[UPDATED: With added information about range of product discussions.]

In this digital era’s version of “Spy Vs. Spy,” Microsoft and Google find themselves in yet another sharp-elbowed battle to be the one to strike some kind of commercial search deal or product partnership with Twitter, many sources with knowledge of the situation said, as they also jockey for position to evaluate the potential of the much-hyped microblogging start-up.

After last week’s explosive rumor that Google was in “late-stage” talks to acquire Twitter, which BoomTown reported was wildly premature, I set out to try to sort out exactly what was going on.

As I found out, there was a lot–mostly much talking related to possible product and distribution partnerships, centered around Google or Microsoft, especially around a deal to become the one to exclusively deliver search or other similar services to Twitter properties.

The reason for the interest? Many think Twitter’s real-time search of its 140-character “tweets” posted by users on the service will become the next great battlefield in search. Google currently dominates the general search market, with third-place Microsoft struggling to get more share.

But how to do that is in flux, as past efforts at various third-party search arrangements have had mixed success for both Google and Microsoft. Both companies and also Twitter are trying to figure out new ways to do such deals.

On top of that, it is also unclear if Twitter wants to strike a deal purely to get a payment from either Microsoft or Google, as others have done. Twitter management has indicated that they are much more interested in growth and distribution over a revenue focus.

Twitter Co-founder Biz Stone said as much on the start-up’s Web site recently, as well as in many media interviews, noting that it will begin experimenting with its own business ideas this year.

In other words, the talks Twitter is having with both Google and Microsoft could also lead exactly nowhere too.

Along with the commercial talks, both Microsoft (MSFT) and Google (GOOG) are also trying to figure out if Twitter is simply one of the many shooting stars that are far more typical in Silicon Valley or if it is sea-change start-up worth pursuing and paying up big-time to acquire.

“As impressive as what Twitter has done, we are all overexcited,” said one source. “And so it’s hard to figure out the right thing to do with all the pressure to do something.”

Thus, while an offer for Twitter from Microsoft, Google or a plethora of other players–from News Corp. (NWS) to Yahoo (YHOO) to Cisco (CSCO) to Time Warner (TWX) online unit AOL to big telcos–could come at any time, said many sources, only a huge price would lead to an acquisition, especially since the growth of the service has been accelerating more rapidly in recent months than has been reported publicly.

This all makes for dicey times at Twitter, which sits at the center of all this noise, trying to build a company, while also being fully cognizant that trying to engineer a massive buyout could be its best outcome.

Further complicating the situation: The fact that Twitter co-founder and CEO Evan Williams–who has already sold one company, Blogger, to Google and eventually left after a lackluster experience, a common one of many entrepreneurs who sell out early to large companies–is less interested in selling out than in growing the company.

But without the kind of control of the company’s fate–which allowed Facebook founder and CEO Mark Zuckerberg to effectively block similar buyout pressures early in its history–Twitter’s founders also might not get the last word in the event of an unusually attractive offer.

While a $500 million stock-and-cash one from Facebook last fall was turned away by Twitter due to worry about the social-networking site’s market valuation, the massing interest is overwhelming and forcing it to make some clear decisions about it path.

“When you are in a situation like Twitter is in, you have to wonder if this is the high-water mark and it is time to sell out or if you are underestimating yourself badly by even considering that,” said one Silicon Valley entrepreneur who has been in a similar spot in the past. “It can be very hard to think straight.”

Indeed, all the attention is both distracting and slightly surreal for its top execs and small 30-person staff in San Francisco, said many sources close to the situation, especially the mass of media that resulted due to that now-discounted rumor that Twitter was poised to be sold off for a giant pile of money.

In fact, Twitter has its hands full enough scaling its recent surge in growth and keeping the service humming along (it has had tech snafus in the past).

But for Google and Microsoft, this geopolitical one-upsmanship by the Internet’s two most important companies is quite familiar, and they have not hesitated to jump into the Twitter tempest.

If that sounds a lot like the two-month fire drill in 2007 that resulted when Microsoft and Google competed to see who could sidle up closest to then-belle-of-the-Silicon-Valley-ball Facebook, you are exactly right.

After much huffing and puffing back and forth and this way and that way, it resulted in a Microsoft “win,” which gave it the distinct honor of forking over $240 million to own 1.6 percent of Facebook at an astonishing $15 billion valuation.

Even as Facebook has grown quickly in size since then–to 200 million users, as announced yesterday–its valuation has dropped to $3 billion to $5 billion.

Microsoft had previously struck an search ad deal in the U.S. with Facebook in which it paid a guaranteed revenue to Facebook and later also did a deal to do some of the search on the site.

Such kinds of deals have become common for both Google and Microsoft in recent years. Google struck one with News Corp. social-networking site MySpace, as well as with AOL (which will also soon come up for renewal).

And Microsoft grabbed the right to pay Digg a guaranteed fee in another online ad deal. And the pair also fought more recently over a mobile search distribution deal with the wireless unit of Verizon (VZ).

And so it goes now with Twitter.

No partnership deal has been made as yet, of course, since such a thing would say a lot about Twitter’s future, since the prospect of marriage overhangs such a choice, which is also–in essence, a declaration of allegiance in the cold war between Google and Microsoft.

If that also sounds like a plot of a James Bond movie, with geeks armed with algorithms instead of gadgety weaponry, you’re also exactly right.

More, obviously, to come…

Please see this disclosure related to me and Google.

While the “news” that Google was in “late-stage” talks to acquire Twitter, which TechCrunch reported last night, certainly sounds exciting, it isn’t accurate in any way, according to a number of sources BoomTown spoke to close to the situation.

In fact, Twitter and Google (GOOG) have simply been engaged in “some product-related discussions,” according to one source, around real-time search and the search giant better crawling the microblogging service.

Said a source close to Twitter: “There was a discussion with [Google executive Marissa Mayer's] group about real-time search and about product stuff. It was a couple weeks ago. It was very preliminary…and that was that.”

More importantly, said another source about the idea of an imminent acquisition or serious or even early talks: “Seriously, no negotiations, no deal, nada.”

So for all those Twitterers madly typing 140 characters and caught up in the grand idea of Twoogle, we return you to your regularly scheduled tweeting.

Of course, there has been a lot of analysis, put forth by many, including me, that Google should think about acquiring Twitter.

It is the microblogging service’s likeliest acquirer, in fact. And there is no question Twitter is being watched closely by Google.

But sources at Google stressed that a strong partnership–especially in light of the growing size of the Facebook social-networking site–is what the company is most interested in at this point in time.

That could change at any time, of course. Google or anyone else could plunk down more than $1 billion in cash, and I cannot imagine Twitter’s investors would or could resist. Nor should they.

And what if, for example, Microsoft (MSFT) offered some huge cash payday for Twitter? In that case, I am certain Google would jump into the faceoff, backing up a giant Brinks trunk to the door of Twitter’s San Francisco offices.

And the reaction such an idea has gotten with this round of rumors will surely be studied at Google.

But this is all just pure speculation and should be couched as that. And that does not mean there are talks going on now, as TechCrunch reported so firmly.

And that’s also true for a range of other companies–from Microsoft to Yahoo (YHOO) to News Corp. (NWS) to Time Warner (TWX) unit AOL to Cisco (CSCO) to Comcast (CMCSA) to the big telcos–that would also be interested in buying Twitter or partnering with it.

And Facebook already tried and failed to buy Twitter last year, which BoomTown chronicled in a post in November, for $500 million in cash and stock of the social-networking service.

Why? Because although Twitter is still small, with seven million users, it has a definite momentum in the red-hot real-time online status update space.

And while I give it a hard time for its utter lack of a business plan or revenue to speak of, the well-funded Twitter is also at the beginning of a long runway of possibility that could yield it a higher price later, if it so chose to sell at all.

Moreover, if Twitter’s investors and founders wanted to sell, they wouldn’t have taken a recent round at $230 million valuation, because it would imply a $750 million to $1 billion purchase price, and no one could pay that right now.

Even the mighty Google could not–which does not typically overpay for companies.

More likely, Google would surely get killed by investors for spending that much on a revenue-free company, especially since it is still getting beat up for the pricey YouTube deal it made when times were great.

Lastly, Twitter’s founders have expressed the desire to take the company out for a longer ride, even if some of its investors would love to cash out if offered a crazy price.

“Why would the company do something like this right now?” said a source close to Twitter, in a typical sentiment. “The company’s on a tear right now.”

In fact, last night in an appearance on “The Colbert Report,” Twitter co-founder Biz Stone explicitly said Twitter planned to be a “strong, profitable, independent company.”

While entrepreneurs have said this and then quickly sold out, it is not the case now for Twitter, unless it got some insane offer, said numerous sources.

TechCrunch, which slapped a loud headline on its first post, “Sources: Google in Late-Stage Talks to Buy Twitter,” then changed it to “Sources: Google in Talks to Acquire Twitter (Updated).”

What’s next? “Google and Twitter Have a Lovely Organic Lunch and Discuss Trading T-Shirts (Updated Update)”?

The TechCrunch report, penned by Michael Arrington, also added a let’s-just-cover-all-our-bases update at the bottom of the ever-changing post that then hedged the news it had just hyped.

This is not new for the tech blog, especially related to Google.

On July 28, 2008, TechCrunch reported: “Google In Final Negotiations To Acquire Digg For ‘Around $200 Million,’” and said there was a letter of intent signed.

While the pair did hold ultimately unsuccessful talks, they never got even close to final.

And on February 6, 2008, TechCrunch had a post with the headline, “Rumor: Is Google About to Buy Bebo For $1 Billion To $1.5 Billion? Or Will it Be MySpace?”

Hmm, not so much on the about to buy Bebo. In fact, Google was never in what could be described as serious talks, and Bebo was sold to AOL, the lone bidder, for $850 million a month later.

Thus, the third time is, no surprise, not a charm either.

Please see this disclosure related to me and Google.

A few weeks ago, BoomTown had lunch at Microsoft’s Silicon Valley campus in Mountain View with Dan’l Lewin, the software giant’s corporate VP for strategic and emerging business development.

In other words, Microsoft’s friendly face in the Valley, in charge of its operations there, which has about 2,000 employees.

Most of them work for other Microsoft (MSFT) divisions, leaving Lewin primarily responsible for the company’s relationships with start-ups, venture capitalists and industry partners.

It has, for example, relationships with Web 2.0 players like Digg and Facebook of late (pricey friendships, but friendly nonetheless). And it bought Tellme several years ago.

But Microsoft is not much of a big acquirer and has long been portrayed as Silicon Valley’s nemesis.

But times change and that image has been slowly shifting as its hammerlock of power has lessened with the surge of important players like Google (GOOG).

Lewin attributes that to more predictability from Microsoft (translation: not coming down like the Visigoths and pummeling folks without warning).

Unlike many Microsoft execs, Lewin has worked all around the tech industry, including at Apple (AAPL), NeXT Inc. and GO.

Here’s my chat with Lewin, where we talked about all that and more:

Last night, well-known Internet entrepreneur Marc Andreessen appeared on the “Charlie Rose” television interview show, talking about the digital sector and unveiling the news that he is creating a new venture fund.

I had heard rumblings about Andreessen’s funding efforts earlier this week, with sources I talked to nicknaming it “Project A.”

Actually, Andreessen said the new firm is called Andreessen Horowitz (zzzz), because he is doing it with longtime investing partner Ben Horowitz.

“For the first time in my life, I am crossing over into the dark side,” said Andreessen.

Although he gave few specific details about the fund, Andreessen essentially said he was simply putting a structure around his own active angel investing, which has included start-ups like Twitter, Digg, LinkedIn and many more.

His new effort will focus on early-stage investments, he said, noting that “our claim to fame is, we’ve actually, you know, by entrepreneurs for entrepreneurs, we’ve done it, we’ve been on that side of the table for a long time; we know what it’s like.”

Adding that he and Horowitz had made 36 investments over the last three years of up to $200,000, Andreessen said his new firm will make up to $1 million bets on start-ups.

Of course, for most of the interview, Rose zeroed in on hot topics like Facebook, the social-networking site on whose board Andreessen serves.

The voluble tech star did his job, talking about how Facebook could turn on the spigot and make all sorts of money anytime it wants and about the recent controversy around its Terms of Service kerfuffle.

He also talked about the Andreessen-backed Ning social network service, the Apple (AAPL) iPhone, Twitter, why the New York Times irks him, Google (GOOG), the Amazon (AMZN) Kindle e-book reader and gaming.

Ironically, the Netscape co-founder and his Xbox from Microsoft (MSFT)–eek–“have a very close personal relationship.”

But Andreessen also told Rose a little bit about the new fund he is raising money for, for example, while discussing the economic meltdown.

Talking about the fact that innovation will survive, Andreessen said: “Like with our new fund, if we fund a company today, we’re thinking about a return in seven to 10 years, so we can go through three or four or even five years of economic downturn, as long as, at some point, we come out the other end.”

Here is the video of Andreessen on the show (he starts to talk about the new fund in the interview at around 18:33 minutes, again at 46:55 minutes and at the very end):

Who can resist an all-pork post yesterday in the New York Times about a recipe that has taken the Internet by, well, greasy storm?

The piece, by Damon Darlin, chronicles what started out as an Internet marketing scheme for a site called BBQAddicts.com, but that has turned into one of the more popular dishes online of late.

The dish? “Bacon Explosion.”

Writes Darlin: “The instructions for constructing this massive torpedo-shaped amalgamation of two pounds of bacon woven through and around two pounds of sausage and slathered in barbecue sauce first appeared last month on the Web site of a team of Kansas City competition barbecuers. They say a diverse collection of well over 16,000 Web sites have linked to the recipe, celebrating, or sometimes scolding, its excessiveness.”

In true Web 2.0 fashion, Bacon Explosion’s creators used Twitter, StumbleUpon, Digg, Del.icio.us (of course!) and social-networking sites to get the word out.

And the rest, as they say, is pig-story.

[Photos of Bacon Explosion, courtesy of BBQAddicts.com]

Digg, the San Francisco-based news discovery service and one of Silicon Valley’s more prominent start-ups of late, said in its company blog today that it would cut its 75-person workforce.

A company spokeswoman told BoomTown the cut would be about 10 percent, but would not give out a specific number of employees to be let go.

In addition, Digg noted it would be aiming to cut costs and be profitable in 2009. It will also be hiring a direct sales team.

In other words, revenue does matter too, Web 2.0!

Here’s the entire blog post on the layoffs and more, by CEO Jay Adelson:

Brief update on Digg

Thanks,
Jay

Oh, I’m sorry, is this the part where BoomTown is supposed to make a list of some sort of what I like and don’t like, what’s hot and what’s not, what’s going to happen and such to all the various players in the digital space?

I don’t think so.

Why? Well, when I have in the past or have read them from others, it’s a lot like Nostradamus. You can read into it anything you want.

For instance: Apple (AAPL) CEO Steve Jobs wrote a public letter today that essentially says he is not dying, as many speculated he was last week–without a trace of proof.

And, presto-chango, the thickest in the blogosphere then does another twisteroo and uses it as confirmation that he is in indeed sick and it was the true reason for his Macworld keynote pullout, even though Jobs says no such thing in the letter.

Or, more mundanely, I write: “Mobile will be bigger than ever.”

Well, to start, it is a kind of duh-prognostication. Plus it is essentially meaningless, since obviously more folks on the planet means more cellphones.

Or, what about: “Twitter/Facebook/Digg/Fill-In-The-Overhyped-Start-Up will sell to a major media giant.”

Okay, maybe, if any of those major media stocks were not in the toilet and their execs decided to do another Bebo/CNET/Fill-In-The-Overhyped-Start-Up cash belly flop like last year.

You get the idea.

But the real reason I am not inclined to go all Miss Cleo is simple: I have no idea what is going to happen and neither does anyone, even in their heedless guessing.

Did we imagine Microsoft (MSFT) would launch a hostile attack on Yahoo (YHOO)? No, we did not.

Did we guess that Google (GOOG) stock would tank to half its value in a massive U.S. economic collapse? Nope, sister.

Did we know that Apple apps would take off like gangbusters, even as rumors of Jobs’s imminent demise would too? Sorry, but we didn’t, including you in the back there insisting you did.

Did we foresee that the insane valuations for Web 2.0 companies like Facebook and others would drop like the ball in Times Square on New Year’s?

Wait, we got that one right.

Here are the only predictions I can make, which is that these will be the topics that everyone will be chattering about in tech in 2009:

AppleAppleAppleAppleAppleAppleAppleAppleAppleAppleAppleApple
AppleAppleAppleAppleAppleAppleAppleAppleAppleAppleAppleApple
AppleAppleAppleAppleAppleAppleAppleAppleAppleAppleAppleApple
AppleSteveIsSickAppleAppleAppleAppleAppleAppleAppleAppleApple
AppleAppleAppleAppleAppleAppleAppleAppleAppleAppleAppleApple

Also:

TwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitter
TwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitter
TwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitter
TwitterTwitterTwitterDidYouKnowSteveIsSick?TwitterTwitterTwitter
TwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitterTwitter

And:

Yahoo!

Wait, that’s just me.

This morning, FriendFeed, which is a kind of content delivery version of Twitter, went international, launching in six new languages–German, French, Spanish, Japanese, Russian and simplified Chinese.

Now live, the move is a natural extension for the Mountain View, Calif.-based start-up–which was founded earlier this year by a small gang of ex-Googlers: Bret Taylor, Paul Buchheit, Jim Norris and Sanjeev Singh. The company says that one-third of users already use FriendFeed in languages other than English.

More languages are planned, said the company, which specializes in super-aggregating updates of all kinds for social-networking and news items in an ongoing feed from places like Facebook, YouTube, Digg, Twitter and Flickr.

Given all the dissipated ways people communicate on the Web, FriendFeed lets users collect all these links, some of them in rich media and some just text messages, to share publicly or privately.

I find the service very useful and compelling, so I paid a visit to its HQ last week to chat up Taylor and Buchheit.

We talked about a range of topics, including–my favorite–monetization, or lack thereof, of a lot of terrific Web 2.0 services like FriendFeed and Twitter.

The pair, in a less overt manner than Twitter’s CEO Evan Williams, did acknowledge the focus on growth over revenue, although they did seem intent on figuring out a true business plan sooner than later.

FriendFeed certainly has time to do so–it is a small and inexpensive start-up with a dozen employees, funded with only $4 million from Buchheit and Singh and $1 million from Benchmark Capital.

Here’s the video (excuse my gruff-cold-and-cough voice):

Of course, the stock market had to come roaring back and it had to be extra sunny on the very day I was scheduled to have lunch with well-known Silicon Valley investor Ron Conway to talk about the worrisome state of the digital sector.

After all, it was Conway (pictured here), as well as Sequoia Capital, who sent out a stink bomb of an email last week to his start-ups to deliver a simple message: The Web 2.0 party is over.

Said Conway to his entrepreneurial troops as the market was crashing down and smacking tech companies hard in the process:

“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.”

Survival!?! What ho? This from the man who is one of the more upbeat of Web investors! Who is one of the backers of Digg, Facebook, Twitter, Ning, Seesmic and 125 other Web 2.0 companies?

Ironically, our lunch yesterday was little more than a year after I had had another lunch with Conway, where I also made a video, and during which we had a lively discussion about a range of topics, including the venture business (better than ever!), innovation (better than better than ever!), monetizing video content on the Web (best of all!) and more.

Yesterday, the news was not so happy, of course, although Conway did try to explain in more detail exactly what he meant in his most recent email, which echoed one he had also sent out when the last Internet bubble was popping a half-dozen years ago.

And that is: You better have a year’s worth of cash and a revenue model or you’re toast.

Other than that, Mrs. Lincoln, he’s bullish!

Here’s the video (and below it, the one from June 2007, when things looked a little sunnier for Conway and Web 2.0):

While rumors of its impending re-sale have apparently been greatly exaggerated, what’s true about StumbleUpon is that its new Web-centric look and feel and a new partnering program represent a major shift for the online discovery service.

The San Francisco-based company, which was founded in 2001 and sold to eBay last year for $75 million, is announcing tonight that users will no longer have to register or download its toolbar to “stumble” the Web.

Users can now simply start on StumbleUpon’s site, for example, and stumble all over the Web using their Web browser as guide rather than a toolbar.

The move is being made simply because most Internet users are increasingly loath to install Web plug-ins like toolbars, a requirement that naturally has slowed the growth of StumbleUpon’s service over time.

Currently, StumbleUpon has about six million registered users, although only a fraction of those are responsible for the approximately 12 million daily “stumbles,” all using a toolbar.

“We wanted to attract users who do not want to use a toolbar, making it easy so they could use the service right from the get-go,” said Garrett Camp, co-founder of StumbleUpon, in an interview with BoomTown earlier today.

Camp noted that that the toolbar–which has been downloaded between 11 and 12 million times–has seen that growth slow over time. Nonetheless, it is not being eliminated either.

“[Toolbar adoption] was still growing, but not accelerating,” said Camp. “Being able to stumble without one was the biggest feedback we got from users.”

Along with the Web-stumble change, StumbleUpon is also unveiling a redesigned homepage–see an example of it below; click on the image to make it larger–which is an attempt to make it more of a destination.

With the new look, visitors can find content by topic and more related to interests. Other changes include a new look for profile pages, as well as user reviews, rating and comments.

Along with its distribution shift and site renovation, StumbleUpon is unveiling a partner program called StumbleThru that will allow visitors to discover content within those sites without going to StumbleUpon.

Sites–starting with HowStuffWorks.com and the HuffingtonPost.com and followed within weeks by RollingStone.com and National Geographic–will display a StumbleUpon “badge” or custom widget.

It is not unlike similar buttons that now dot Web pages from news discovery services like Digg, which users can click to find related pages.

Essentially, much as Google (GOOG) delivers custom search within Web sites, StumbleUpon is offering custom surfing, giving publishers StumbleUpon technology to allow its users to surface content within their sites that is often deeply buried.

As to the blog reports that eBay (EBAY) had put StumbleUpon up for sale after owning it for a little more than a year, Camp essentially dismissed them, noting that the unit is still operating as an independent subsidiary of the auction giant.

“They have given us a lot of runway,” said Camp.

Here is the new front page of StumbleUpon:

Also, here is a video I did last year at the exceptionally noisy (sorry!) party that StumbleUpon threw after it was sold to eBay a little more than a year ago:

So what will Microsoft’s (MSFT) next quarry be?

Facebook? AOL? A series of small Web 2.0 stars like Digg (probably too late, as Google is already first in line there again), Spot Runner and others?

That is, if there will be one after the Yahoo (YHOO) takeover debacle.

Or, if the software giant somehow screws up the courage and, despite the constant rejection, goes back again to try to scoop up Yahoo.

In a post Friday, BoomTown made the case that Microsoft was not going to do that, burned too many times and ready to move on for various reasons (regulatory problems, poisoned relations and sheer pique).

That is not to say that I think Microsoft should walk away. It should not, as I argued two weeks ago in a post titled “A Deal Must Be Done.”

As I wrote: “Because, if [Microsoft CEO Steve] Ballmer is serious about his contention, which he made fervently onstage at D6, that the software giant keeps ‘coming and coming and coming,’ it simply cannot make that attack from a piddling 9% market share in the online search business.”

No, indeed, and that’s why it should watch carefully as the price of Yahoo’s stock drops and what happens between Yahoo and billionaire activist investor Carl Icahn.

Icahn is waging a proxy war against Yahoo, which should come to a head at the company’s board meeting on Aug. 1.

So if Ballmer is serious about competing strongly in the search-ad market, he must keep Yahoo in mind, no matter the checkered history of their dealings so far.

And even, as several sources tell me, swallow the bile it must have had after Microsoft thought it won the search deal with Yahoo, at least until a June 8th meeting in which Yahoo offered the whole company or nothing.

Yahoo then turned around and signed with Microsoft archrival Google (GOOG) last week.

“They were uncorking the champagne last week on the Yahoo search deal and then it all went sideways to Google,” said one source. “Someone’s head will roll.”

The big head here, of course, is Platforms and Services Division President Kevin Johnson (pictured here), one of the big proponents of the various deals with Yahoo.

Now, he and others at Microsoft have to be scrambling for alternative schemes to figure out a way to stay in the game.

While some think Microsoft should stick more to its knitting and buy enterprise companies like SAP, Ballmer and Johnson have been adamant that online ads will be its next great business.

And, given the growth there, being No. 2 in the space is not the worst place to be.

In any case, many expect a bold step from Microsoft in the space now.

The obvious move is a splashy bid for Facebook. As before, Microsoft continues to send subtle signals of interest, now via third parties, to the social-networking site.

Not so fast, though.

As much as many at Facebook would like the sell out for a price tag in the $10 billion to $15 billion range, CEO and Founder Mark Zuckerberg remains uninterested and seems willing to continue resisting the pressure (see BoomTown’s take on that here).

As for AOL–it’s a more likely scenario, given it would allow Microsoft to double down in the display space with the Time Warner (TWX) division’s Platform A ad unit and also gain some other strong properties (such as in video search with Truveo, with widgetmaker Userplane, as well as in instant messaging).

It would also probably like to give the boot to Google, which now serves up AOL search ads (and which also holds a 5% stake in AOL).

Microsoft has been very close to buying AOL before, once even considering spinning its Internet properties and AOL into a newco, so it does know the lay of the land there.

And Time Warner CEO Jeff Bewkes is casting about for solutions to unlocking the value of the interactive unit, which has always needed to run free from the mother ship.

In fact, here’s some video highlights of my interview with Bewkes at our recent D: All Things Digital conference, in fact, where he discusses AOL’s challenges:

Imagine this:

Google (GOOG) starts buying up a series of promising and innovative Web 2.0 companies that Microsoft (MSFT) is either partnered with or clearly is or should be interested in.

It starts with Digg, moves onto, say, Spot Runner and others (Meebo, FriendFeed, iLike and even Slide?), focused especially in the online ad, messaging, online apps and mobile spaces.

And, just to stir up the pot, why not take a gander at some bigger Internet fish? Facebook, for example. Or even eBay (EBAY), which is looking more and more like acquisition bait to me.

It could happen. Some of it will. And sooner rather than later, I would guess.

As Microsoft contemplates its next move in the Internet space after its failed bid for Yahoo (YHOO)–in order to realize its stated goals of being a big player in the ad and search space–it feels to me like it is moving with a Yahoo-level of lugubriousness.

Making some unimpressive announcements (Cash back for search? Now there’s a non-game changer), playing coy with regard to Carl Icahn’s proxy fight against Yahoo and noodling around with plots to buy part of Yahoo, Microsoft has essentially gone radio silent.

And while many smart minds think Yahoo is Microsoft’s only true path to serious competition with Google and should just cut to the chase and make another bid, it seems to be just lazily circling.

Maybe it is actually feverishly working on some amazing and bold renewal of its Yahoo deal behind the scenes, which would be great.

It better be doing something, since it seems as if Google has no intention of backing off in its bid to dominate further what it already dominates.

Clearly, the search giant had no problem getting Microsoft’s face in its takeover battle with Yahoo.

In fact, looking forward at the larger Internet battlefield–which will obviously be almost entirely fought between Microsoft and Google for the next few years, at least (although an unknown force will also surely emerge)–how Google has behaved with regards to Yahoo is instructive.

As Microsoft, forced to make a hostile bid this February after being rejected time and again by Yahoo in 2007, faced even more rejection from the Internet portal, it did not take long for Google to enter the fray.

Its tactics were to be a helping hand, a strong alternative and a flexible partner who could get Yahoo out of its jam by offering a deal that would, of course, help Google too by allowing it the chance to grab another tasty slice of the online search-ad pie.

And to throw salt in Microsoft’s wounds, its top execs then publicly pooh-poohed the deal as anti-competitive, specifically with regard to communications and display advertising.

This, still pending, even as Google’s own possible search-ad outsourcing deal has been quite questionable from a monopolistic point of view.

Now, since Microsoft does not feel compelled to make any kind of significant move, all eyes should be on what Google does next.

So, even if it is a small move like buying a Digg–as BoomTown has written again and again, the pair have been seriously talking with each other for months now, so watch that space–or some other prominent Web 2.0 start-up like it, such a thing would be a clear indicator of Google’s intentions going forward.

In part, that is to keep Microsoft from getting any kind of true traction in Silicon Valley, as it would have if it had managed to purchase Yahoo.

Welcome to Microsoft CEO Steve Ballmer’s nightmare.

So–as Freddy says–whatever you do, don’t fall asleep!

Please see this disclosure related to me and Google.

Today, we debut our new redesign of the home screen of AllThingsD.com.

It is, in fact, our second redesign since we launched the site in late April of 2007, although it is a much more drastic redesign, with a lot more elements added.

Why did we do it? No, we are not hyperactive (OK, we are, but we are taking medication for that).

Actually, it is because we in the ATD brain trust (that would be Walt Mossberg and me), along with our many much-more-intelligent staffers and advisers, wanted to bring even more digital news and analysis to our readers by making more stories available on the front page from us and also from around the Web.

Our aim was simple: Now newsier than ever!

In fact, we hope you will find our new look linktastic, as we try hard to embrace the notion that ATD’s audience wants to be able to find great tech and media stories anywhere and everywhere.

Just fyi, the inside sections remain exactly the same–it is only the front page that has undergone the renovation.

Here’s a quick tour, from the top to the bottom of the page:

Megablog: We combined the BoomTown and John Paczkowski’s Digital Daily blogs in one rolling one in the center rail.

We felt that it allowed us to feature a lot more of our stories on the main page longer, up to 20 typically, and also made it easier for readers to find stories before they dropped off the front.

We will be adding more material to this section soon, as we develop our content further.

Walt Mossberg: Walt’s weekly Personal Technology and Mailbox columns and Mossblog, as well as Katherine Boehret’s Mossberg Solution, move up and to the right in a high-profile spot.

As ever, Walt is the site’s amazing anchor and a tech consumer’s greatest adviser, telling it like it is and writing reviews that matter.

Tech Headlines: On the top left, we wanted to bring in the stellar work from our Dow Jones brethren at The Wall Street Journal, Barron’s and MarketWatch, as well as from the Dow Jones newswires, to give readers links to as many stories as we can as news breaks.

This section will be updated every nine minutes to keep it fresh and new.

Voices: This section on the left remains the same, except it goes vertical. We try to hand-select (no stinkin’ algorithm for us) from across the digital blogosphere, so we can feature blog posts we think you need to see to keep up.

Also, expect more guest bloggers who write original posts just for ATD, like one tomorrow from Slide’s Keith Rabois, giving BoomTown a hard time for our problem with juvenile widgets.

The Tech Top 10: Also on the left, just below Voices, we keep our edited Tech Top 10, a list of the stories we think you need to know about every day.

Video: On the right is our featured video. We do a lot of video at ATD and we will feature our latest-posted here.

Tech Around the Web: Also on the right, we are posting, via RSS, the feed from four digital news sources we like and think are useful for our audience.

Two are editorially driven sites, paidContent and GigaOm, who we believe are combining the energy of the blogosphere and also providing readers with trusted reporting that also adheres to the standards of accuracy and ethics we try to operate under too.

This is a big focus for us at ATD and we want to point readers to high-quality material. They say you are judged by the company you keep and we could not agree more.

Both Digg and Techmeme, of course, are the key news aggregators of the sector and we like how helpful they are in surfacing important tech and media stories for readers.

Just click on each tab to get to each section. This section will also be constantly refreshed throughout the day.

More ads: Well, we have to pay the bills, don’t we? We hope you do find them useful and don’t find them too intrusive.

There will be even more to come from us in the coming weeks, especially as we gear up for the sixth edition of the D: All Things Digital conference, which is taking place May 27 to 29.

So, please let us know what you think of our new look, as we would love feedback.

And special thanks to all who worked on the redesign, including Mike Monteiro of Mule Design Studio and especially the tireless and multi-talented Adam Tow, our Web genius.

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.