Google is in advanced talks to pay around $500 million for Yelp, according to a story from TechCrunch confirmed by the New York Times, which described the talks in straightforward business terms: "Google has been showing greater interest in the local business market in the United States."

But Yelp isn't just any online content startup. It wields disproportionate power over local merchants, from restaurants to auto body shops, and said merchants have repeatedly told tales of Yelp offering to let them re-arrange reviews if they took out ads — and of disappearing positive reviews in retaliation when they complained about the ethics of the situation. The San Francisco-area alt-weekly East Bay Express ran a series of articles on such practices, and the story eventually went national.

One business owner got so frustrated with Yelp users — and Yelp Inc.'s passive aggressive handling of her — that she ended up in a wrestling match with a reviewer she had flamed on email.

The company is also known for its raging, drunken, fleshy user parties, which are thrown, alternately, by the company itself and by the restaurants subject to its users' reviews.

Google has already seen its reputation as the "Don't Be Evil" internet company erode significantly, most recently after CEO Eric Schmidt said people should consider not having secrets, a story that spread widely online and in the news media. If it's going to seduce Yelp, Google should make sure its remaining friends know the company plans to reform its new toy rather than join its caddish pursuits.

(Top pics: Yelp co-founder Russel Simmons has fun with an employee at a Yelp holiday party, from this Valleywag post.)

Step one: Slowly destroy the Suggested User List, a list of Twitter's favorite websites which is used to populate the accounts of new users. CEO Evan Williams now says ""I desperately want to kill it or evolve it," according to Business Insider. A few weeks ago, Williams said, "we don't think it's our job to editorialize" through the list, according to NYU professor Jay Rosen.

Indeed, the list gave the microblogging startup tremendous unchecked power to instantly bestow large audiences on various Twitter publishers, yet it was assembled somewhat haphazardly, in a process that involved a "gut check" with "a couple folks" at Twitter Inc. The company reportedly and apparently removed TechCrunch publisher Mike Arrington from the list after, over Twitter's loud objections, he published internal Twitter documents obtained from a hacker. TechCrunch appears to have since been restored to the list; the below chart from TwitterCount shows the long fallow period in Twitter follower growth for TechCrunch when it was apparently out of Twitter's favor:

Step two: Provide search data to rivals. The value in Twitter is in its real time "fire hose" of tweet data. But the company has guarded that data jealously, providing it to only some companies who request it, and then often at a cost of thousands of dollars per month. But Twitter is now nearing a deal to finally sell access to its "full feed" to Microsoft for the Bing search engine, reports Kara Swisher of All Things D. The company is also believed to have been in talks with Google for a similar deal. Sharing with such large competitors is quite a bit of letting go — albeit with financial compensation — for a company that has treated its real-time content feed as a major strategic asset.

It would appear that Twitter is learning a lesson crucial to all sorts of small businesses: if you want to be successful at something, you have to give up on being successful at everything. One would think a company founded on tiny, 140-character status updates would have learned the benefits of limits much sooner.

(Pic: Williams, earlier this month, by Bruno Pin.)

Various startups, we're told, have already been able to buy access (for thousands of dollars, not the millions Google or Microsoft would have to pay) to tweets. Twitter is in "advanced talks" with both those companies to sell access to a full feed of tweet data for use in the companies' search engines, according to Kara Swisher at All Things D. Such a feed would presumably include all new tweets as they are posted along with public data on favorites and who is following whom.

Thought they haven't widely publicized the practice, Twitter is already in the business of selling access to its "firehose" of public data, according to a source close to one customer of the service. Twitter typically charges between $1,500 and $3,000 per month for such access, sometimes for a limited subset, this person said.

Then again, a typical customer until now has been a relatively small startup company with little revenue, utterly dependent on the Twitter ecosystem. Google and Microsoft are more fearsome competitors, with much deeper pockets. Google CEO Eric Schmidt just this past March called Twitter a "poor man's email system," and his company recently added real-time features to its GMail product, making it more Twitter like.

Of course, working with tech behemoths has its benefits, starting with cold hard cash. Swisher said deals on the table include payments of "several million dollars to Twitter." The company could also try and negotiate a cut of the advertising sales accompanying its results.

But the biggest benefit would be to reignite Twitter's growth, which appeared to stagnate over the summer. A company with a $1 billion valuation and little revenue lives and dies by its future promise. And a surge of search engine traffic could make that future look significantly brighter. Assuming, that is, that there's anything worth finding in the 140-character mental ejaculations of narcissists, celebrities and desk jockeys.

(Pic: Twitter co-founder Evan Williams with Google co-founder Larry Page, Williams' former boss, at industry event Foo Camp in 2007. By Scott Beale.)

Skype founders Janus Friis and Niklas Zennstrom (pictured) appeared to have it made before the computer wizardly was allegedly stolen. They had eBay, to whom they sold their internet phone-call service in 2005, on the ropes. The online auction company was trying to sell Skype, but Friis and Zennstrom's barrage of software-licensing and copyright lawsuits against eBay scared off potential buyers like Google. eBay, it seemed, would be forced to accept Friis and Zennstrom's own lowball offer to buy back Skype.

Then a consortium of private finance companies swooped in with an offer — ultimately accepted — valued at a cool $2.8 billion. It just so happened that one of the buyers, Index Ventures, employs a guy named Mike Volpi, who used to work for the Skype founders. One of Volpi's tasks for Friis and Zennstrom, according to their suit (embedded below), was to learn how to replace the "Global Index" software code at the heart of their various internet communications software, including Skype. Being able to remove this software would potentially moot many of Friis and Zennstrom's Skype lawsuits, thus making Skype much more valuable to its owner — the company Volpi now works for.

Friis and Zennstrom are alleging that ex-employee Volpi stole secrets from them, and breached his fiduciary duty as chairman of one of their companies, online video company Joost. In so doing, they are not only kicking off an epic, $2 billion nerdfight, they are also cementing their reputations as among the most litigious entrepreneurs in tech. In addition to suing eBay in both U.S. and British courts, and Volpi, they've also filed three separate lawsuits against the investment banker who represented them in their sale of Skype, according to the New York Times.

For a couple of guys whose product is revolutionizing global communication, Friis and Zennstrom have a distinctly old-fashioned way of sending a message.

Joost lawsuit

Coverage elsewhere: VentureBeat, TechCrunch

(Top pic by Steve Jurvetson)

Grown, that is, in the eyes of Silicon Valley's venture capitalists, slaves to the technology fashions for which Twitter is the leading model: real-time, micro, iPhone friendly and acquisition bait for Google. Twitter might say it's in this for the long haul — someone is spreading word the company has $30 million, or most of its last funding round, sitting in a bank account — but the company has proven far more adept at finessing moneyed suitors than in groping for reliable revenue streams.

Twitter's trend hopping founders, whose project management company begat their blogging company which led to their podcasting company which begat Twitter, seem more likely to seize on the easy exit of the former rather than the long grind of the latter.

Especially when, as these charts of their past investment rounds show, they're so very good at jacking up their price:

(Top pic: Twitter co-founders Biz Stone, left, and Evan Williams. By Joi Ito.)

iLike became something of an icon for a certain class of startup: Built on social networks, fast-growing, unprofitable, advertising supported. The company's impending sale to MySpace at a fire-sale price could hardly be a bigger wakeup call to these fellow makers of software "widgets."

The company was once valued at $53 million, back when Ticketmaster bought a 25 percent stake in late 2006, according to the Seattle Times. iLike amassed a total of $17 million from Ticketmaster and other investors like Silicon Valley venture capitalist Vinod Khosla and former AOL exec Bob Pittman. Now it's negotiating to sell for just $19.5 million, All Things D reports, and $6 million of that is contingent on retaining certain employees in coming months.

It's quite comedown. But it's easy to see how iLike became a media darling and a hero to other makers of widgets. In the late spring of 2007, iLike ported its music recommendation service to Facebook, and in the process spiked its user base dramatically, to 15 million from 3 million over six months. In one week just after the Facebook launch, four venture capitalists asked CEO Ali Partovi (pictured) to lunch, the Seattle Post-Intelligencer reported; the company reportedly added close to 200 servers over the course of the summer.

After retaining insidery Silicon Valley flack Brooke Hammerling, iLike saw its praises sung widely in the media (emphasis added):

• Wall Street Journal, June 2007: "'Somebody's going to end up being the Facebook music service,' [co-founder Hadi Partovi] says. 'It's either going to be us, in which case we're made, or it's not.'" (By the time Patrovie gave this retrospective quote, iLike was by far the dominant music service on Facebook.)
• Billboard, July 2007: "The smart money says someone will acquire iLike, and soon. The company's social media discovery capabilities are a natural extension to any digital music service, particularly iTunes."
  
• BusinessWeek, July 2007:"'Widgets are a fundamentally important idea,' says Vinod Khosla... who has invested in two widget makers, Slide and iLike. 'I believe it has the potential to create big billion-dollar winners.'"
• Forbes, October 2007: "Says Khosla [Ventures]'s David Weiden: 'Widgets are the next kind of media network.'"
• USA Today, November 2007: "The company... has become an overnight sensation... Dave McClure, an angel investor in Silicon Valley, wouldn't be shocked if iLike... and others eventually go public."

Revenue was presumably slow in coming, though, because by fall of the following year iLike was said to be trying to sell itself and Ticketmaster wrote off half the value of its investment. Now investors are basically trying to break even with the MySpace sale. The music and advertising businesses have their own unique problems, but startups in other hot sectors, like iPhone apps, should beware: The excitement can dissipate as quickly as it inflates.

(Pic: Niall Kennedy)

The j-school graduate (pictured) is on a mission to save journalism, and his venture, EveryBlock, was in turn funded to the tune of $1.1 million by a grant from the philanthropic Knight Founation, which was hoping Holovaty would "make it easy for people to learn more about life around them." After two years, Holovaty open sourced his code and had accumulated a daily audience estimated at 14,000.

That's not good enough, says CUNY assistant professor Christopher Anderson, who writes that MSNBC has skimmed off the value of a project "developed by common labor;" Anderson is upset in part because it's not clear whether EveryBlock's code will remain openly available. NYU Local publisher Cody Brown has called for more transparency around the deal.

These sorts of critiques would be unimaginable around an acquisition involving privately held companies funded by stock and venture capital. But they're perfectly predictable when nonprofit money and promises of public benefit are involved. The Knight Foundation has already been through it once, with MTV.

America's newspapers should remember these headaches; as they seek government favors and mull nonprofit status, they'll find they have as much to learn from Holovaty's business story as from his technology.

(Disclosure: I applied for, and ultimately did not receive, a Knight Foundation grant one year after Holovaty.)

(Pic: Matt Biddulph)

From left to right are Facebook's Vaughn Smith, FriendFeed co-founder Jim Norris, FriendFeed co-founder Paul Buchheit and FriendFeed co-founder Bret Taylor. But the winner is clearly the guy on the far right, Mark Zuckerberg: if the Facebook CEO was the one dropping $50 million in this situation, that only made him more entitled, under Silicon Valley social mores, to dressing in shorts without socks. Let's just hope he never uploads pictures of a multi-billion-dollar transaction; it's a good bet a Speedo would be involved.

For comparative purposes, this is what a merger looks like in New York, with an old media company involved:

UPDATE: When Patricia Handschiegel sold StyleDiary in 2007, she snapped a decidedly unglamorous picture of herself at the end of the closing, when the fashionista found herself clad in a t-shirt, her hair pulled back. "This shit makes you humble," she told us at the time. Indeed!

(Top pic by FriendFeed co-founder Paul Buchheit; bottom pic by Getty Images)

FriendFeed was, at one point, the darling of Silicon Valley; when one well-known blogger and database engineer left Yahoo last year, he publicly declared he'd rather work at FriendFeed than at Twitter. And no wonder: FriendFeed let Valley A-listers trade a wide array personal trivia from multiple services faster and faster, sating a deep hunger for narcissistic minutiae.

But if the rapid growth of Twitter over the past year has proven anything, it's that people outside of Silicon Valley are happy to source their trivia from a single, simple service, rather than from an aggregator like FriendFeed. Which is why we said more than a year ago that the latter's features were destined, one way or another, to be absorbed into Facebook.

Having invented GMail and Google AdSense, FriendFeed co-founder Paul Bucheit (pictured) will no doubt see his reputation burnished by successfully selling off his latest initiative; AllThingsD quotes a venture capitalist estimate of $50 million in cash and stock. But selling now highlights the limits of even that considerable accomplishment.

(Pic: Thomas Hawk)

The most likely scenario is presaged by the logo above, used by the two companies on a website about their deal: Yahoo as a division of Microsoft. For 10 years, Microsoft will power Yahoo searches, while Yahoo will sell the ads. Assuming Yahoo can grow and remain viable — a big if — Microsoft will have every incentive to buy the company at the end of the deal, and Yahoo will be heavily motivated to sell. Microsoft will want to retain Yahoo's traffic and sales force; Yahoo will be loathe to swap out the search technology behind all its sites.

Alternatively, Yahoo continues to flail. Under that scenario, Microsoft's Bing search engine will at least be able to exploit Yahoo just as Google once did; Yahoo gave Google crucial revenue and visibility early in its growth, and will give a similar boost to Bing. At the end of 10 years, if Yahoo is still around, Microsoft will simply walk away, leaving Yahoo to crawl into a corner and die.

In any case, it's fun to see Yahoo CEO Carol Bartz, no doubt mindful of the need to clear antitrust regulators, finally acknowledge Google's power over her company. In a new video, she says this deal gives Microsoft and Yahoo "the scale necessary to compete against Google, which dominates the market with 70% of all search." Barely two months ago, she bit off a CNBC reporter's head for saying basically the same thing. Compare/conrast in the video at left. There's no denying Google's power now; indeed, it's the main rationale for the deal.

The pact will be announced within 24 hours, reporter Kara Swisher writes. It's been a long time coming. Given the two companies' stock performance (see chart below), and the level of, uh, charisma their CEOs posses, it's no wonder it took this long to screw up the courage to take on Google together. Should be entertaining to watch.

Diller will play sugar daddy to Notional; the IAC chairman will fold it into his ConnectedVentrues division, alongside CollegeHumor.com. The video content will be similar — cheap to make, zeitgeisty — but on television proper rather than the Web. Read: Potentially more lucrative. Reports PaidContent:

The focus will be unscripted programming, broader than comedy aimed at young males that they have been known for, and will include all genres.

Van Veen will report directy to Diller. The elder mogul has run Paramount, Fox and USA Broadcasting and no doubt relishes the chance to bestow his knowledge on an adoring young acolyte. One imagines Diller might become something of a father to Van Veen. Or perhaps more like a stepfather.

(Pic: Van Veen, by Nick Gray)

Bezos' video, above, was directed not at the press or even customers but at Zappos employees, who Bezos presumably wants to keep firmly in place through the acquisition and integration of the company. The CEO of Zappos, meanwhile, did his talking on the company blog.

Bezos cut out the middleman — the press, in this case — big time. And why not? Instead of having to answer boring financial questions, Bezos got to pontificate on Amazon's history, ostensible focus on its customers, and on his management philosophy. The manic laugher would never have been able to sermonize like this in the Wall Street Journal.

UPDATE: And of course there's a downside, which is being mocked by the likes of Fast Company's David Lidsky. Lidsky's funny satirical liveblog of Bezos' video is here.

Digital Sky had already put $200 million into Facebook. The Russian fund's follow-on investment had been discussed prior to being activated today.

Employees can only cash out some of their money (20 percent, VentureBeat reported previously). In the meantime, they're strengthening the grip of DST, backed to a major degree by a censorious Russian oligarch and purported "gangster" (Alisher Usmanov, pictured). Writes Kara Swisher at All Things Digital:

If fully accepted by those employees eligible, it will give DST 1.54 percent more of Facebook, for a total of 3.5 percent of the company. That makes DST–based in London and Moscow–one of the bigger Facebook investors, with a stake larger than one owned by Microsoft (MSFT).

If the money brings Facebook closer to Russia's defacto dictatorship, at least the social network's employees are recycling the money in a truly aggressive, capitalist fashion: One employee spoke to Swisher about a down payment on a house. Talk about doubling down on risk!

The sale amount hasn't been disclosed. Penske, the son of car-racer-businessman Roger Penske, fancies himself an emerging new-media mogul—his company MMC recently revived Movieline.com and also owns Hollywoodlife.com and OnCars.com. With Finke added to his stable, he now has three partially overlapping entertainment-oriented sites as part of his "large and rapidly growing portal."

Penske was the co-founder of Firefly Mobile, which markets cell phones to kids. He also runs a rare and used bookstore, Dragon Books, and has followed in dad's footsteps with a racing team he co-owns with Seagate Technologies chairman Steve Luczo.

Finke told All Things D's Peter Kafka that she hadn't been looking to sell the site, which had been run by LA Weekly:

"I was not anxious to sell. I was not looking to sell," she says. "This was sort of a process where various people kind of wore me down…I'm very pleased with what happened. What wound up happening was nothing like the offers I was getting a year ago."

How demure! We wonder, though, why someone who wasn't looking to sell their web site would say she can't discuss Variety's attempt to purchase said web site "because of non-disclosure agreements I have with other interested parties," as she put it in March. And Jill Stewart, her editor at the LA Weekly, said Finke had been discussing the deal with Penske for at least two months. The terms of the deal haven't been disclosed, but Stewart says Finke characterized it as "so much money" while she was deciding whether to make the jump.

In any case, more power to Finke for capitalizing on something she's worked extremely hard on over the years. And for keeping control of the site during her tenure at Village Voice Media's LA Weekly, which ought to be apoplectic over the fact that it let her develop a sale-able online property while she was in their employ without, it would seem, owning a piece of it.

Finke will have some new colleagues now in the MMC empire, including MovieLine's Stu VanAirsdale and Kyle Buchanan, neither of whom she seems to like very much. When the pair was at Gawker Media's Defamer, Finke took them to task for allegedly repeating bullshit rumors. When Gawker Media folded Defamer into Gawker and they decamped for MovieLine, she wrote, sympathetically: "Neither of those guys are journalists."

We wish Finke the best in this new phase of her career, and look forward to her expansion into her old stomping ground, New York. As for any potential complications that may arise from her new role as a general manager and editor in chief of a web site with staffers other than herself, we'll just quote Kafka, who approached the matter with just the right amount of delicacy:

That will be a tricky expansion to navigate: Recent history shows that blogs produced by dedicated/obsessive proprietors often stumble when they expand, in part because dedicated/obsessive proprietors may not be the best managers, and in part because it's tough to find people who want to, or are able to, work for dedicated/obsessive proprietors.

Kushner's assigned an Observer staffer to put out the newsletter, on top of her regular duties, for no extra pay. Insane! Which is why we don't blame said staffer for the mangled subject line on today's VSL — or for any of its other issues with the second VSL mailing of the Observer era.

We also noticed the newsletter is back to running ads for Design Observer, the blog we're told is run by VSL founder Kurt Andersen's friends and thus likely not forking over much, if any cash for VSL exposure. Presumably the Observer sales staff is hard at work finding new advertisers.

Finally: A plug for Two Lovers, a hidden gem of a movie that's barely been reviewed in all the major papers and features an up-and-coming young actor named Joaquin Phoenix. Welcome to the "smart set!"

Why the New York Observer itself! The high-brow culture newsletter has been, as was expected, renamed "The Observer's Very Short List," though the art at the top obscures that banner change.

Confirming our earlier reporting, IAC officially announced that the New York Observer will take over Very Short List. Despite its all-star founders, the email shopper reportedly sold cheap.

Observer owner Jared Kushner picked up VSL for somewhere under $1 million, a source tells the New York Post. In comparison, Daily Candy, which inspired VSL, sold last year for $125 million. The sales price must vex the VSL founding team Barry Diller (of IAC), Kurt Andersen (of Spy and New York) and Michael R. Jackson (the British television producer). On the other hand, at least they didn't have to shut the thing down.

The Post put Kushner's stake at 80 percent. Kushner told the Post he planned to shut down VSL's niche spinoff lists, like "VSL:Science," and concentrate on trying to make money off the core property, which will be renamed "The Observer's Very Short List." Kushner's not sweating that fact only one-fifth of subscribers are said to open their copies of VSL:

Kushner declined to comment on VSL's open rate, but said that it was above industry average and compared favorably to peer group newsletters like Daily Candy, Thrillist, and Flavorpill.

Of course, unlike the new VSL, those lists have the advantage of being published by more than half a staffer.

(Pic: Rubenstein)