to that of a proactive, not reactive, superpower that will use diplomacy and incentives to head off trouble in unstable regions before they unravel out of control. I will also be wearing platform shoes when I meet with foreign dignitaries to accentuate my well-toned calves.”

Somehow, given the current mess we are in, this blather actually makes some sense.

Hilton did her first online spoof video in August after Republican presidential candidate Sen. John McCain used her image in an ad attacking Democratic presidential candidate Sen. Barack Obama.

In it, she referred to McCain as the “white-haired dude” and laid out–literally, Hilton is seen in the video lounging by the pool in a bikini–her policies.

In the latest, Hilton consults the most famous of fake Presidents, actor Martin Sheen, who played President Jed Bartlett for many seasons on the NBC hit “The West Wing.”

In the video, the pair kibitz over how to be the best fake President, which has been getting too close to the real thing these days.

The video includes a cameo by real Martin Sheen son, Charlie Sheen.

Here is the video (and, below it, is her first one for Funny or Die):

Is it just me or does the sudden prospect of venture capitalists–the very investors who fueled the Web 2.0 valuation insanity with their typically egregious overfunding of start-ups–lecturing about the bleak economy and the need to tighten belts seem just a tad ironic?

It’s kind of like Washington politicians who handed out-of-control bankers one deregulation after another in exchange for campaign donations now mounting their high horses and decrying Wall Street greed in the current economic meltdown.

And yet, just like that, Silicon Valley’s investors–who could spin you all the way to next Sunday about how Facebook was actually worth $15 billion, despite not having much revenue quite yet–are turning into penny-pinching accountant types.

As reported by Om Malik of GigaOm in a piece titled “Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble,” for example, Sequoia Capital–one of tech’s most powerful and successful VC firms–held a meeting where it told its portfolio companies that the downturn was quite serious and advised them to start cutting costs.

Apparently, there was even a picture of a gravestone with “R.I.P.: Good Times” displayed at the gathering, in case the start-ups did not get the sledgehammer message. (And here is an update on the meeting by Malik.)

The last time Sequoia did this was when the Web 1.0 bubble was popping in 2000.

The same communication was also sent out to entrepreneurs by angel investor Ron Conway then, and now yesterday again.

The typically jovial Conway (pictured here) sent out a grim email to the start-ups he is invested in, advising they lower their burn rate to get ready for the tough times ahead.

Wrote Conway: “Unfortunately history DOES repeat itself but I hope we can learn from history and prevent the turmoil from occurring again. The message is simple. Raising capital will be much more difficult now … the name of the game in this environment in some respects is survival–survival until conditions change.”

Now he tells us!

In all seriousness, these kinds of prescriptions should have been front and center when times were presumably good, especially after the first orgy of Internet frothiness ended with such a thud.

Instead, the all-trees-grow-to-heaven attitude, the massively inappropriate valuations, the revenue-what-revenue strategies have been pushed on entrepreneurs in this cycle by too many VCs, most of whom should have known better.

And, while it is right for Sequoia and Conway to sound the alarm, I expect all the VCs who touted loudly will now climb aboard this somber bandwagon.

Because, after handing over too much money to start-ups like drunken sailors on shore leave, it is apparently now Sunday morning and time for a little salvation.

But not completely, of course, since this is still an industry where the dreams of hitting it big never die.

After I jokingly called Conway “Oh voice of doom and gloom” after reading his email, he quickly wrote back: “NO WAY DOOM AND GLOOM. I think innovation in the Valley will continue to thrive and I will continue to invest.”

Of course, Conway will. It wouldn’t be Silicon Valley if he didn’t.

And to raise your spirits from these wet-blanket VCs, here’s a video of Mike Settle singing the classic “What Shall We Do With the Drunken Sailor”:

If Microsoft won’t take another bite at Yahoo at these amazingly low prices, BoomTown is now thinking of making my own bid for the troubled Internet company.

Shares of the much pummeled Yahoo dropped once again today–and not because of the overall market–due to worries about its display advertising business. Its market cap is now just $19 billion.

This is, I think we can all agree, astonishing. But not in a good way.

Yahoo fell to a five-year low of $13.20, before rebounding–if you could call it that–to close this afternoon at $13.76, down 82 cents or 5.6 percent.

Why? Well, two analysts cut price targets, with one holding out the vain hope that Microsoft (MSFT) would rebid for Yahoo (YHOO).

“As Yahoo shares decline and Microsoft struggles in its online services business, it is increasingly likely Microsoft will make a new offer,” said American Technology Research’s Rob Sanderson.

Sorry to burst your pretty balloon, Rob, but that’s not going to happen, according to my sources at Microsoft.

Instead, Microsoft plans to wait to see what happens in Yahoo’s merger talks with AOL, an online unit of Time Warner (TWX).

As I wrote:

Let’s be clear–Microsoft wants nothing else from Yahoo anymore, according to numerous sources, even though it made a noisy and ultimately failed attempt to buy the Internet giant.

It will not be making another bid, sources said, echoing Microsoft CEO Steve Ballmer’s public and internal pronouncements on not revisiting another Yahoo takeover bid.

But Microsoft is hoping that if Yahoo and AOL merge, the new company will see that its fate lies more in its advertising, content and communications businesses, and not in search.

Microsoft is also figuring that regulators will not allow AOL to continue its search ad partnership with Google, a deal that the software giant lost out on. As part of that deal, Google got a 5 percent stake in the AOL unit.

But, once AOL is combined with Yahoo, execs at Microsoft hope it will give them the in they have been looking for to reignite failed talks with Yahoo over a search deal that Google also won.”

Of course, one has to wonder why Microsoft is being so stubborn, especially at these plunging prices. It is as if the software giant simply hopes Yahoo will just wither and die.

And maybe that is its strategy, to then become the de facto No. 2 to Google (GOOG), whose own shares are taking a beating due to ad concerns.

After all, the sector will come roaring back at some point–does anyone doubt the inevitable trend of online advertising? And then those with a little patience will emerge as eventual winners.

But why highhandedly pass on what is still a choice property, despite its distress? Microsoft Founder Bill Gates’s best buddy, investor Warren Buffett never does!

While integration and regulatory issues related to a Yahoo takeover have always been a major concern to Microsoft, it now has to be a lot about pure emotion for Microsoft CEO Steve Ballmer.

He offered Yahoo CEO Jerry Yang $31 a share less than six months ago. Now, apparently, Yang and Yahoo can go fish.

Or, as the case might be, sleep with the fishes.

While a lot of analysts and pundits have suggested that Microsoft would or should surely jump into the fray–now that AOL and Yahoo are talking merger more seriously, and especially since Yahoo’s stock has dropped in the $14 range–don’t count on it.

In fact, in what has to be the most Zen-like approach it has ever had, sources close to Microsoft’s thinking actually hope that the talks to combine the Time Warner (TWX) unit and Yahoo (YHOO) will work out.

Why? Because, although some think such a merger would leave Microsoft’s digital aspirations out in the cold–since both AOL and Yahoo are now allied with its archrival Google–the software giant sees the pair coming together as yet another chance to get what it really has wanted all along from Yahoo.

That would be Yahoo’s declining but still significant search business and another shot at AOL’s.

Let’s be clear–Microsoft (MSFT) wants nothing else from Yahoo anymore, according to numerous sources, even though it made a noisy and ultimately failed attempt to buy the Internet giant.

It will not be making another bid, sources said, echoing Microsoft CEO Steve Ballmer’s public and internal pronouncements on not revisiting another Yahoo takeover bid.

But Microsoft is hoping that if Yahoo and AOL merge, the new company will see that its fate lies more in its advertising, content and communications businesses, and not in search.

Microsoft is also figuring that regulators will not allow AOL to continue its search ad partnership with Google, a deal that the software giant lost out on. As part of that deal, Google (GOOG) got a five percent stake in the AOL unit.

But, once AOL is combined with Yahoo, execs at Microsoft hope it will give them the in they have been looking for to reignite failed talks with Yahoo over a search deal that Google also won.

That Yahoo-Google deal to outsource some of its search ads is now being studied by the Justice Department, which is seriously considering blocking it. Microsoft hopes it will founder, which it is more likely to do if Yahoo combines with AOL.

Thus, Microsoft just waits.

It will be interesting to see if this snake-in-the-grass strategy will work for Microsoft, which has yet to come up with an effective online strategy in the consumer space and must still find a digital head.

Ballmer continues to want to nab an outside superstar exec for the daunting job–the names of some former Microsoft execs like Brad Silverberg and Paul Maritz have even been raised internally–much to the chagrin of the leading internal candidate, Brian McAndrews.

Now that appointment is starting to feel like a really complex two-step.

Until it all sorts itself out, what a good opportunity to post this most popular of all online videos–101 million plays!–on YouTube, “The Evolution of the Dance”:

As has been copiously reported here and all over, Yahoo and AOL have been engaged in never-ending talks about a possible deal to merge their flagging Internet businesses.

Now, sources tell me, the circle of executives at both companies interfacing with each other has been widened, for purposes of due diligence.

That chit-chatting includes Yahoo CEO Jerry Yang, who has been in New York several times recently [UPDATE: But not yesterday, in a story I had previously linked to here]–where AOL parent, Time Warner, is located–to meet once with its CEO, Jeff Bewkes, and see if they can actually complete the merger.

Now, all this frantic activity does not mean a deal will necessarily be struck. In fact, in typical Yahoo style, it is going very slowly and that is never a good thing in dealmaking.

But it is this kind of ramped-up blabbery that has many at both companies predicting–hoping, really–that a deal will go through, sooner or later, as soon as Time Warner and Yahoo can agree on a price.

Or, more precisely, a percentage, since Yahoo’s stock price has been falling like a particularly sharp knife of late.

Sources said Yahoo does not want Time Warner (TWX) to have any more than 25 percent of the new company in a trade for AOL’s assets–although that figure would be slightly more if the media giant throws in some of that “Harry Potter”-generated cash into the deal kitty.

Yahoo (YHOO) management, sources said, also think its assets are of significantly better quality than AOL’s, and it still has that powerful–although declining–share in the lucrative search market.

Thus, it does not want to pay the $8 to $10 billion price Time Warner wants, and it should not either. (Here is a good analysis on the price issue by Silicon Alley Insider’s Henry Blodget.)

But Yahoo shares closed yesterday at a troubling $14.58, down 73 cents, or almost five percent.

That means its market valuation also declined by many billion dollars very quickly. It is now at $20.2 billion.

These profound stock drops, said several sources, could spur Yahoo to act before it gets even worse, which is why talks have been more frequent in recent weeks.

While not the best state of mind, panic is always a good motivator, and both companies are surely desperate to turbocharge themselves in the face of tough competition and avoidable management mishaps in recent years.

The hope? That together the pair can do better than they have separately–by combining their advertising, content and communications assets, which are among the largest in the world.

In addition, the “new” Yahoo would be able to make massive cost cuts, including layoffs, under the cover of integration and starting off with a clean slate.

So who would emerge more powerful in a new set-up–AOL or Yahoo?

Here’s a short cheat list:

Content:

AOL and Yahoo have a similar range of content assets, with big sites in all the classic categories, like news, financial, sports and lifestyles. Yahoo’s content head is Scott Moore, while AOL’s is Bill Wilson (both pictured here, left to right).

As I wrote yesterday, I expect that the more dominant Yahoo will rule, slashing and burning most of the AOL-branded properties, keeping only interesting newer brands like sports blog FanHouse, celeb blog TMZ and the Engadget, Tuaw and JoyStiq tech blogs.

And while former Microsoftie Moore is the likely head of this behemoth, don’t count on the very adept Wilson, who is known as a skilled corporate player at AOL, to stick around without a big role in this arena.

Communications:

Again, advantage Yahoo, which has bigger calendaring, email and instant messaging assets, an area once overwhelmingly dominated by AOL. That was then, of course.

Still, AOL’s communications tools are used by a huge audience worldwide and the pair together would be a powerhouse. So much so, in fact, that this might be the one major regulatory hurdle any deal would face.

Advertising:

Again, Yahoo would probably dominate, having just hired well-known former Microsoft exec Joanne Bradford to head up U.S. advertising sales. AOL’s top ad exec is Lynda Clarizio, a former lawyer who is considered dogged but much less experienced than Bradford. (Both are pictured here, right to left.)

And, Yahoo does have its search ad business, however weakening, and a stronger graphical ad business, even if the sector will be most under siege in the current down economy.

Plus, AOL’s Advertising.com, while a major ad network, is more of a business subject to bruising competition and squeezed margins.

Community:

Tapan Bhat (pictured here) now rules community at Yahoo, as well as its homepage, having just inherited it from the departing Brad Garlinghouse.

But AOL has a savvy and voluble exec in Joanna Shields, who came recently via its Bebo social-networking acquisition. While AOL woefully overpaid for Bebo and got played into thinking that other bidders were more interested than they actually were, it was Shields (pictured here) who essentially did that playing.

Sign her up for a top exec role in the combined company pronto!

In all seriousness, there is room for both in the newco, as both AOL and Yahoo seriously bite in the social-networking space. They will surely need a lot more than Bhat and Shields if they want to become true players in Web 2.0’s hottest and probably most important trend.

Engineering:

Yahoo. I do not need to explain this, do I?

Okay: AOL has always been incompetent in the technical arena, since its beginning days, compared with Silicon Valley companies like Yahoo.

All yours, Ash Patel!

Management:

Now, it is here that it gets interesting.

Most feel the push by Yang to do an AOL deal–and make no mistake, it is being pushed by him most of all–is due to increased pressure from his board, as well as major investors, who have had just about enough of his leadership.

“There is no way Jerry stays on as CEO in a newco,” said one source about Yang (pictured here). “He’ll be kicked upstairs as chairman, and I will think [President Sue] Decker will also have to go eventually, since there will be a lot of resistance if she is named CEO.”

But, said other sources, these major management changes will not happen immediately, if at all, as it is too distracting in the wake of a deal and ruins the positive “story” that both companies will surely want to spin.

And spin they will! (Go, Tricia! Go, Jill!)

And while he has a reputation for sharkish political skills, especially compared to Yahoo’s very diplomatic U.S. head, Hilary Schneider, expect AOL President Ron Grant to be an important part of the transition, since he is good–almost too good–at cutting costs.

Most expect his boss, AOL CEO Randy Falco, not to be part of the new company, thereby separating him and Grant, who are nicknamed “Smithers and Burns” at AOL, after “The Simpsons” creepy duo.

Most likely, there will be a search for a top-level CEO to take over the combined company–someone of the stature of New Corp.’s No. 2 Peter Chernin or eBay’s former leader Meg Whitman (except now, she is apparently Sen. John McCain’s pick for Treasury Secretary, if the Republican Presidential candidate were to win the election).

“If this has any chance of working out, the board has to push restart on the leadership,” said one person close to the situation, who notes that this deal is Yang’s last chance to truly impact the future of the company he co-founded and preserve its legacy. “Everyone gets that, even Jerry.”

But I think the idea that Yang would leave if there were to be a merger of Yahoo with AOL is wishful thinking on the part of his critics.

He appears tome to be very committed to seeing his vision of turning around Yahoo through.

And those who have counted him out always seem to be the ones who have been typically wrong, such as Microsoft CEO Steve Ballmer and shareholder activist Carl Icahn.

Because, for all the turmoil at Yahoo, it’s Yang still calling the shots.

In its ongoing renovation of its offerings–last month it began rolling out a new homepage–Yahoo is unveiling a new online calendar, with a passel of new bells and whistles, to a small group of users worldwide.

At first, the beta–current users can register to try it here–will take place in the United States, Brazil, India, Taiwan and the United Kingdom.

Overall, it is a good-looking, simple and clean design–that will eventually be extended to all of Yahoo’s 8.1 million calendar users worldwide.

It is also Yahoo’s first attempt at leveraging and integrating technology from its $350 million acquisition of open-source email and calendaring company Zimbra just over a year ago.

And, incredibly, although Yahoo’s is the top online calendar in the world, it has been 10 years since the Internet giant updated it.

That lack of innovation has resulted in major inroads in recent years by newer entrants like Google, whose calendar launched with more modern features, like color-coding, easy sharing and drag-and-drop functionality.

With its renovation, which is based on open standards, the updated calendar from Yahoo (YHOO) now has these kinds of features and also works more seamlessly with Yahoo’s powerful email product, Yahoo! Mail, which has 278 million users.

The new Yahoo calendar is built on the Zimbra platform, which uses Ajax functionality in its online calendars and iCalendar (iCal) and CalDAV3 standards.

That makes it interoperable with other online calendar services, including those from Mozilla, Apple, Microsoft, Time Warner’s AOL and Google.

One of the cooler features is the ability to zoom-in and zoom-out from a monthly wall calendar view to a single event.

In addition, Yahoo’s new calendar can integrate pictures from its Flickr photo community and also has a “to-do” list.

As the beta is rolled out further in the coming months, Yahoo will add additional synching and event discovery features.

I talked about all this today with Yahoo SVP Scott Dietzen, who came to the company with the Zimbra acquisition and now is in charge of all communications products at Yahoo.

Here is the video interview I did with him:

And here are the screenshots of the new calendar, along with one of the old calendar, for comparison (click on images to make them larger):

The old main Yahoo calendar

The new main Yahoo calendar

The “zoom” feature

The integration with Flickr

The Upcoming.org integration