Last year, Yahoo EVP Hilary Schneider and then-Media Group head Scott Moore had a summery seaside dinner with Demand Media co-founder and CEO Richard Rosenblatt (pictured here) in Santa Monica, Calif., right around the corner from the online publishing company’s HQ.

While many speculated that Yahoo (YHOO) could be doing some friendly kibitzing to get a sense of where the eclectic network of general- and special-interest sites was headed, for a possible acquisition, nothing came of it.

That’s because at the time, Rosenblatt insisted that he was aiming to eventually take his company public and Yahoo was in the midst of ongoing corporate turmoil.

“There is a lot of potential here and I want to build a big company for the long-term,” said Rosenblatt in an interview with BoomTown last July (see video below).

But, as my post noted: “Still, at some point when Yahoo is not in the free fall it is currently in, Demand might make a great purchase for Yahoo.”

And now, a year later, as new Yahoo CEO Carol Bartz works to stop that slide, several sources close to the company tell me another look-see at Demand is likelier than ever.

That’s underscored with recent indications that a major strategy will finally follow through on making Yahoo’s massive but disparate service more social, especially its content offerings.

But would Bartz go as far as making a big buy now or would she be more likely to strike a massive partnership with Demand, from which Yahoo could learn a lot?

Such an acquisition could cost anywhere from $1.5 billion to–as was floated last year in better times–$3 billion. In addition, if Demand was to engage in more serious talks with Yahoo, there would likely be other suitors.

As costly as that is, some sort of link-up with Demand is an interesting idea, especially since Yahoo could use a bold and definitive move to signal social goals that play to its strengths and are not a copycat of more powerful social-networking sites now in place.

At a Morgan Stanley (MS) conference last month, Bartz said, for example, that “I do not believe we can invent the next Facebook,” while noting Yahoo still needed to be more social throughout the service, especially in its content.

And, just yesterday, a Reuters article about that focus was titled: “Yahoo’s Plan: Create Community from Isolated Sites.”

Said the article: “If [Yahoo co-founder David] Filo and new CEO Carol Bartz have their way, the kinds of social networking features available on Facebook will become part of many Yahoo websites and allow their users to network with each other without using Facebook. The company hopes the strategy will help link its disparate properties, bringing more advertising dollars and growth.”

And that’s just at the heart of Demand Media, which dubs itself the “leader in social media.”

Demand was founded in 2006 by Rosenblatt and Shawn Colo, who raised a giant pool of funding–$355 million–from gold-plated investors like Goldman Sachs (GS), Oak Investment Partners and even a private investment from major Yahoo investor Gordon Crawford.

Getting that kind of backing was due to Rosenblatt’s entrepreneurial track record.

As founder, chairman and CEO, he sold iMALL to Excite@Home for $425 million in a 1999 stock swap.

And, perhaps most famously, as CEO of Intermix Media, Rosenblatt sold it with the company’s crown jewel, MySpace, to News Corp. (NWS) for $580 million in cash.

Then, Rosenblatt started Demand, which takes user-generated content of all kinds and on all kinds of topics–especially via video–from an army of freelancers and leverages it into massive traffic that it monetizes.

Demand is also the one of the bigger suppliers of video to YouTube, which it also monetizes.

And, through the acquisition of Pluck, the company also laces social-networking tools throughout the sites, as well as for many well-known third parties.

All this has given Demand upward of 70 million unique visitors per month, at sites like eHow and GolfLink.com, with about $150 million in annual revenue.

And–drum roll please–it is reportedly profitable, although how much is not clear.

While he has long maintained a public offering was on the horizon, despite the weak economy, Rosenblatt has also been interested in the idea of how to revive major players like Yahoo and Time Warner (TWX) online unit AOL.

Both have been struggling, but still have massive traffic and brand recognition, along with large advertising businesses.

And in many ways, the energetic Rosenblatt is just the kind of product-centric and visionary exec Yahoo lacks, despite Bartz’s clear ability to get the company’s management ducks in order.

What could be even more interesting, said one source, would be to marry Yahoo and Demand with a lot of what is going on with the publishing of niche sites at AOL’s MediaGlow content unit, in a giant publishing network.

Ironically, AOL was another acquisition target of Yahoo, in yet another deal that did not pan out last year.

Here’s the interview with Rosenblatt at Demand Media HQ last year:

Last night, BoomTown was at the Horn Group offices in San Francisco to appear on a panel called “Is Social Media Killing PR?”

Focused on the “future of the media ecosystem,” it was moderated by Media Survey’s Sam Whitmore. Besides me, the other panelists were the Horn Group’s Susan Etlinger and Jeremiah Owyang, a Web strategist with Forrester Research.

The panel topic was inspired by recent blog rants by Jason Calacanis, Robert Scoble and Michael Arrington, all of whom have taken potshots at the PR industry as unnecessary or broken in the new social media order.

Of course, as was the intent, their pieces caused a teapot-tempest in the sector, although I said at the start of the panel that I was not so sure that PR folks should bite at this particular bait from a trio of bloggers well known for liking to start controversial debates.

In any case, it was a good discussion to a packed audience about what the implications of social media are for the PR business–essentially, fewer press releases and more Twitters!

My take was that as much as things have changed, little actually has and that social media were not going to turn a weak pitch into a strong one.

All that counted a decade ago were good products and solid start-ups–and that is all that still counts today.

And, in fact, with all the social tools PR folks now have, it is easier than ever for them and companies to go right around the gatekeepers of the media directly to customers.

Here’s a short video I did at the event:

“No one wants a relationship with their mustard.”

Well, exactly. (Unless, it is Col. Mustard, of course, who is endlessly fascinating!)

This odd but spot-on observation was about why big packaged-goods advertisers–who are the really big spenders of the ad business–might be less than interested in leveraging social-media advertising and its promise of deep engagement with consumers.

No one wants to interact over mustard or mayo or ketchup or most products that pay the rent up and down Madison Avenue.

That has not stopped all sorts of social-media companies, from the big ones like Facebook to smaller apps makers, from touting a new and seemingly miraculous kind of advertising attached to their various widgets and interactive products.

To be fair, I do get it on a macro level and also can see the possibilities of the medium, as the idea of truly engaging with consumers has been the holy grail of many marketers.

The problem is, to my mind, that most of the solutions I have seen so far are much more gimmicky and lightweight than innovative and deep.

Whether it be giving out virtual products as gifts or letting users throw them at each other or getting folks to participate in some poll or silly game, none of it feels new and a whole lot of it feels faddish and eventually tiresome.

What is required–because ad agencies and marketers don’t seem to be doing it or, more precisely, doing it well–is for these social-networking companies to come up with either a dead-effective ad solution (as Google (GOOG) has done with its essentially direct-marketing nuclear weapon) or one that leads to an actual purchase or, most of all, one that truly is groundbreaking.

Now, I am not smart enough to think these things up, but it is clear someone has to, as the impact of social ads is still minimal.

Consider the stats from an article (also see the graph below) in The Wall Street Journal today: “In 2007, U.S. marketers spent $600 million advertising on social media, a sliver of the $18 billion spent on interactive advertising that year, according to Forrester Research. The number is forecast to spike to $6.9 billion by 2012.”

This small market is simply not as impressive as the super-sized valuations many of these social-media companies enjoy.

Looking back at a post I did almost a year ago, it feels as if little has changed in a significant enough way.

As I wrote, mocking the notion raised by one widgetmaker that consumers wanted to become “brand ambassadors”:

It seems, though, that the old canard about getting audiences to carry water for brands and loving it has found new life, as social networks and the widgets that live off them search for business models…

But to insist that audiences like to do this, for example, since they seem to enjoy wearing and showing off brands in their clothing and consumer lives, is a story that only a marketer could spin to big-product companies in need of a little love.”

I was debating this very notion of how social-media ads become successful with one social-media entrepreneur by email late last night–yes, this is what passes for fun in my life–who noted correctly that his hugely popular apps “might have enough cultural footprint now to have some staying power, assuming I manage to add depth to it fast enough.”

Now, it seems, we’re on the right track.

Speaking of how to get consumers to have a relationship with their mustard, here is a video of the classic Grey Poupon commercial that could teach Web 2.0 a thing or two or three about marketing:

This morning, I am interviewing Steve Wadsworth, who helms Walt Disney’s (DIS) Internet businesses.

And after sating myself with as much Club Penguin info as possible, I will be sitting rapt in the front row, as folks like Yahoo’s (YHOO) Jeff Weiner, Bebo’s Joanna Shields and AOL’s (TWX) Ron Grant talk about how social media is going to finally make money.

BoomTown is on a vision quest to answer that question in the coming year, so we are kicking entrepreneurs and taking names!

Here’s a short video I did on the opening night, including talking to paidContent’s Staci Kramer and Seth Goldstein of Social Media.

But, first, it starts with a tour of my temporary L.A. abode at the home of Mahalo’s Jason Calacanis:

Why? Apparently because inane is the goal! Well then, I guess: Mission accomplished!

At an appearance at the Web 2.0 Summit yesterday, a group on a panel called “Facebook as a Platform,” led by Dave McClure, talked about a lot of stuff.

But it seemed to get lively when the discussion turned to my comparison of the boom in third party apps on Facebook to the arrival in my home of a box of shiny plastic toys from China.

I was at home with my own actual 2-year-old playing a rousing game of hit-mama-with-the-foam-finger- and-crack-up-hysterically, when the group–which included Seth Goldstein of SocialMedia, Ali Partovi of iLike, Keith Rabois of Slide and Lance Tokuda of RockYou–declared me humorless.

All because I did not realize that these apps were meant to be silly and more fun than a barrel of monkeys.

Actually, I did know that and, by the way, monkeys are much more fun.

Here was my initial argument:

But, so far, as popular as those apps have become, what [Facebook founder Mark] Zuckerberg and the widget-makers have wrought is mostly silly, useless and time-wasting and the kazillion users of these widgets are pretty much just acting like little children.

“I never thought I would call the often frivolous AOL back in the day–very simply, a Neanderthal version of Facebook–a mature offering in comparison.

“While I will admit when I am not chewing nails that a lot of these apps are somewhat fun, I can’t help but ask myself that lyric from the old Peggy Lee classic: ‘Is that all there is?’

“And if that is all there is, can Facebook really build a viable and long-lasting business on what is essentially a bunch of games that will ultimately become wearying for users? Doesn’t it need more robust apps that actually are useful and relevant and make Facebook the service that Zuckerberg has often told me was a ‘utility’?

“While Facebook–with a cleaner and more strict look and a better navigation–is surely less goofy than rival MySpace for anyone over 12 years old, and its video, photo and email features are nice, the vast majority of its apps are still mostly as dumb as a box of hammers.”

“Kara’s argument is ridiculous,” said Slide’s Rabois, according to a report on Wired.com.

“Why do people watch movies and TV? Because they’re bored or looking for something to do to relieve stress in their lives. Apps are providing entertainment to users.”

Really, Keith? I had no idea, despite the fact that “Gilligan’s Island” was my favorite show for way too many years!

Seriously, I know what he is saying and I agree on the need for some fun on this tragic little spinning globe of ours, except:

1. I would be fine with silly widgets, if there were more serious ones too, well beyond Vampires and SuperPokes and even an app called Pop Ur Zit. All of these have the longevity of a gnat, designed to be faddish and quickly forgotten. And, if you are going to be fun, one might try a little harder to come up with some offerings that are a little less disposable.

In fact, on a recent visit I made to RockYou HQ (post coming Monday), its savvy tech lead noted that there was surely a limit to how much crap people wanted to throw at each other.

2. Entertainment, especially the idiotic kind, will not get you to massive sustained usage that characterizes a true paradigm shift that McClure claimed was happening.

For example, was it all the games that made the personal computer become a ubiquitous device? No, it was serious programs like VisiCalc and Lotus 1-2-3.

So where are those kind of apps for systems like Facebook, I wonder, as I noted in another post about what to do with a group of 2,500 techies I have gathered on the social-networking site. So far, we have a whole lot of nothing to offer them.

3. Another argument made on the panel was that the blogosphere used to be disdained as goofy only a few years ago and now it is a true media power.

Well, it was never disdained by me and, actually, there were a lot of substantive and important blogs even back then to balance out the fluffier ones. In fact, there were more.

4. As RockYou’s Tokuda said, referring to me: “I believe for her the apps are useless because she’s not a teenage girl.”

This is not a news flash, although I probably am one of the older diehard fans of “Hannah Montana.”

But it is not necessarily true that advertisers will flock to these widgets, just because the kids love it.

Because as much as advertisers want to reach a younger demographic, they also do not want to do it in an environment of frivolous engagement and I doubt there is much appeal to them when people are busy slapping each other digitally or cartoonifying their friends. In addition, advertisers want to reach people who will buy things and few are in that mindset when they are anonymously telling someone else the “honest” truth or being a Human Pet.

I could go on, but will stop there, so the Lollipop Guild can respond in crayon.

But here’s one offer I will take RockYou’s Tokuda up on: A promise he made onstage to build something just for me.

Just some guidance, Lance: No poking, slapping, tickling or zit-picking.

Call me old-fashioned, because I know you will anyway.