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.

Back in the first season of “Saturday Night Live,” one running catchphrase uttered by Chevy Chase would always crack the then-12-year-old BoomTown right up: “This breaking news just in: Generalissimo Francisco Franco is still dead.”

It’s that same kind of extreme déjà vu I feel with the continuing drip-drip-drip of the news-less news that Time Warner’s AOL and Yahoo are still talking about a merger.

Both Silicon Alley Insider’s (and soon-to-be AllThingsD.com blogger) Peter Kafka and I wrote extensively about the talks on in mid-September, noting that the discussions centered around merging AOL’s content, advertising and software assets with Yahoo (minus the access business).

There were the price issues–Yahoo wanted to pay between $6 and $8 billion, while Time Warner has long wanted $10 billion–as well as the worries about integration (East Coasties versus West Coasties) and email dominance monopoly problems.

As I wrote on Sept. 23, for example:

That support will be especially important if Yahoo tries to buy AOL, which it is again strongly considering as a way to bolster its ad business, international portfolio and email and content offerings.

Several sources I have spoken to recently have said that Yahoo leadership is very interested in doing such a deal, although not at the $10 billion price tag that Time Warner wants. (Think half and add a little more.)

In addition, there are some daunting regulatory and integration issues–AOL and Yahoo email and messaging combo would be a giant in the space, and the HQs of the companies are on opposite coasts.

But, the deal would give Yahoo some more experienced executives it needs and make it more attractive to others who might not consider going to Yahoo in its present state.

Yang had been pinging a lot of execs over the last year and has had little uptake.

But a stronger and more flexible Yahoo–i.e., it knows it has to change dramatically–would surely be more enticing, especially in a down economy.”

Now comes yet another story yesterday from TechCrunch that the talks are–wait for it–still on.

The story recounted similar details and added even older ideas from previously reported AOL-Yahoo talks (some multi-billion-dollar cash infusion from Time Warner, for example).

And, said TechCrunch, it could happen this month!

Good gracious–October is, like, a really long month. And, if not October, I guess November is good or maybe December. Hey, what about 2009?

Actually, what everyone really would like to know is what the heck is taking Time Warner (TWX) and Yahoo (YHOO) so long, hashing over the same issues (price mostly), especially if it is such a stellar idea?

And, with the economy crashing all around and Yahoo’s and Time Warner’s stock hitting five-year lows, one has to wonder what, exactly, the pair are waiting for?

A more fortuitous reading of the entrails? A sign from the heavens? Better winds?

Well, I hate to inform Time Warner CEO Jeff Bewkes and Yahoo CEO Jerry Yang, but the tide is not turning anytime soon, and both their companies are getting weaker by the minute.

I once called the pairing of AOL and Yahoo a little like leaning two drunks against each other to keep them from toppling over.

Looking back, I will admit that was a little harsh.

Given the stakes now, though–and especially if Yahoo has to abandon its controversial search ad outsourcing deal with Google (GOOG)–it makes sense to combine forces.

In the online ad space, for example, Yahoo and AOL mostly complement each other. The same is true in email and communications tools. And, while Bebo is not the prize Time Warner touted it as, despite paying a king’s ransom for it, Yahoo has no social-networking property.

The only area of true overlap is in content. Here, based on many sources, I would imagine if a deal is ever struck that Yahoo will slash and burn most of AOL-branded properties, keeping only interesting newer brands like sports blog FanHouse, celeb blog TMZ and the Engadget, Tuaw and JoyStiq tech blogs.

And, in fact, if the pair even gets its act together–this or next week would be great for us–it will give them the much-needed impetus to start making the massive cuts needed at both Web outfits for a long time now.

In that regard, look for an AOL exec like its President Ron Grant to be buttonholed to swing that particular ax.

Yahoo, with its less confrontational culture, has never been good at that kind of thing. For all its many flaws, it is a talent AOL will surely bring to the party.

If, of course, Yahoo and AOL ever manage to throw one before they become too much like Generalissimo Franco.

You know: Still dead.

I have posted below a video interview with ContentNext’s founder Rafat Ali, who spoke about the deal. I caught up with him in his New York hotel this morning (by coincidence I flew into New York today on a redeye).

But the deal–which comes after the mid-May sale of Ars Technica to Condé Nast for a reported $25 million–begs the question of which tech blog might be next to be acquired.

And, after much noisy poking around today, BoomTown is giving the nod to one of the sector’s larger and splashier sites: TechCrunch.

Several sources told me TechCrunch has been in off-and-on talks recently with Time Warner’s AOL (TWX), which wants to pay from $20 and $30 million for the site.

I could not find out what price TechCrunch thinks is fair, although one might assume it is higher than that.

TechCrunch CEO Heather Harde told me via email that she had no comment. “My policy is not to comment on rumors of our business,” she wrote.

TechCrunch, which was founded in mid-2005 by Michael Arrington, is a group-edited blog that has grown large by focusing–”obsessively,” according to the site’s About page–on Web 2.0 start-ups, covering every jog and tittle of their life cycles.

Sources said the talks between TechCrunch and AOL have been ongoing for the past six to eight weeks, although the site has been in talks with several other large media companies interested in it in the past and these have not led to an acquisition.

AOL would probably be a good home for a site like TechCrunch, since it has a blog focus from its own Switched site and sites it bought, like Engadget.

AOL acquired that popular gadget site in 2005 in the $25 million acquisition of Weblogs, which was founded by entrepreneur Jason Calacanis.

Calacanis, by the way, runs an annual tech conference with TechCrunch, now called TechCrunch50.

Also, I have stayed in Calacanis’s house in the Brentwood (see post and video here), when I was interviewing a Disney exec onstage at a paidContent conference in Los Angeles recently.

Oh, yes, it’s a small tech blogging world after all.

But the money has suddenly become big for the sites involved in that universe too, although most still have relatively small businesses.

Nonetheless, tech bloggers have grown in number and influence, as sites–like this one–compete to break news and attract readers.

Such efforts take funding–despite the lower costs as compared with traditional media–and this probably means inevitable consolidation.

Before its acquisition by Guardian, for example, ContentNext had been raising several million dollars recently to fuel more expansion.

Other sites have also recently raised funds, such as GigaOm, Silicon Alley Insider and VentureBeat.

Most of them have also been talking about various roll-ups between and among one other. Sources told me that VentureBeat, for example, has spoken separately in the past to both paidContent and TechCrunch about joining forces.

VentureBeat’s Founder Matt Marshall would not comment on that, but did note that “size matters, so you have to do what you can to get the economics of scale.”

That includes adding on more sites and doing conferences, as VentureBeat has done (its new conference is called MobileBeat, for example, which will take place in Sunnyvale, Calif. on July 24.)

“Consolidation is what you are probably going to see,” predicted Marshall about the tech blogging arena.

Here’s ContentNext’s Ali talking about exactly that and more today:

With thanks to engadget, we repost this portrait of our beloved leader at AllThingsD.com, Comrade Walt Mossberg.

Walt has long railed on the topic of the stifling of innovation by the U.S. cellphone carriers–especially to me over dinner when I am really tired–so it is nice to see it in a terrific piece you should not miss.

That’s especially true this week with the CTIA’s annual conference taking place in San Francisco. CTIA represents the wireless telecommunications industry, including carriers, manufacturers and wireless Internet providers.

Comments on Walt’s post were lively today on the site, many agreeing with Walt and his comparison of the wireless kingpins to apparatchiks of the Soviet Ministries, although some were wary of the burgeoning wireless efforts of both Google and Apple too.

In any case, it’s a great debate and one sure to continue for a long time to come.

Nonetheless, here are two for the price of one (and, by price, we mean free) for your techie enjoyment.

Last month, Om Malik and his co-host, Joyce Kim, interviewed a bunch of folks while attending the TechCrunch40 conference, including the tracksuit-wearing, shaved-head-sporting Marc Andreessen (don’t get us wrong, we like the look). Also, extreme wonkery with Engadget guys and Chris Anderson of Wired on his book-worthy newest theory.

Then, it’s onto Dan’l Lewin, Microsoft’s go-to guy in Silicon Valley.

I have always thought Lewin was quite a charmer comparatively speaking (to most at Microsoft, that is, and not bad in general).

Watch carefully, as he is working as hard as he can to brush off the GoogleFacebookYouTube mindshare monster. Also, Lewin says exactly zero about Microsoft’s intentions toward Facebook.

Is it just me or does it seem exactly one million years ago when Microsoft was considered the scary Bigfoot?

Apparently not, if it has the effect yesterday’s round of begging had by more than doubling our donor numbers and adding more than $1,500 to the AllThingsD kitty in only one day, after this post in which I egregiously use the musical stylings of Barbra Streisand to plague Yahoo CEO Jerry Yang.

Whatever for? Well, it is fun, of course, but it is also for a good cause too.

Last week, I wrote about October Tech Blogger Challenge on the the charity site called DonorsChoose.org, which funds classroom projects in high-need public schools, using the Web to match teacher project requests with donors. AllThingsD picked tech projects in both San Francisco and Washington, D.C.

So far, our AllThingsD page on the DonorsChoose site (and you can also access it using the nifty fund-raising thermometer above, on the left rail of this site) has raised $3,520 from 16 donors.

We have passed TechCrunch in donor numbers and just nosed aside Endgadget in donation totals.

But the wily venture capitalist Fred Wilson is still on top with 36 donors and $11,247 (we don’t want Valleywag to start wagging, but we hear donating is a requirement of term-sheet signing, not that there’s anything wrong with that).

Wilson is foiling BoomTown’s genius master plan of winning the award Yahoo is sponsoring for the bloggers who inspire the most readers to give. The winner will get a free lunch with CEO Jerry Yang, from whom we currently cannot get the time of day.

Wilson, like any decent VC, probably has got the phone number to Yang’s golf cart!

Well, two can play at that game!

I’m bringing in the cute kids–namely mine–to plead for donations and donors!

Remember to click on through to our AllThingsD page on DonorsChoose.org here to give early and often!

To inspire you, here are the Swisher boys, only one of whom can really talk, who are not coached in any way to ask you to be generous:

And I only had to ask nice once after I complained in a post here that the online video show was not viral. Horrors!

Malik hosts the interview show weekly with lawyer Joyce Kim. Now you can see me talking with them about my thoughts about Dow Jones under new owner Rupert Murdoch, as well as on topics like blogging, traditional journalism and the doings at Facebook and Yahoo.

The video also includes a session before mine with Ryan Block of Engadget. Plus you get to see a rare, limited-edition Walt Mossberg “Craplets!” T-shirt.

Thanks Jim! (And also for paper-airplane-sitting Louie, while I blabbered away.)

Here’s the video:

Please see this disclosure related to me and Google.

They included getting me to talk about what I really think of new owner Dow Jones owner Rupert Murdoch (quick summary: He’s certainly been a controversial media mogul, but we’ll see!), as well as my thoughts about blogging, traditional journalism and my two favorite Web companies to report on right now, Facebook and Yahoo.

Bonus: First up in the program is the always clever Ryan Block of Engadget, who I think is one of the sassier tech reporters out there.

I seem unable to embed the whole program–Om, get on it!–but you can see it here, and also hear it, too. But here are some pictures below, including me showing off my limited-edition Walt Mossberg “Craplets!” T-shirt.

Please see this disclosure related to me and Google.

Block was getting ready to throw a party for attendees of the E3 games conference in Santa Monica, Calif., so we decided to have a little video chat about the iPhone–Engadget’s bread and butter of late, including such posts as an imagined mock-up for a cheaper next-generation Apple device pictured here–and also WAP and other trends.

But, of course, we asked about life at AOL. Sorry, Ryan!

iPhone 2.0!

But until then, we might as well wallow in it.

So here is a funny report from Engadget about the imagined possibilities for the next cheaper versions of the iPhone. Many are, of course, already speculating on what’s next for the product, even before it hits the stores June 29, and some are saying that Apple is already at work on new ones.

Sounds like another good Saturday Night Live parody in the making, like this one:

The helpful Brian Lam of Gizmodo provides a daily “pill” of iPhone info, so I don’t have to, while MacRumors gives the lowdown on accessories (carrying case, carrying case, carrying case, pricey Bluetooth headset, blah, blah, blah).

Meanwhile, USA Today discusses the girding going on at AT&T stores as they prepare for the onslaught of buyers.

But you can’t miss this long article by John Heilemann in New York magazine, which ran on the cover with this picture and the line: iGod.

I am not so sure of that from the piece, which depicts Jobs as almost decrepit in his recent onstage appearance at the D5 conference, with Heilemann writing, “The senescence on display is jarring…”

That means Jobs-with-a-walker, I think.

I am not sure Heilemann actually attended our conference to see Jobs in action, but he looked pretty good to me up close in both his sessions–one alone with Walt and another with us both and also Microsoft’s Bill Gates.

Aside from being kind of busy over the last few years (along with a major illness), you be the judge of Jobs’s dotage in these two videos from D5: