Needless to say, we're not totally convinced by Tancer's super compelling argument. Granted, we haven't seen his data, but the simple claim that searches for porn have dropped from 20% of all searches to 10%, and that social networks are now the dominant search theme, isn't enough to get us preparing for a grand ol' porno funeral. Allow us to explain ...

There's more of the internet than there used to be. As the internet grows, matures, and spreads into homes across America, it's only natural that porn would become a smaller percentage of all the content out there — not because porn is less popular, but because it's gone from being a big fish in a small pond to a big fish in a very, very large pond.

Social networks are work friendly. You (probably) can look at Facebook while you're slacking off at work. You (probably) can't look at Fleshbot. Does that mean that you like Facebook better than Fleshbot? We'll let you think on that one.

Social networks are kid friendly. We hear the kids are big into the internet these days — and they also really like the MySpace. Chances are, their parents are going to be more okay with them looking at MySpace or Facebook rather than porn. And the more that kids become heavy internet users, the more these numbers are going to get skewed.

Adult sites are vastly more profitable than social networks. Unlike Facebook, most porn sites have figured out some decent ways to monetize their traffic (even with smaller users bases). Somehow, we think the money is going to have the final word on this one.

· "Facebook and MySpace are Killing Porn?" (mashable.com)
· "Porn passed over as Web users become social" (reuters.com)

Sling Media's main product, the Slingbox, differs in a key way from popular digital video recorders like TiVo. Instead of recording programs for later display in the living room, the Slingbox rebroadcasts what's on your TV, live, to your laptop, cell phone, or other Net-connected screens. While TiVo lets you shift TV shows in time, Slingbox lets you move TV programming to other places. (This is especially handy if, say, you want to follow your home team's games, only available on your local cable system, while you're on the road.)

Obviously, a Slingbox could be hooked up to EchoStar's Dish Network boxes. But it could just as easily be connected to a DirecTV box, or a cable hookup. So why would EchoStar buy something that's so hard to turn into a proprietary advantage?

Obviously, EchoStar could introduce set-top boxes that have Slingbox functions, saving space under the TV set. But I think there's more to it than that. Internet bandwidth looks set to increase continuously, while capacity on EchoStar's satellites appears increasingly constrained. If the Slingbox rebroadcasts any video signal over the Internet, couldn't EchoStar, one day, skip the satellite altogether and pump television programming over the Internet — what's known in the industry as IPTV?

Of course, in IPTV, EchoStar will face competition ranging from AT&T to Microsoft. No small challenge. But Krikorian, the Sling Media founder, has faced unlikely odds in introducing a new, difficult-to-explain piece of hardware, winning critical praise and blog buzz, and now selling his company at a more than healthy price. If he's sincere in staying on at EchoStar, as he told PaidContent, Ergen's company has a chance to transcend its satellite-TV heritage. That seems worth a few hundred million dollars.

Facebook has to sell at some point. Just as with YouTube, it means nothing that Facebook's founder pretends his company could continue independently. In fact, it's much less likely for Facebook, which has a smaller user base, tougher competitors (YouTube was king of video; Facebook is still smaller than MySpace), and fewer immediate advertising opportunities. Internet traffic tracker ComScore says Facebook's traffic actually fell by over a million visitors last month.

But Facebook is too cocky to drop down to a $1 billion offer, which is all Yahoo's still offering. Both are playing chicken now, hoping that no third party approaches the other with a sweeter deal. In the meantime, other massive social sites like YouTube and MySpace soak up the benefits of major corporate ownership: stability, cash flow, and huge leverage in future deals with other conglomerates. And Google and News Corp are basking in the halo effect of their popular purchases.

So which will cave first, Facebook or Yahoo — or will Google snatch up Facebook too?

Yahoo's Talks With Facebook Get Bogged Down [Wall Street Journal, free]

• Google is loaded. The company is worth $131 billion on the stock market. As Reuters notes, it gained $4 billion in the last two days, enough to buy YouTube twice and then some. From a pure money standpoint, a YouTube failure would cost less than a bad week of trading.
• Hey, someone had to buy YouTube. Despite co-founder Chad Hurley's insistence that YouTube wasn't for sale, this year the company talked to Microsoft, Yahoo, Viacom, and News Corp. (The New York Times cites this as evidence of Google's deal-making skills. It's more evidence that no one else is this crazy.)
• Yes, did we mention Google is insane? Consider this seriously.
• Google is about advertising. YouTube needs a business model. Thus, Google just found a massive distributor for its video ads, a market that Google Video didn't have room for.
• All of this has happened before, and all of this will happen again: Google's YouTube buy is the new boom's answer to Yahoo's 2000 purchase of Broadcast.com for $5.7 billion. Remember when Internet radio was the future (even though TV had made radio the past, half a century ago)? Paying $1.65 billion for a company that loses over $2 million a month is just a more sensible manifestation of the bubble-acquisition archetype.

Earlier analysis: Win Google's money: Who can leave YouTube today a millionaire? [Valleywag]

So the big winner in YouTube is probably [venture capital firm] Sequoia. They've easily got 45-50% of the company.

It's interesting that they're selling to Google; Sequioa has always been a Yahoo company. Bunch of folks from Yahoo are limited partners in various funds and side-funds, most notably investor David Siminoff. (There are two kinds of partners. General parters — the guys you meet at parties and who have offices here — and limited partners, the folks who cough up the dough.)

Different firms have different rules for limiteds. And some have what they call "side funds" — pools of money into which CEOs, former CEOs, former partners, etc. can invest. So a firm will invest x and allocate some part of x to the side fund. This is how Kleiner Perkins got back into everyone's good graces: Google.

Is this a good sign for the Bubble?

So Sequoia's now got YouTube which, by the way, is the HotMail of Bubble 2.0. It's the deal that says we're a go. No one understands what it means, no one believes the "valuation," the founder'll be outta there in two years, yadda yadda.

The only difference is that all the big media firms took a sniff at YouTube and they all passed. More proof of cluelessness. VIacom shudda bought 'em. Keep all those MTV/VH1 oldies on line forever and ever...

So YouTube is still gonna blow. How soon can everyone jump off this flaming dirigible?

This is all hypothetical but here's how it would work: Sequoia, which probably has control of the company, probably led the negotiation. Their shares are as good as cash or close to it.

Now, if they were very good and very smart, they got the founders a short "work out." (The shortest one I've heard of - ever - was Peter Thiel's at PayPal. He didn't have one. Nor did Toby at Outpost. They go to work at/with the new co but they are free to leave at anytime taking their comp packages with them.

Others - no so lucky. Employees: Unless they've negotiated for a "change of control" clause in their contracts, they'll have the same vesting schedule [the rate at wich employees get promised company shares] under the new owner.

So, for instance, let's say you have a package of 5,000 YouTube shares with a two-year vest. Okay, you hang around for a year and you're getting 2,500 shares. Two years, you get the whole five. Only now that the deal's done, you may be getting GOOGLE shares — not shares in some company that's not public and may never be.

Google Agrees to Buy YouTube for $1.65 Billion [NY Times]