According to sources close to the situation, neither CEO Mark Pincus nor one of its principal venture shareholders, Kleiner Perkins, will be selling any shares in its upcoming initial public offering.

While big investors often divest stock in IPOs, not all do. It is a carefully watched number by investors, who are always wary of insiders who unload a lot of shares in an offering.

But such activity by the fast-growing San Francisco online gaming company will be watched carefully since Pincus has recently been painted in a number of press reports as the greedy Mr. Potter of Silicon Valley.

Among the allegations is that he runs a poisonously tough culture that tracks its employees’ output and performance via elaborate data models that require extraordinary amounts of work, along with nefarious list-making of who’s naughty and who’s not.

That big-brother behavior has reportedly included taking away high-ranking jobs and the sweet stock options that go along with them from those execs found wanting.

While there is no doubt Pincus is a hard-charging personality, his defenders note that it’s due to a belief that life at Zynga is a meritocracy and that his practices are not any more heavy-handed than those at other firms.

Indeed, Pincus has a lot of competition in the tough-guy tech CEO category from longtime legends such as Microsoft’s Bill Gates, who set the gold standard for mean, as well as Amazon’s Jeff Bezos and now Google CEO Larry Page.

Pincus does not even rate in this pantheon, which is more typical of tech companies than anyone would care to admit or, to be fair, care to care about. With big benefits, vast wealth and much latitude, many in tech don’t mind the grueling work schedules.

After all, it’s not exactly ditch-digging, now is it?

In any case, sources said the coverage has hit Zynga staff hard, as well as Pincus, who has not responded due to the IPO’s quiet period. That’s in contrast to Groupon, the daily-deals site whose own rough process was rife with highly negative stories about the company’s prospects.

While those media accounts were more aimed at the business itself and less personal, Groupon CEO Andrew Mason vociferously defended the company in a controversial letter that was then leaked and published (to me and by me!).

Pincus will doubtlessly have a lot to say to investors who ask about the company’s culture and its possible negative impact on attrition, as some stories have charged.

His decision not to sell, sources said, was inspired by Zynga investor and close friend Reid Hoffman, who has sold very little of the stock of LinkedIn, where he serves as chairman.

The action all begins next week, according to multiple reports, when Zynga takes its show on the road in preparation for an IPO that is expected to value the company at $15 to $20 billion and will take place before the new year.

It will debut under the ZNGA ticker on the Nasdaq market.

While some have been worried about Zynga’s future growth, its past performance has been a lot stronger than other Internet offerings. In the first nine months of the year, the company posted $828.9 million in revenue, double the amount from a year ago, with net income of $30.7 million.

Pincus’s holding onto shares will be seen as a plus, of course, although he has sold a large amount of stock in Zynga’s history.

According to its S-1 filing:

“From our inception in October 2007 to date, Mr. Pincus, our Chief Executive Officer, Chief Product Officer and the Chairman of our Board of Directors, has purchased an aggregate of 149,197,328 shares of our common stock. To date, Mr. Pincus has sold an aggregate of 43,629,310 shares of our common stock at prices ranging from $0.42 to $13.96.”

Pincus now holds 91.4 million of Class B shares, 16 percent of the total, as well as 20.5 million of Class C shares, 38 percent of that group. Kleiner holds 65.2 million shares, or 11.2 percent, of Class B shares.

Other big Zynga owners, who might or might not sell at the IPO, include Institutional Venture Partners, Union Square Ventures, Foundry Venture Capital and Avalon Ventures.

Arriving at Silicon Valley’s Computer History Museum, in the heart of the tech industry, with the leader of the free world talking jobs and digital, you might expect fantastic wireless access.

You might, but not so much if you are a “local” reporter and can’t jack into the extra-secret-special wireless link the national White House press corps apparently has reserved for itself. (They also get a lovely noshing buffet, whilst we tech reporters have been instructed not to touch the pineapple and scones or else!)

Famished for coffee and carbs, we’re left with glomming onto the museum’s slowish wireless service — there are lotsa geeks here today jamming up the lines — and every now and then getting some juice from Google. The search giant blankets the Mountain View, Calif. area near its HQ with free Wi-Fi, but it fades in and out.

I am now reconsidering the antitrust investigations that the Obama administration is conducting against Google, as long as its signal is good enough to check Twitter.

So this liveblog of President Barack Obama’s LinkedIn Town Hall — which will center on jobs and is titled, “Putting America Back to Work” — could be glacial with not much news, much like what I am expecting from the event itself.

I’d certainly like to work, as long as the wireless does! (Plus, limited power outlets in the room, so it’s every reporter for herself!)

But bygones, while we await the Prez!

10:18 am: One thing that made me flee Washington, D.C., when I worked for the Washington Post, was all the rigmarole that surrounded the appearance of and access to politicians.

I get it, the security and all, and am all for it on a general safety level. But, no matter how you slice it, it hinders any kind of movement or genuine interaction, like being stuck at a really dull opera. All the world’s a stage and we are all merely waiting in traffic.

In contrast, and one of the joys of Silicon Valley, is that anyone can get up right up into the grill of the various billionaire potentates littering the landscape, engage in a debate and get a possibly real answer.

Thus, I am hoping for a lot here from LinkedIn CEO Jeff Weiner, who is going to moderate the hour-long session with the President.

By the way, while he is busy running the business-focused social networking site, Weiner is looking good in a fancy suit, almost as if he could be Secretary of the Internet. I’d vote for him.

10:28 am: Some painless but hip music is playing now, as we wait, wait, wait for Obama, who is set to begin in 30 minutes.

I wonder if the President is ever early. Wouldn’t that freak the peeps out?

(Obviously, I am bored, so I shall now go monitor Twitter to catch up on the latest in the new bad-marriage-or-not cat fight between Brad Pitt and his ex, Jennifer Aniston — as if we need him to tell us Angelina Jolie is more interesting. Frankly, Angie’s midday snack is more interesting than Jen.)

There is now what appears to be a Secret Service dude next to me, giving me a hairy eyeball. If I am jailed over my wireless protest, please give generously to my defense fund.

Free the Internet! Free the Internet!

10:35 am: Finally, the production guy is up giving out the rules. Turn off the cellphones, no making noise.

The head Secret Service guy then takes the stage. No getting out of your seat. No sudden movements. And no crossing the blue line in the front row.

“All joking aside,” he says, he will take you down. He also notes that if the President moves toward you to shake your hand, “do not move toward him.”

I love Secret Service agents — especially when played by Clint Eastwood — and wish I had one to give a few people in tech a little smackadoo on my behalf. And not only if they moved toward me!

10:47 am: This little frisson of excitement is followed by more waiting, as the final seats are filled up in the room, which is an unusually (and welcome) multi-racial and gender-balanced crowd for Silicon Valley.

Various White House aides skitter back and forth like nervous ground squirrels — I would imagine their life is one big effort to avoid any gaffe — so the Prez must be near.

I am actually looking forward to seeing him, as I never have in person and am looking forward to seeing the famous Obama charm and techie cred.

Indeed, he is probably the most fast-forward tech president there has ever been. That said, buffeted by more serious issues facing the nation, his administration has delivered on few — by which I mean none — of its promises around the digitization of the U.S.

Our high-speed broadband, for example, is still woefully slow, inordinately expensive and not easily available nationwide.

And I will not even go into the need for increased focus on math and science education or the importance of our broken visa policies.

But the topic today is jobs, which is an arena where Silicon Valley and tech shines in the U.S., even as manufacturing of it has mostly moved overseas. How tech can help improve in the creation of jobs will be issue No. 1 here.

10:55 am: Total silence with five minutes to go. I need the President around to quiet my kids.

Now, LinkedIn Chairman and VC Reid Hoffman comes in, so the event is probably about to begin.

And, indeed, Weiner emerges to cheers, to give a little speech on “changing the way we work … and connecting talent to opportunity.”

11:01 am: Then, the session starts right on time with President Obama.

He begins with a rote speech on jobs, which is nonetheless the most important issue he faces going into next year’s election.

11:14 am: Ah, wireless glitch! Back!

President Obama is inexplicably in the middle of a Medicare question, which gives him an opportunity to talk about the need for the rich to pay more taxes.

And pass his American Jobs Act, of course.

11:17 am: More on proposing legislation for retraining workers, such as the questioner’s mom.

Now to a group of email questions. The first is about when small businesses are going to get a break from onerous regulations and taxes.

President Obama says since he has been in office, he has cut taxes 16 times for those who create a business.

But he is not going to apologize for some regulations, such as those for the financial industry over the mortgage crisis.

“There are some regulations that have outlived their usefulness,” he says, but others not so much.

11:24 am: The next question is from a Chicago IT employee. Except she is not employed.

She is asking a question about keeping her skills up and what programs are needed.

“The best thing we can do for you is that the unemployment rate goes down,” said President Obama, but also adds that making it easy to go to school while waiting on a job is also important.

“Just looking at you, I can tell you are going to do great,” he tells her in an awkward effort at reassurance.

Thanks, Barack, but she needs a job!

11:28 am: A veteran is asking a question about transitioning out of the military.

Obama launches into a story of a medical technician who faced all kinds of experiences, but had to start over again with new classes when out of the military. He suggests some level of credentialing based on experience.

11:33 am: Obama gets to pick out someone from the crowd and manages to pick out a dude who is a former Googler — although he only says that he works down the street — and is out of work by choice.

He asks: “Will you please raise my taxes?

A plant? I wish!

President Obama asks the name of the start-up. “A search engine,” says the ex-Googler-in-disguise, who is Doug Edwards, an early marketing exec there who actually wrote a book on being an ex-Googler.

“That worked out well for you,” kids President Obama.

Everyone likes a rich-guy joke!

He is soon onto the idea that we’re all dang lucky and declares he does not want it to turn the debate over taxes into a rich-poor war.

Bottom line, he notes that we have to raise taxes on the very wealthy. Frankly, if we raised taxes on a bunch of folks in this room, it would help a lot.

11:42 am: A teach-training question, especially math and science teachers.

President Obama is all for it.

He is meaning well here, but all he seems to offer is a lot of bromides about the importance of education and errant related anecdotes.

Like one from IBM, where the company hires the kids in the program at the end.

President Obama wants students to see a direct connection between learning and jobs.

Then, he kind of says it again. Gosh, he can talk. How does the well-fed and wirelessly connected White House press corp take it? Lotsa donuts, I would imagine.

President Obama also wants us to turn off the electronics and video games for kids, too, thereby instantly losing the votes of my two sons!

Another laid-off guy is up at the mic. He had 22 years in IT management and is disheartened.

He wants a statement of encouragement from the CEO of America.

President Obama assures him that his track record of success gives him a leg up, but that the problem is the economy and the global meltdown, too.

It’s systemic, apparently.

“The problem is not you, the problem is the economy as a whole,” says President Obama.

That was the last question. Weiner, who has been sitting quietly (I know it was hard, Jeff, but good job), thanks the President and tells him that this is a big issue.

President does his thanks, too, for being able to speak, although not really that much was actually said.

And then a genuine moment, finally, of clarity.

“Look, we’re going through a very tough time, but we have gone through tougher times before,” he says. “But the trajectory we are going on is one that is more open, more linked …”

He talks about the need for being ready to take advantage of that opportunity.

“Things have gotten so ideologically driven, putting party above country,” he adds, that nothing is getting done. That’s why the people, the voters, have to demand leadership from their elected officials.

Or, presumably, fire them and let them try to find another job, too.

It might turn out to be the best idea yet, if these pols don’t agree on something and quick.

Of course I have something to say about the news yesterday that AOL would be a key investor in a new early-stage venture fund being started by TechCrunch’s perpetually petulant editor Michael Arrington — with a big, fat and decidedly greasy assist from a panoply of Silicon Valley’s most powerful VC firms and angel investors.

Arrington has previously called me “chief whiner” — oooh, buuuurn, although fair enough, since I have compared him to an egomaniac turtle named Yertle in the past — about my nagging him over the importance of upholding standards of fairness and ethics in journalism.

So as not to let him down, let me begin the whining.

First, my initial reaction when I first heard about the deal: Ugh. Sigh. Hopelessly corrupt. Now 100 percent more icky! A giant, greedy, Silicon Valley pig pile.

I was upset.

By early evening, after my kids told me to chillax, my dark mood had changed to accept that the transaction — however profoundly distasteful to me — was part and parcel of the insidious log-rolling, back-scratching ecosystem that has happened in every other center of power in the universe since the beginning of time.

And so it goes in Silicon Valley.

In fact, the creation of a $20 million investment kitty that Arrington has dubbed CrunchFund is simply the formalization of a long-standing arrangement that has already been going on since he founded his popular tech blog.

That is to say, in which the basic standards of journalism are first warped by calling it newfangled truth-telling and then endlessly corroded by using a wily and unusually aggressive combination of favors and threats to extract, from start-ups and VCs in need of press, both exclusive access and information.

And now, inevitably, money.

This could have been a lot cleaner, of course, by Arrington simply resigning from TechCrunch, becoming a VC and perhaps starting a new blog where his agenda is much clearer, from which he could huff and puff away as he does with much entertaining gusto at real and (mostly) imagined slights.

There is certainly precedent for VCs blogging, including Fred Wilson, Brad Feld and Ben Horowitz. And, despite my criticisms about ethics, it is clear that Arrington is a talented writer whose unique voice would be even stronger if it was truly seen as separate from what has become a news organization.

But because of his obvious need to be the center of attention — requiring the ermine kingmaker mantle and foisting his patented I’m-here-to-tell-it-like-it-is attitude on us all — that appears to be impossible.

(By the way, I await Arrington’s usual inane rant about the fictional conflicts of interest related to my gay Google marriage anytime now in 3 … 2 … 1, always and purposefully leaving out the pertinent facts that I can only wed one person, get no financial benefit and am also a prominent critic of the scary search behemoth, while he can make a badillion questionable and grossly tangled investments.)

Personal annoyances aside, what’s most interesting here is the group of Silicon Valley power players who lined up to bow and scrape and then hand over a small pile of dough to the blogger who would be king.

They include: Sequoia Capital, Redpoint Ventures, Kleiner Perkins, Greylock Partners, Austin Ventures and Accel Partners, as well as individual investments from partners at Benchmark Capital and Andreessen Horowitz, entrepreneur Kevin Rose and DST Global’s Yuri Milner. And, of course, the inevitable Arrington BFF Ron Conway.

Holy googa mooga, that would be, well, everyone, except Ashton Kutcher and Justin Timberlake (who will surely appear soon enough).

As one person also pointed out to me, I don’t recall this many competing VCs investing in one company, let alone another venture fund.

It goes without saying that the reasons they all decided to jump in this fetid pool with abandon are quite varied, if all entirely compromised.

One investor told me — off the record, naturally — that he thought it would be an interesting experiment to see what happened and so he wanted in, especially since everyone else was doing it.

Another well-known VC said that there is no downside to being financially affiliated, especially in attracting talent to its start-ups, with Arrington and, by extension, TechCrunch.

The well-respected Reid Hoffman of Greylock was the only one brave enough to talk on the record, explaining the reasoning pretty clearly:

“Techcrunch will get some real deal flow from entrepreneurs that we would otherwise not see, because they have established a prominent position as the SV/Tech industry information feed. As many tech entrepreneurs read it — both within Silicon Valley and globally — and view the information news feed to be their target for announcing themselves to the world, Crunchfund will have access to deal flow to these diverse and early stage companies. Some of these companies will be the kind of early stage companies with billion-dollar potential that Greylock invests in.”

There you have it: No one can afford to be out of the deal flow in these times, even if it means cutting corners.

While TechCrunch’s owner, AOL, said Arrington will no longer be managing editor, with only writing duties at the site he dominates and with no editorial control, Hoffman’s use of TechCrunch for CrunchFund was accurate, because in the eyes of many they are interchangeable.

That’s due to the fact that Arrington still breaks or is clearly the source for important stories on the site and, more importantly, is the big swinging dude who attracts all the eager entrepreneurs to the party. He is the fulcrum of that site, even as it has grown.

And so it will remain, I am guessing, no matter how much AOL insists it will not be so, because the easy questions pile up quickly:

Will Arrington keep doing what are clearly news stories, for example, even though he protesteth too much — as he did in the New York Times yesterday — that he is not a journalist?

And, if so, is it right for him to do so given his insider status, creating a nonparity of sourcing and crystal clear conflicts of interest?

Most of all, can he resist his palpable love of news-breaking and scoops, even if he gets them in ever more unseemly ways?

As if to make it all pretty, Arrington told reporters yesterday that he has put a clause in his limited partnership agreement so he can report on anything he likes, and in any way, about his investors and their companies, however confidential, except those he invests in.

O joyous day! Freedom of the press is preserved and our sacred First Amendment can breathe a sigh of relief, now that it is enshrined in an unholy blogger-VC LP agreement.

After pausing for a moment so that Thomas Jefferson and Edward R. Murrow can stop spinning in their graves, you can go down this road for many increasingly bumpy miles, which only becomes more twisted and confusing as it continues.

I finally talked to one investor in CrunchFund, who said simply and honestly: “It’s not that much money, so who cares?”

Indeed, who does care anymore about crossing what had long been very bright lines in journalism and, if you want to get all cosmic, in life?

Obviously, most of all, not AOL, or its CEO Tim Armstrong, or its head of content, Arianna Huffington. The pair, for whatever reason, decided to make a startling exception for Arrington from a rule that explicitly bars reporters at its media units from investing in the companies they cover.

That happened after he recently did a complete 180 from a previous decision to stop investing and jumped right back in, leaving Armstrong and Huffington to clean up the ethical mess.

They only made it worse, with their decision to throw journalism under the bus by letting Arrington do as he pleased, while touting how important it was for other content sites at AOL to remain more pure.

In the spirit of full disclosure, these kinds of ethical lapses are endemic these days in journalism. Case in point: The appalling phone-hacking controversy taking place at News Corp.’s News International unit in Britain.

While I cannot speak for Dow Jones, I can say that the behavior in another News Corp. property certainly takes its toll on those who adhere to higher standards at the company, especially when it comes to morale.

Thus, I can imagine how others feel at AOL — including those you-know-who-you-are silent ones at TechCrunch — who can’t and, more to the point, wouldn’t make the deals Arrington has been allowed to get away with.

It is not a good feeling, I can assure you.

And, while I have not spoken to her about it, I’d imagine that Huffington cannot be thrilled to be pushing for better journalism at AOL and trying to burnish her cred by hiring some top reporters, while also having to deal with this.

That’s okay, because Armstrong was perfectly willing to do the awkward pretzel-twist needed to explain away the controversial situation, also in an interview with the Times:

“TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.”

In this case, Tim, I am sorry to inform you that transparency is a complete canard and is more likely to end up covering up a lot more transgressions than it ever will reveal.

And, essentially and lazily sloughing it off by saying, “That’s just Mike being Mike,” is not going to cut it, at least not with me.

Not that any amount of tsk-tsking about it matters, I suppose, as Arrington finally gets his fervent Pinocchio-on-a-star wish to be a real-boy VC, can add yet another tainted buck to the pile of billions his venture pals already have, and just call it another typical day in Silicon Valley.

Still, when you are the designated whiner-in-chief, it is pretty much all one can do.

Facing a barrage of negative press about its upcoming IPO, Groupon CEO and co-founder Andrew Mason took up a pen to counter critics of the social buying service.

Especially under scrutiny has been the Chicago-based Groupon’s accounting of its finances — along with worries that its torrid growth is slowing — both of which Mason addressed in detail in a pugnacious email memo to his thousands of employees.

Specifically referencing a recent article speculating that the daily deals site was running out of money, Mason said, in part:

“While we’ve bitten our tongues and allowed insane accusations (like in the article above) to go unchallenged publicly, it’s important to me that you have the context necessary to brush this stuff off.”

Mason also took on the controversial ACSOI — or adjusted consolidated segment operating income — metric that Groupon used in its initial filing and later stepped back from.

“The reason we didn’t realize everyone in the world would hate ACSOI (no, it’s not the same reason we didn’t realize everyone in the world would hate our Superbowl ad), is that we think it actually does a pretty good job at describing our marketing expenses in a steady state — we just didn’t realize there would be so many skeptics,” wrote Mason.

Mason also took some aim at competitors, such as LivingSocial and Yelp, in the email.

As for the public offering, which is expected next month:

“If there’s a silver lining, it’s that we’re almost on the other side, and the negativity leaves us well-positioned to exceed expectations with an IPO baby that, having seen the ultrasound, I can promise you is not one of those uglies.”

Then again, that is exactly what a dad-to-be would say about his baby, whatever it looked like.

Mason, when asked about the memo, declined to comment.

There is a lot more than that, so here’s Mason’s full email for all you pencil pushers to peruse:

Dear Groupon,

This weekend, I did a Google News search on our company — my first in awhile. The first story that popped up was called The Fall of Groupon: Is the Daily Deals Site Running Out of Cash? I laughed when I read the headline (in the car by myself, weirdly). First — with this article, the degree to which we’re getting the shit kicked out of us in the press had finally crossed the threshold from “annoying” to “hilarious.” Second, I was struck by the irony — I had just finished a board meeting last Wednesday saying this to myself: I’ve never been more confident and excited about the future of our business.

I realize that this sounds like the kind of thing that CEOs say when they’re trying to pep people up. First of all — I’m all about not pepping people up. If you don’t believe me, just ask my fiancée, Jenny “why don’t you ever say anything nice about me” Gillespie. Want another example? Look at the magazine covers in our lobby, which are there to make you sad by reminding you of the impermanence of success.

I’m going to spend the rest of this email explaining why I’m so excited. You need some ammo to argue back against your blog-reading “friends” (silently argue in your mind, that is — you can’t actually say any of this yet), and I’ve been told that the “what have you ever done with your life that’s so great?” rebuttal isn’t working as well for you guys as it has for me.

While we’ve bitten our tongues and allowed insane accusations (like in the article above) to go unchallenged publicly, it’s important to me that you have the context necessary to brush this stuff off.

I’ll summarize my excitement with four points: 1) Growth in our core business is strong 2) Our investments in the future — businesses like Getaways & NOW — look great, 3) We are pulling away from competition, and 4) We’ve built a great team that I would pit against anyone. In other words, all the stuff that one would want to look good? It looks good.

Many of the long-term unknowns of our business are becoming known, and we like the answers. I will now elaborate in a level of financial detail that will give Jason Child a stomach ulcer.

1. GROWTH IN THE CORE BUSINESS

Thanks to a tremendous effort by our sales team, August in the U.S. is shaping up to be a pivotal month. It appears that will revenues grow by about 12% over last month (which is a lot), while we cut our marketing expenses by 20% in the same period.

Beyond their obvious goodness, these numbers are important because they answer one of the main criticisms thrown at us in the past few months, relating to a metric we put in the S-1 called ACSOI (adjusted consolidated segment operating income) to help people understand how we think about marketing expenses. The reason everyone in the world seems to hate ACSOI is that it makes us look magically profitable by subtracting a bunch of our customer acquisition marketing costs from our expenses. The reason we didn’t realize everyone in the world would hate ACSOI (no, it’s not the same reason we didn’t realize everyone in the world would hate our Superbowl ad), is that we think it actually does a pretty good job at describing our marketing expenses in a steady state –we just didn’t realize there would be so many skeptics. I think it’s worth going deep on this one more time — brace yourself.

Our internal forecast shows two different types of marketing: what I’ll call “normal marketing” — which is NOT excluded from ACSOI — and “customer acquisition marketing,” which is. The way Groupon spends on marketing is unique in three ways:

1. We are currently spending more than just about any company ever on marketing — in Q2, we spent nearly 20% of our net revenue on marketing, while a typical company spends less than 5%. Why do we spend so much? The simple answer is “because it works.” But thats only part of what makes our situation special.

2. Our marketing — at least the customer acquisition marketing that we remove from ACSOI — is designed to add people to our own long-term marketing channel — our daily email list. Once we have a customer’s email, we can continually market to them at no additional cost. Compare this to Johnson and Johnson, McDonald’s, or most other companies. If I’m a Johnson, and I’m trying to sell you a box of Band Aids, I have to keep spending money on commercials and magazine ads and stuff to remind you about how sweet Band Aids are, even after you’ve bought your first box. With Groupon, we just spend money one time to get you on our email list, and then every day we email you a reminder of the sweetness of our metaphorical Band Aid. There is no cost of reacquisition — that’s unusual (and we created ACSOI to point that out). If Johnson wanted to follow the Groupon strategy, he would have to start a free daily newspaper about bandages and then run Band Aid ads in it every day.

3. Eventually, we’ll ramp down marketing just as fast as we ramped it up, reducing the customer acquisition part of our marketing expenses (the piece that we remove in ACSOI) to nominal levels. We are spending a ton now because we’re acquiring as many subscribers as we can as quickly as we can. We aren’t paying attention to marketing budget (just marketing ROI) in the way a normal company would, because we know that even if we wanted to continue to spend at these levels, we would eventually run out of new subscribers to acquire. So our customer acquisition spend drops severely to reflect the fact that eventually we’ll run out of people we can add to our email list. We view this internally as a very large one-time expense and then our job forever after will be to continually convert these subscribers into customers and to make sure our customers keep buying from us. Ongoing, the normal marketing dollars we spend are not something we would remove from our internal calculation of ACSOI.

I tried my best to explain this simply, but it’s not lost on me that if you actually understood this, you probably had to read it three times. It’s not easy stuff. It’s much easier to assume that we’re goons. So people can be forgiven for being suspicious. In fact, feel a little bad about how downhearted the critics will be when we don’t turn out to be a Ponzi scheme — those are good impulses for journalists to have, and I hope our non-evil ways don’t destroy their spirits.

Anyway, there’s a reason that I just went on about ACSOI. One of the questions that skeptics ask is, “when you ramp down marketing, won’t revenues stop growing as well? Aren’t you just buying growth?” Over the past several months we’ve been consistently reducing our marketing spend and yet revenues are still increasing at a significant pace. In Q1 of this year, marketing represented 32.3% of our net revenues. By the end of Q2 it had fallen to 19.4%. And it has continued to fall over the past several months all because we’ve been investing in our own long-term marketing channel — our email list.

Internationally we see the same trends — marketing is down, but revenues are up — every country is either losing less or making more. Even in young markets like Korea, where we’re still making massive investments, we’re seeing unprecedented growth. We started building our Korean team this January, despite the presence of two competitors that were larger than any we’d previously battled from behind. Thanks to the brilliant execution of the Korean team, we are set to be the market leader within months. We’ve never had a country grow as fast as Korea!

What about our joint-venture with Tencent in China? Did you read the article that Gaopeng’s CEO has kidnapped the first born children of all our employees and is putting them to work building a laser beam he’ll use to slice the moon in half? It turns out that that one isn’t true either. China is definitely a different market, but every month we inch closer to profitability. As has been our strategy in launching other countries — Germany, France, and the UK, included — our China growth strategy was to hire quickly and manage out the bottom performers. So far, that strategy has improved our competitive position in China from #3,000 to #8. Will we one day reach the dominant status we enjoy in most (come on, Switzerland!) other countries? It’s too soon to tell, but there’s no question in my mind that we’re building a business that will be around for the long haul.

2. NEW BUSINESS LINES ARE BOOMING

Travel and Product are enormous opportunities. After only a few months, they’re already making up 20% of revenue in some countries. We sold $2M worth of mattresses in the UK — in one day! Groupon Getaways will do $10M in its first calendar month — which you might think is awesome, but we’re actually disappointed with those results because we know how much better we’ll be doing soon.

While there’s still a ton of work to do, Groupon Now! continues to see weekly double digit growth. The model works and I believe it will play a major part in the future of our global business as more merchants and customers join the marketplace.

3. WE ARE PULLING AWAY FROM COMPETITION

If there’s a question I’ve received from Groupon skeptics more than any other, it’s, “how will you fend off the competition — especially massive companies like Google and Facebook?” I could give a dozen reasons to bet on Groupon, but it’s impossible to predict the future or the actions of others. Well, now the sleeping giants have woken up — and the numbers are showing that what was proven true with literally thousands of other competitors is just as true with the incumbents of the Internet: it’s kind of hard to build a Groupon. And since anyone with an Internet connection can track the performance of our competitors, I can be more specific:

Google Offers is small and not growing. In the three markets where we compete, we are 450% of their size.

Yelp is small and not growing. In the 15 markets where we compete, our daily deals are 500% of their size.

Living Social’s U.S. local business is about 1/3rd our size in revenue (and smaller in GP) and has shrunk relative to us in the last several months. This, in part, appears to be driving them toward short-sighted tactics to buy revenue, like buying gift certificates from national retailers at full price and then paying out of their own pocket to give the appearance of a 50% off deal. Our marketing team has tested this tactic enough to know that it’s generally a bad idea, and not a profitable form of customer acquisition.

Facebook sales are harder to track, but are even less significant at present.

My point is not that our competitors will fail — some may actually develop sustainable businesses, or even grow — after all, local commerce is an enormous market. The real point is that our business is a lot harder to build than people realize and our scale creates competitive advantages that even the largest technology companies are having trouble penetrating. And with the launch of NOW, I suspect our competition will have an even harder time in light of the natural barriers to entry that are needed to build a real-time local deals marketplace.

4. OUR TEAM

This is the fluffiest of the four points, but maybe the most important — we’ve built a global team of hungry entrepreneurial operators and seasoned executives that rivals any team I know of. Almost every day, I find myself in a scenario where I silently think, “I can’t believe I got this person to work for me — that failure of judgement is perhaps their single flaw.”

I point out the team because while today the business is strong and it appears we must endure success for awhile longer (despite its impermanence), we will inevitably be challenged with issues we didn’t predict — and when that happens, the quality of our team will be a deciding factor in our ultimate long-term success.

FINAL THOUGHTS

I wrote this email because when I read some of the press this weekend, I realized a rational person could read this stuff and wrongly conclude that we’re in trouble. The irony is hopefully clear: We’ve never been stronger.

And while we’ve refrained from defending ourselves publicly, you’ve continued to create our best defense, with every department innovating new practices that are taking our business to the next level. Thanks for staying tough, determined, and agile throughout this process. For now we must patiently and silently endure a bit more public criticism as we prepare to birth this IPO baby — a breed for which there are no epidurals. If there’s a silver lining, it’s that we’re almost on the other side, and the negativity leaves us well-positioned to exceed expectations with an IPO baby that, having seen the ultrasound, I can promise you is not one of those uglies.

I’ve been as candid as possible — hope this sheds some light on things. Reply with your questions if anything remains unclear. Amidst all this, I hope you remember what we’re doing here — we are making history together. I guess you don’t get to build something that reshapes the local commerce ecosytem without getting a few bruises. I’m so proud of the work we’re doing, and I feel extraordinarily lucky to work on what I think is the best thing that’s happened to small businesses since the telephone We’ve invented something that is catalyzing millions of dollars of local commerce every single day in 45 countries and fills the lives of millions of customers with unforgettable experiences — it’s pretty remarkable.

Looking forward to getting this behind us!

Andrew

P.S.: I almost forgot to address the nonsense about us running out of money in the article above. If you apply the same logic used in the article, you’d have concluded long ago that companies like Amazon and Wal-Mart were running out of cash too. Both have often had payables far in excess of their cash. Finance geeks call this a working capital deficit. It’s normal, manageable and a lot of folks actually believe it’s good thing and would kill to get paid from their customers long before they have to pay their suppliers. We are generating cash, not losing it — we generated $25M in cash last quarter alone, adding to the $200M we had before. In other words, we’re doing the opposite of running out of money.

Speaking of “it looks good,” here is Conan O’Brien with a Tourette’s version of Mason’s new catchphrase:

News that the top official at a public company will be present for a quarterly earnings call wouldn’t normally qualify as … news.

But prior to the company’s crisis, Murdoch had been absent from the last couple of News Corp. earnings calls, so this wasn’t a given. (Disclosure: News Corp. owns this Web site.)

And News Corp. earnings calls aren’t like other companies’ earnings calls. When Murdoch is on them, he tends to be much less disciplined than other public company leaders, and is more likely to stray off script, or freelance an answer that his lieutenants weren’t expecting.

Just as important: In addition to fielding questions from Wall Street analysts, News Corp. has traditionally offered up Murdoch and his executives to questions from the press, and I’m told that is in the works for today as well.

So today’s call, which kicks off at 4:30 pm, New York time, ought to be interesting at the very least. Taking questions from Wall Street and journalists isn’t quite the same as answering queries from British lawmakers, so he’ll likely feel more comfortable in the setting. I won’t be surprised if Murdoch simply declines to respond to some questions, for one thing. Also: Very, very, very low odds that he’ll have to duck a pie.

But it will all be on the record, and very well documented. I’ll be making my own contributions via a liveblog this afternoon, so check back then for a play by play, or listen in for yourself.

Yahoo — which turned in yet another disappointing second quarter on Tuesday, but with all new excuses for the continuing decline in revenue — is now getting toasted by Wall Street.

That would be the marshmallow — and not the champagne — kind.

The stock of the Internet giant dropped below $14 a share, to close at $13.48 yesterday, after the company said its display advertising business in the U.S. was hard hit.

Today, it’s already down even further.

That’s close to an eight percent haircut for the past two days and a decline of 20 percent for the past three months.

In that same three months, Google is up over 13 percent, Microsoft is up over five percent, Amazon is up over 17 percent and Apple is up 13 percent.

You get the general idea here.

The decline means Yahoo’s market value is now only $17.5 billion, and more than two-thirds of that value is accounted for by its Asian assets (more than $9 billion) and cash ($3.3 billion).

That means its other properties are worth just above $5 billion now.

And while CEO Carol Bartz tried again — in a conference call with analysts after the earnings were released — to portray the situation as another part of her never-ending turnaround of the company, the issues at Yahoo are not new.

They range from display weakness to search declines to a talent drain to ineffective marketing to the lack of a consistent and fast-developing pipeline of innovative products to its flaccid board.

The earnings mess — no surprise, given estimates going forward were also missed — was seized on by investors and the press. (See, it’s not only me!)

In a column earlier this week in Forbes, titled “Carol Bartz’s 8 Blind Spots That Sunk Yahoo,” longtime and noisy Yahoo critic Eric Jackson noted:

“[T]he Bartz hiring is a cautionary tale to all boards and investors: An over-confident ex-CEO with no industry experience can make a bad company worse before things get better.”

But perhaps more damaging was a post today in The Wall Street Journal’s Heard It on the Street column by Martin Peers, titled: “Yahoo’s Unsurprising Surprise.”

It began with the cutting line: “Talk about having a credibility gap on display.”

Then it got worse:

“Admittedly, it may be that Yahoo has dropped off the radar screens of so many investors that this latest episode can’t do further damage. Certainly, aside from cutting costs, Ms. Bartz’s turnaround plan for Yahoo remains stillborn.”

That might be too kind if the stock continues to decline, a development that — in turn — might once again begin the speculation of Yahoo as a takeover target.

Which, if that could manage to get Yahoo shares back up, might be a reason to break out the bubbly.

A Yahoo spokeswoman declined to comment, which — given stock prices are what they are — is probably a good idea.

For years now, it looked like the tousled adorkability and winsome charms of British movie star Hugh Grant were beginning to grow long in the tooth.

That is, until the phone-hacking scandal in Britain — with the News Corp.-owned tabloid News of the World’s editors, reporters and managers accused of serious misconduct — got really going in recent weeks.

The issue about the out-of-control press has put the well-spoken Grant, a victim of the hacking, at the center of the action and he’s doing a laudable job as both an indignant and also reasonable voice.

Here are three videos where you can see Grant talking about the controversy and also debating both the hackers and the pols who apparently protected them.

(Full disclosure: News Corp. owns Dow Jones, which owns this site.)

In case you haven’t heard, the tech and media moguls have jetted their private planes to Sun Valley, Idaho, for the exclusive annual Allen & Company confab and are probably easing into the cocktail hour just about now.

Break out the Kistler Chardonnay and name tags!

(I secretly love that the 300 moguls all wear name tags, even though they are all so fabulously famous.)

Among the highlights for the weeklong confab beginning today will be an interview of Facebook CEO and co-founder Mark Zuckerberg by Microsoft CEO Bill Gates, in which I assume they will fall all over themselves in a race of mutual admiration.

To be fair, it seems genuine and Sun Valley is not for unpleasantries anyway.

While Allen & Company — in its investment banker mode — likes to keep the schedule a state secret, it never is, so I am here to tell those planning their time in Sun Valley that the chit-chat will be Saturday.

Also sure to get a lot of ink, since all the owners and possible marks, um, potential buyers, will be there: Whither Hulu?

The premium online video service is famously for sale, and the moneybags at Google, Microsoft, Amazon and Yahoo (smaller bags!) are all taking a gander.

It will not be sold by week’s end, of course, although there will be all kinds of breathy media coverage as the powerful players shuttle to and fro from their gratis luxe condos in noisy hush-hushery.

Who will then come over to the bar to tell the gathered and increasingly drunken reporters — press is not invited in, but they’re there like kudzu all week — all about it.

Of course, there will be some cute anecdotes about the rich and famous — one year, it was News Corp. head Rupert Murdoch losing some item of his wife’s in said bar with everyone scurrying around to find it.

If Us Weekly were covering Sun Valley, that section would be called “Moguls Are Just Like Us!”

Actually, they’re not at all — mostly, they are meaner and more aggressive and greedier, although endlessly riveting.

That’s why the most awkward part of the event will be all the Sun Valley photos that appear without fail of these powermongers in shorts and fleece.

(Note to newcomers: Very few look good in shorts and fleece.)

Lastly, it would not be a modern Allen & Company Sun Valley gathering without continued fretting and fixating on the digital onslaught, even though there are scads of those invited techies competitively mountain biking the pretty mountains there.

This year’s focus will be the IPO gang from Zynga, Groupon and, of course, Facebook, whose insane market valuations are the envy of the media gang, who are mostly older and continually grumpy about it all.

But, the kids love this Internet thing and so the moguls will cope with the change, even as what happens in Sun Valley — power playing, but with a better view — never ever changes.

The execs at Yahoo were huddled yesterday and also today, getting ready for its investor day tomorrow morning.

It’s probably a good idea, especially since the Silicon Valley Internet giant has to come up with a good answer to how it is settling the recent kerfuffle with Chinese partner Alibaba Group.

A settlement announcement over the spinoff of Alibaba’s Alipay payments unit would be the best thing Yahoo could deliver by tomorrow, of course.

All parties–Alibaba, Yahoo and Japan’s SoftBank–I spoke to said a resolution was still being worked on, but one assumes reaching one sooner than later would be a big coup for Yahoo.

Barring that, China will surely be Question No. 1–and likely Nos. 2 through 23–from about 200 Wall Street analysts and big shareholders gathered from 8 am to 2 pm at the Fairmont Hotel in San Jose to hear about how Yahoo is doing in 2011.

Given that the China problem has kept Yahoo stock stuck in the $16 doldrums for weeks now, after it had seen some progress before that, Yahoo CEO Carol Bartz and the passel of top execs presenting–Ross Levinsohn, Blake Irving and Tim Morse, among others–will have to scratch that itchy itch first before moving on to other questions.

In the interests of making the day interesting–and because press is not invited–I am here to help those investors without a clue of what to ask.

Thus, my list, in no particular order:

* Now that a newish management structure is in place, what is the big vision for Yahoo going forward?

* Please explain in detail the issues raised in the recent earnings call with the search and online advertising partnership with Microsoft, and should the deal be re-negotiated?

* Do you need to make more cuts in staff–which seems to have creeped back up in size?

* Why is Yahoo still in search in such a significant and expensive way, especially since market share is declining?

* How is the display market faring and how does Yahoo plan to innovate its flagship advertising business?

* Engagement is a key metric these days, so how is Yahoo going to improve its customer relationships, besides saying it will?

* What new and innovative products are in the pipeline–and you may not trot out Livestand for the umpteenth time as an example, unless you want me to start calling it Not-Flipboard–and when will they launch?

* Has Yahoo considered other ownership options that would better reward long-suffering shareholders?

* And, oh yes, China. Let’s not forget about China.

(Although media is not invited to the investor confab, I will be covering it via a live stream Yahoo is offering–you didn’t think I would miss it?)

Twitter co-founder Biz Stone took time off from his myriad of witty talk show appearances to slap around a just-published Fortune cover story that was titled–get it?–“Trouble@ Twitter.”

Wrote Stone, in part, on his personal blog in a post titled “The Trouble Bubble”:

We founded Twitter, Inc. in March of 2007 and while we have long said it’s about the users, not the service, we have nevertheless enjoyed favorable media coverage. What took so long for somebody to write the article that says we are falling apart? The normal press cycle is to put a company on a pedestal and then knock it down. It’s much more interesting that way. Twitter has had so many ups and downs you’d think we would have had more negative press. To me, it’s like watching the movie Rocky–he’s up, he’s down, he’s out, he wins!

He correctly points out Fortune’s reliable proclivity–see Google, Facebook–to write a wildly positive piece about the latest tech phenom, followed by a smackdown, followed by a they’re-back! tome.

Now, it is the San Francisco microblogging company’s turn.

(In Fortune’s defense, you try selling a magazine these days without a hookish cover line! Hence, the hit-you-over-the-head wounded bird motif here.)

But vegan-y, nice dude that he is, Stone ends on a positive note:

“For a long time, we refused to hire a communications group and now that we have one, I’m having fun teasing them about this Fortune article but the truth is, we’re long overdue to be knocked down by the press.”

While it must be pointed out that Rocky suffered from brain damage in the last installment of the famed movie franchise, BoomTown awards a Stone-cold win for Mr. Biz-boa!

Here’s the full post:

The Trouble Bubble

We founded Twitter, Inc. in March of 2007 and while we have long said it’s about the users, not the service, we have nevertheless enjoyed favorable media coverage. What took so long for somebody to write the article that says we are falling apart? The normal press cycle is to put a company on a pedestal and then knock it down. It’s much more interesting that way. Twitter has had so many ups and downs you’d think we would have had more negative press. To me, it’s like watching the movie Rocky–he’s up, he’s down, he’s out, he wins!

Fortune magazine finally stepped up to knock us down with a cover article, “Trouble@Twitter.” Here are some examples of how this works. After mostly positive coverage of Facebook, Fortune finally published an article in April of 2009 titled, “Is Facebook Losing Its Glow?” However, later that year they published, “What Backlash? Facebook Is Growing Like Mad.” Google received similar treatment. In July 2010 Fortune published, “Google, The Search Party Is Over.” Later that year, they published, “Google Continues To Gain Search Marketshare.”

We’ve had lots of positive press from Fortune in the past. In July of 2010 they published an article titled, “Twitter’s Business Model: A Visionary Experiment.” The article ended with, “Facebook might want to take notes.” It may seem odd, but from my perspective, this means we are being taken very seriously. Twitter is an important company and it’s under scrutiny from journalists–this is exactly how it’s supposed to work. Now it’s our job to prove the reporters wrong so they can write an article later about how we have made dramatic progress.

The Twitter team is an incredibly dedicated group of people who truly believe they are doing the most meaningful work of their lives. It’s also a very small group of people when compared to the other companies Fortune is investigating. We still have under 500 employees–many of them working weekends and nights to fulfill a potential that is palpable. For a long time, we refused to hire a communications group and now that we have one, I’m having fun teasing them about this Fortune article but the truth is, we’re long overdue to be knocked down by the press.

At least once a day, BoomTown gets a call from investors, analysts or other troublemaking types–you know who you are!–wondering why Yahoo is still plugging away in search.

With a declining market share in the arena and a search technology outsourcing deal with Microsoft, it’s not a bad question to ask.

But Yahoo begs to differ, introducing a new feature called Yahoo Search Direct at a press event in San Francisco today.

I liveblogged it, natch.

10:14 am: I was late, as per usual, but walked in just as the session was getting started.

Yahoo’s Chief Product Officer Blake Irving–looking fetching in a purple cashmere sweater–was talking about search.

He immediately turned it over to Shashi Seth, Yahoo’s head search dude, who immediately said: “Answers not links.”

Huh?

Actually, the product is pretty nifty, showing a lightning-speed box that shows more robust search results, although not unlike offerings from both Microsoft’s Bing and, of course, Google Instant.

While both have different takes, it is essentially a direction in which search brings in maps, photos, and–of course–advertising.

You can see a movie times example here (click to make the image larger):

10:23 am: Wait, it was over before it started! Whoa. No more bells and whistles?

And I still was enjoying Irving’s sweater and I wanted to touch it, but that would have been wrong.*

Seth then took questions from the reporters.

“We believe the next generation of search…people are looking for answers,” he said.

Very true, but perhaps not so much from Yahoo anymore.

Still, Yahoo Search Direct is a laudable try and it’s also nice to see some innovation from the long-troubled company.

“We are the premier digital media company,” said Seth, parroting a new description of Yahoo that the Silicon Valley company is now using since its recent sales meeting in San Antonio.

I asked a question about whether there is a dedicated app for the tablet of Yahoo Direct Search, which sources had also told me was shown to the troops in Texas.

Yep! It will be ready later this year.

I also asked about how much all this search innovation was costing compared to return on the investment.

No answers from either Irving or Seth.

Someone then asked if there would be a lift in market share from the feature.

That’s the plan, Stan!

10:41 am: More questions about the comparisons to Google Instant. Of course, it’s the same type of thing, in the contest to win the King of Relevancy crown among consumers.

Google Instant. Yahoo Search Direct. Quora. My dentist, who seems to know everything. In case you didn’t know, dentists are very erudite.

Seth noted that even though Yahoo has only 15 categories covered in Yahoo Search Direct, there will be hundreds to come, as well as more features on top of this feature.

Personally, I want my search delivered to me on a silver tray by a man in a purple cashmere sweater.

Speaking of purple, the demo dude kept putting Elizabeth Taylor into the query box, which depressed me. Violet eyes now closed forever.

That was the real story today.

As if to round out the event, someone asked whether critics are right about whether Yahoo should still be in search.

“We’re in this for good,” said Irving firmly.

“Look, we are not focused on the past,” added Seth, who was not here in this very room at a similar Yahoo search event years ago, when similar promises were made about search going away from a page of blue links. “I don’t even know if you’d call it search in three years.”

What would you call it then?

“Find,” joked Irving. And later, “It’s actually ‘found.’”

Apparently, Yahoo was lost and now is found via Yahoo Search Direct.

*By the way, I touched the sweater, which was–in fact, Blake–periwinkle, which is a twee version of purple.

(You can see a video interview I did with Seth after the demo here.)

That Internet sprite, Groupon Co-founder and CEO Andrew Mason, continued in his quest to be the cleverest little entrepreneur on the Web with a very funny post on the Chicago-based start-up’s blog yesterday titled: “No Comment!”

Mason is well known for his hipster-ironic-cute no-comment responses to the media, such as one he gave the New York Times recently:

“Andrew Mason, Groupon’s chief executive, declined an earlier interview request, adding that he would talk ‘only if you want to talk about my other passion, building miniature dollhouses.’”

Buuuuuurn, NYT!

In his latest rumination on life as a digital celebrity, Mason more fully outlined what he would not comment on, including everything even remotely interesting you might want to know about the social buying company, including:

* Plans relating to capital-raising, including a possible public offering

* Pre-announcements of new products

* Our competitors or the competitive landscape

* Statements on core business metrics, including margins or profitability

* Any projections regarding revenue, growth rates or other financial metrics

*Strategic transactions or partnerships with other companies

Thank goodness any metrics we want about how many discounted stripper pole lessons Groupon has sold in Omaha is on-limits!

Mason–who appears to want to become the Midwestern version of comic Jackie Mason, except Jackie would have taken the $6 billion from Google–is now styling a very scruffy Jeremiah-Johnson beard on this blog post, which you can see above.

BoomTown’s query on that: Why, dear God, why?

Here is Mason’s full “No Comment!” post:

No Comment!

As press interest in Groupon has grown, I’ve found myself increasingly uttering two words that have always annoyed me: “no comment.” We like to be as transparent with our customers as possible, but, just as people don’t walk around naked, there are some things that we as a company don’t talk about (for obvious reasons).

The least we can do is be transparent about the things we won’t be transparent about, which are listed below:

* Plans relating to capital-raising, including a possible public offering

* Pre-announcements of new products

* Our competitors or the competitive landscape

* Statements on core business metrics, including margins or profitability

* Any projections regarding revenue, growth rates or other financial metrics

* Strategic transactions or partnerships with other companies

While we’ll clam up when asked about the above business-y stuff, we’ll always be straight forward about things that affect the experience we’re creating for customers and merchants.

BoomTown is still cracking up over this video, another in the faux television talk show series on Funny or Die called “Between Two Ferns with Zach Galifianakis.”

His genius of an unlikely pairing this outing: Reality star Tila Tequila and Jennifer Aniston.

Aniston has become tiresome of late, due to the relentless press junketeering around her new movie with Adam Sandler called “Just Go With It.”

But somehow it works here for the consistently out-of-control Tequila to be on the same level as the perpetually pent-up and pinched Aniston, along with Galifianakis’s oddly put questions about the nuclear destruction of Rhode Island and a man dressed as a Speed Stick.

Enjoy:

AOL CFO Artie Minson prepped investors for the call with a memo laying out expectations. Short version: AOL thinks HuffPo will earn about $10 million on revenue of $50 million this year (as long as you’re okay with using “adjusted OIBDA” as a proxy for “profit”). It also thinks the purchase will save it $20 million a year, but it’s going to spend around $20 million on restructuring charges when the deal goes through.

I’ll liveblog the call below:

8:02 am: Greetings! About to start now.

8:03 am: On the call: Tim Armstrong, Arianna Huffington, Artie Minson.

8:03 am: Armstrong makes a Super Bowl joke that I can’t quite follow, and I like football. But now praising Arianna, co-founder Kenny Lerer and outgoing AOL CEO Eric Hippeau.

“The Huffington Post is one of the best properties on the Internet.” Armstrong, Huffington and Minson are all BlackBerry users.

8:06 am: On revenue: This gives an opportunity to serve more brand marketers, who are “very interested” in the scale this gives us.

8:07 am: Spending next 30 days on integration. “Really synergies to be had.”

Next steps: Next 72 hours communicating with employees, talking to partners. 1,500 AOL workers on the phone this morning explaining deal to others.

“This may be the smallest disruption” internally of any deal I’ve worked on. Majority of integration done within 35 to 40 days.

8:09 am: We’ve looked at a bunch of companies, though we’re mainly going to concentrate on organic growth. But Arianna is great [many superlatives] and she “also happens to be a woman.”

8:10 am: Here’s Arianna.

8:11 am: “Amazing” how aligned two orgs are.

8:11 am: HuffPo was profitable last year. We were thinking about bringing in additional investors last year, and an IPO down the line. But this made perfect sense.

8:12 am: This deal provides a “dramatic acceleration” for the plans we already had.

8:13 am: Some praise for Patch, AOL’s local strategy.

8:14 am: Can’t wait to start!

8:14 am: Alrighty, then. Here’s Artie Minson with some nuts and bolts.

Actually, it’s some color on the deal. But a lot of it is in the prepared remarks he put out earlier this morning.

8:15 am: Again, $20 million in cost savings here. And again, we’ll have to pay up for restructuring: $20 million for cuts, and $10 million for purchase price.

8:17 am: Still basically reading from prepared remarks. Some bookkeeping talk re: compensation accounting.

8:18 am: Remember, display ad growth coming will finally start showing up second half of this year.

8:19 am: Q&A:

Q: Talk about content strategy. Does HuffPo become hub for content going forward? Does it replace Seed? And how long is Arianna’s contract?

A: “The press” has been talking about our content strategy, so let me be clear–we’re focusing on premium content. Things like Seed and StudioNow are platforms–you can do whatever you want with them, different quality levels, at different types of scale.

And then the other thing that is important about those platforms is the ability they give us to work with advertisers.

One of our main interests in HuffPo is their technology and publishing system. So now we have multiple systems [which he is saying is a good thing]. “Our content strategy hasn’t changed.” The “stuff that was out in the press about the AOL Way” was just one way of doing things. [This is not very convincing]

Arianna, tell us how long you’re going to stay.

8:24 am: Arianna: “I’ve told Tim I want to stay here forever. I want this to be the last act of my life.” Anything I want to do I can do here.

[Sorry, missed next part but it was a defense/explanation of content strategy.]

8:26 am: Armstrong: Arianna has a multiyear contract, but it’s open-ended.

8:27 am: Arianna: By the way, we’re going to bring back commenting to AOL stories, and socialize them.

8:28 am: Q: Why buy instead of partnering? Were there other bidders? Also, how will HuffPo politics affect AOL?

8:28 am: Armstrong: We do partnerships where there is “limited upside to those arrangements” so ” we can really spend time on the areas we want to win”–i.e., we don’t care about sports, we do care about women.

“Arianna is somebody we’d rather have inside our building than outside our building.”

“If there were or weren’t bidders on the other side,” I think we got the right price.

8:30 am: Arianna. “As we’ve said, again and again, Huffington Post was not for sale….Nobody was in a hurry to cash out, everybody believed that we could do an IPO down the road.” It’s just that Tim gave us a great offer. [hrrrm.]

On politics–we used to be all about politics, now we’re not. Just 15 percent of our traffic. We have a divorce section now.

Talking up AOL’s “college” section.

8:33 am: Q: For Arianna: More on Patch, please. What do think about what AOL’s done with it, and what you can do with it?

8:33 am: [Every time Arianna says "local level" I think she's saying "locker level." It's happened at least twice, maybe more, on this call.]

There’s a “greatest person of the day” feature we have, and I think Patch should use that. [Or maybe vice-versa, sorry.] I also like their five percent “giving back” rule, cause marketing, etc.

8:35 am: Armstrong: Again, we can do national and local. That’s important. NFL rights are important, and so are local news stories.

8:36 am: Q: Who’s going to sell what? And can you talk about pricing disparity between AOL and HuffPo?

8:37 am: Armstrong: “We would like to maintain all the people from both sales forces [except for Greg Coleman!]. I think we will end up with a large-scale, large-property organization–I don’t know exactly what that’s going to look like, though.

On sell-through rate: Slightly lower at HuffPo, because they’ve been ramping up traffic, and sales force. On CPM, same story. So we can bring up sell-through rate and CPM, and have a larger sales force. [This is pretty much the best argument for the deal that Armstrong can make.]

[BTW: Good back-channel discussion on Twitter right now about AOL's SEO skills, and the people behind it. None of that coming up during this call right now.]

[Sorry, I meant HuffPo's SEO skills, much of which stem from blueprint BuzzFeed CEO Jonah Peretti set out.]

Q: Why not use equity for this deal?

A: Because our equity is priced too low, essentially. But HuffPo employees did roll over 25 percent of deal consideration into AOL options. So as that equity gets more valuable, they’ll get upside.

8:45 am: Q: In your statement, you talked about OIBDA growth in 2013. More on that please.

Minson–probably going to stick to my prepared remarks on that one.

8:46 am: Last Q: Your acqusitions have been about toolsets or content. As you think about others going forward, what else do you want?

Armstrong: We have long-term vision. On plumbing: We’ve wanted to get platforms and plumbing straightened out, and we’re doing that now. Think about the bones or foundation of a very large property. That’s why we’ve been doing infrastructure, like with video–5Min and GoViral and StudioNow.

Going forward, we’ll be doing infrastructure. And we’ll continue to look at “media properties and media brands” that fit our strategy. [Remember, Web site owners: HuffPo just got 10x revenue.

8:50 am: Minson: But we're very price sensitive and we've walked away from deals.

8:50 am: Arianna: And we like women!

8:51 am: Armstrong sums up: Success "in the Internet space" requires vision and execution. That's this deal. And remember, content and brands become more valuable as tech gets faster, more advanced. And "expect us to stay on strategy and on point" going forward. "We're going to overcommunicate" with both sets of employees as we integrate. [You've been warned!]

And we’re done. Thanks for reading.

[Photo credit: Arianna Huffington]

Note that the Daily’s first TV commercial, launched during the Super Bowl tonight, never mentions the word “Apple” or “iPad” once–even though it certainly appears to be using an iPad to show off the publication.

During the Daily’s press launch last week, News Corp. CEO Rupert Murdoch was clear that the Daily would eventually make its way to other platforms–Google’s Android, obviously–but said something along the lines of “the iPad is going to be the dominant platform for us for a while.” (News Corp. also owns this Web site).

Here’s Engadget’s on-the-fly transcript of Murdoch’s comments: “We’ve been quite honest with Apple, and we’ll be on all major tablets. But we think last year, this year, and next year will belong to the iPad.”

So if that’s the case, why wouldn’t News Corp. use the name of one of the world’s most popular companies, and/or one of its most popular products, to add a halo to its own product launch?

It’d be fun to speculate–Did Apple not give permission? Did News Corp. not want to scare off consumers dead set on a Xoom? Some other issue? But there are a couple of minutes left in the game, and I want to get back to it before it ends. Perhaps someone from the Daily can explain tomorrow.

While he won’t officially take over as CEO of Google until April, the recent full-frontal slapfest on Microsoft’s Bing search engine for shoplifting results from the search giant was so Larry Page in tone and temperament that it brought back memories from many years ago when I covered Google more closely.

Like the time in 2004 when he railed on the investment banking system as Google considered its IPO. Or, a meeting in 2005 when Page aggressively argued minutiae about the size of Google’s index size after Yahoo claimed its data trove was bigger.

And my ears are still ringing from a Googleplex lunch we had in the midst of his ire over a 2005 story on CNET that chronicled a lot of personal information about CEO Eric Schmidt, trying to show how much data was easily available on Google.

Page thought it best to be on the offensive and attack the report as a privacy violation, while I took the position that it was accurate and fair game and you don’t argue with the press and win.

It’s unlikely Page remembers any of this, but I do because I kept notes as part of my ongoing assessment of his characteristics as an Internet leader.

In fact, after our first interview in 2001, my notes on the encounter had this one line underlined and in all caps:

LARRY PAGE=BILL GATES.

It was not meant as an insult, but I can tell you I never wrote such a note about Page’s co-founder, the jokey and affable Sergey Brin.

Even then, Gates had a fearsome reputation as a manically competitive exec, a cutting manner to those not as smart as he clearly is and a reputation as a very tough and often eviscerating boss. (And all that was also my experience whenever I was interviewing him.)

While much wonkier, friendlier and more of a sensitive new-aged male, Page, it seemed to me, had the exact same obvious drive and aggression as Gates.

I stopped covering Google as closely years later–for personal reasons (see disclosure above)–and, thus, largely fell out of regular touch with Page.

But in reading the tough quotes and later blog post by Amit Singhal–quite possibly the sweetest dude at Google–accusing Bing of cheating, it felt like he was channeling Page’s very clear and nerdily indignant voice again.

In a nutshell: We have data to prove Microsoft’s stealing. Look at our detailed proof from our complex sting. We are outraged by this violation of geek code. Don’t you lay people get it?!?

I would wager that we’re about to see a lot more of this pugnacious, in-your-face tone from Google under Page’s leadership, which could have far-reaching implications for the company.

While I have no idea if it was his decision to let loose the dogs of algo-war on Microsoft, many with knowledge of how Google manages its public persona observed to me this week that this was just the kind of popping off that the outgoing Schmidt often tried to mitigate and soften.

But such bravado will play well with Google’s elite and pampered engineering corps in Silicon Valley.

And, in any case, PR considerations have never really been the point for Page, who cares not for how it might come off in the media (which he largely disdains anyway).

Which is to say like a temper tantrum of a very smart and very gifted child, who is probably largely right, but should not be quite so exercised given the level of violation.

No matter, since Page likely still lives and breathes data and algorithms and the Spock-like application of information.

It’s the rest of us who are illogical.

Yesterday Facebook unveiled a plan to let brands turn Facebook users’ online activities into ads. If anyone is complaining, it’s news to me.

Easy enough to see why: There are some very big differences between Facebook’s ill-fated Beacon and Sponsored Stories, the site’s new ad unit.

For starters, Facebook unveiled yesterday’s news in the trade press, not in a high-profile, Apple-aping event. More important is that while the new ads can tell your friends what you’re doing outside of Facebook, they’re mainly focused, for now, on what you do on the site.

Most important: The ads are replicas of the updates your friends are already seeing in their Facebook newsfeeds. So while Starbucks doesn’t pay a cent when this shows up on on the center of your friends’ pages:

It can now pay up and place this on the right side of your pals’ pages, too.

Users can’t opt out of the ads, which seems like a red flag given Facebook’s history. But if a brand wants to shell out money to tell your friends something you’ve already told your friends, who cares? No one, apparently.

Still, recall what Zuckerberg was saying less than four years ago, when he was going to “build a new kind of ad system” based on “social actions” and “information that is shared between friends.” At the time, that sounded wildly ambitious, and maybe a bit creepy.

And look what Sponsored Stories does now. Marketers can purchase ads that tell your Facebook friends when you’ve “liked” something of theirs. Or posted on one of their Facebook pages. Or checked-in to one of their outposts or played with one of their apps.

And they can do it when you’re not on Facebook, too, via “likes” you make on sites that have tied up with the social network.

This is what Zuckerberg was talking about in 2007, right? He just needed time to get there. So did his users.

Remember that when Facebook rolled out Beacon, the site was a big deal, but not the biggest: A mere 50 million users, not 600 million. Many of those people were still trying to get a handle on how the site worked, and what they ought to do with it.

And recall that the newsfeed itself–more or less the core of today’s service–was still a relatively new idea too, introduced just a year earlier. (Another controversy, and another Zuckerberg apology.)

Now, I think, just about everyone who uses Facebook knows, more or less, what they’ve signed on for: A place that wants you to share as much of yourself, with as many people, as you can.

Letting advertisers help you share that much more? No big deal. This is isn’t 2007, you know.

The San Francisco-based company has accumulated 550,000 iPhone downloads and 300,000 monthly Web site visitors, and has just released an Android app. It launched only last year.

Foodspotting is competing with the likes of Yelp, which is known for restaurant reviews but also includes all sorts of local businesses. However, Foodspotting allows only positive reviews of food, with the idea that a user would show up at a restaurant or in a neighborhood and glance at the app to quickly zero in on the best dishes to order.

Check out this recent NetworkEffect post on the bountiful competition in the sharing-pictures-of-food sector.

Foodspotting had just raised $750,000 from Felicis Ventures, 500 Startups and High Line Venture Partners in July 2010.

We have a video interview with Foodspotting CEO Alexa Andrzejewski that I’ll post later on, but unfortunately the press embargo on this announcement was broken before I’d encoded the video. In our interview, Andrzejewski justified how such a seemingly narrow project, especially in such a competitive market, could have broad appeal.

“Our network will continue to keep pace with the growing demand,” said T-Mobile CEO Phillip Humm, who said the company is embracing its status as a challenger brand (marketing speak for “the little guy”).

T-Mobile used a press conference on Thursday to announce the network and show off the LG-built G-Slate tablet that it plans to introduce in the first half of the year. T-Mobile also said it expects to offer a 7-inch Dell Streak tablet in the coming weeks.The Streak has a dual-core Nvidia Tegra processor along with support for Adobe Flash and a Gorilla Glass screen. T-Mobile said it will be sold at a “consumer-friendly price,” but didn’t share details.

Humm told reporters that the company has now sold 900,000 devices that run on its HSPA+ network, which it bills as America’s largest 4G network.

“This proves the rapid adoption,“ Humm said, adding that the carrier expects to be offering more than 25 4G devices by the end of the year, ranging from smartphones to mobile broadband.

T-Mobile Chief Technology Officer Neville Ray showed a slide that he says shows that HSPA+ has a strong road map to get faster in the coming years, though he said that T-Mobile does believe in moving to LTE in the future when the time is right. (T-Mobile currently lacks the spectrum to build such a network, among other issues.)

Ray said that T-Mobile has been testing T-Mobile’s new HSPA+42 network in Las Vegas and said its average speeds are on par with those provided by Verizon’s LTE network, even before that network has much load on it.

Many years ago, before Google went public, I had an unusual late-night conversation in the lobby of the TED conference with its co-founder Larry Page about the prospect, about which–despite its inevitability–he had more than a little nervousness.

That would be: Taking the search company public.

After much ruminating, Page concluded that one of the more important reasons he felt compelled to have an IPO was to finally reward Google’s employees for all the work they had done to build the company.

While I have never had a similar chat with Facebook CEO Mark Zuckerberg about the powerful social networking company and an initial public offering, I suspect that he would not express any such sentiment.

And it’s not because Zuckerberg does not value his staffers any less than Page did–instead, it’s because he seems to value his privacy most of all.

I know–ironic!–given how many perceive the company to be cavalier about important issues related to disclosures of personal information uploaded to Facebook by the mountain-load daily by its hundreds of millions of users.

That aside, Zuckerberg’s clear intent to keep the lid on Facebook tight–with no information about the details of financial performance and other pertinent information a public offering would require be disclosed–is clearly about to become a nettlesome issue for the company.

While that effort at preserving secrecy by staying private has resulted in little more than cute Silicon Valley media guessing games about a possible IPO, its most recent machinations are too clever by a half.

That would be the new and giant investment from Goldman Sachs, as well as a deal to get $1.5 billion of pre-IPO shares in the hands of the investment bank’s rich customers.

Aside from the appalling image that only the very wealthy can get an early shot at Facebook shares, which instantly became a press meme yesterday after the Goldman deal was announced, pretending this single investment entity–called a “special purpose vehicle”–simply feels like a Wall Street trick.

Plus, a special purpose vehicle sounds like a car that bankers use to take people for a ride.

Thus, a gaggle of rich doctors in New Jersey are treated like one blob, instead of what is plainly true to all. As the old Latin legal phrase goes: Res ipsa loquitur (the thing speaks for itself).

Of course, this strategic move is designed to keep the number of primary stockholders under 500, which is the IPO tipping point for the Securities and Exchange Commission.

Therefore, by all means, let’s do it!

Or not, because I had an intense déjà vu about all this, and an unease that it felt vaguely familiar as a negative characteristic of Zuckerberg’s leadership that seems to cling to him.

That would be the dicey origins of Facebook, which remain a controversy to this day, including garnering an entire Hollywood movie on the subject.

Anyone with a passing knowledge of Facebook’s history knows the basic question: Did Mark Zuckerberg “steal” the idea for Facebook from the Winklevoss twins, as well as sandbag their efforts, while they were all students at Harvard University?

And, more to the point, was it illegal?

The Winklevii certainly think so, continuing in their Don Quixote quest to take Zuckerberg down in a series of ever-more-comical lawsuits.

For me, the answer is a lot more complex–I think Zuckerberg most definitely screwed with the Olympic rowing twins and it was very creepy that he did.

But, in terms of breaking the law, not so much.

Of course, if you are endeavoring to always act with ethics in your career, this should not be the bar set. But in practical terms, it was most definitely an aggressive knee-capping that is not uncommon in business.

Zuckerberg has shown similar tendencies many times since then, especially around the thorny issues of privacy, where fast-and-loose behaviors are quickly followed by the I’m-sorry-I-didn’t-mean-it excuses.

Okay, fine, I get it. Business is war.

But, as it moves into a more mature place, the question now is whether Facebook should keep stressing this kind of wink-wink-nudge-nudge propensity, because it feels–how can I say this in the nicest way–icky.

Plus it will surely attract unneeded attention from the SEC, which is already looking into the opaque market for trading shares of closely held companies and where Facebook is the star attraction.

And this is to say nothing of other issues–for example, could there be insider trading problems around the buying and selling of these private shares, as one person close to the situation has noted to me?

Facebook, of course, will defend what it is doing as above board, say it’s not unfair to give special access to its bounty to the very rich in what is essentially a private IPO and wag a finger at critics like me and tell us we don’t understand sophisticated financial issues.

But here’s what I grok without a Harvard Business School degree: It feels sneaky, it feels elite, it feels opaque, and this kind of fancy financing footwork could end in tears.

Because these legitimate questions on how Facebook handles its stock will continue to dog the company until–when he is good and ready (and finances at Facebook look prettier)–Zuckerberg eventually pulls the trigger on an IPO.

It would be nice, even if Wall Street applauds his cleverness, if he didn’t keep shooting himself in the foot along the way.

“We know we have tough competition, and this is a completely new product,” Vice President Achim Berg said in an article on the company’s press Web site. “We’re in the race–it’s not a sprint but we are certainly gaining momentum and we’re in it for the long run.”

Until now, Microsoft had said that it was “happy” with sales, but had refused to say how many devices had sold. AT&T and T-Mobile had also declined to say how many models had sold since U.S. sales started Nov. 8. Windows Phone 7 models went on sale in Europe in late October.

Berg repeated that the sales have met Microsoft’s expectations.

“Yes, and I think our expectations are realistic for a new platform,” he said, noting that the company is essentially starting over with Windows Phone 7. He also cautioned against comparing it to the competition. “It’s a bit of apples and oranges comparison; our numbers are similar to the performance of other first generation mobile platforms,” Berg said. “We introduced a new platform with Windows Phone 7, and when you do that it takes time to educate partners and consumers on what you’re delivering, and drive awareness and interest in your new offering. We’re comfortable with where we are, and we are here for the long run; Windows Phone 7 is just the beginning.”

Microsoft is expected to announce an update for Windows Phone 7 in January that will add a copy-and-paste function as well as support for CDMA carriers. That will allow Verizon and Sprint to offer Windows Phone 7 models. Both carriers have said they will, but Microsoft made the decision to delay CDMA support until next year in order to meet its goal of having the initial version out by this year’s holiday season.

Berg also noted it plans to have phones at a variety of price points next year. Nearly all of the models that went on sale in the U.S. were priced at $199, although there has been some significant discounting.

IDC analyst Al Hilwa said in a note that he is particularly impressed by the speed with which Windows Phone 7 applications have hit the market.

“The Windows Phone 7 Marketplace reaching 4,000 apps two months after launch has to be one of the most rapid ramp-ups in recent times,” he said in a note to reporters. “Of course with both iPhone and Android app stores being much bigger, Microsoft still has its work cut out for it. However, reaching this milestone faster than Android which took from Oct 2008 to March 2009 to reach about the same level, it is not bad!”

Hilwa also said that Microsoft hasn’t done bad in having 10 phones on the market in 30 countries.

“Windows Phone 7 has changed the conversation and I would not be surprised if Microsoft had the third largest app portfolio in the industry by the middle of next year,” he said, pointing to the company’s strong set of developer tools.

Update: It is worth noting that the 1.5 million units represent “sell in”–that is, the phones that device makers like Samsung and HTC have sold to carriers, not the number of phones actually purchased by consumers. We’ll have to wait a bit to hear about those “sell through” numbers.

A lot of those beans, though, are already out there. The company has said it will launch the 4G network (using the Long Term Evolution, or LTE, protocol) in 38 cities before the end of the year. It’s also bringing 4G to more than 60 airports across the country.

Although Verizon’s network will launch in December, it will be only for laptops for a while, with 4G consumer phones expected by the middle of next year. As with past leaps, the big plus of the 4G network is faster connections.

For those still getting up to speed on 4G (including yours truly), here’s a recap. Sprint has already launched its 4G network using a different technology, WiMax, in a number of cities. AT&T is planning to use LTE for its 4G network, with its rollout slated for next year. And, just to further confuse things, T-Mobile has recently started billing its faster-speed 3G network using the term 4G and launching devices like the myTouch 4G.

The big question now is just what Verizon will want users to fork over for its speedy network and how it approaches the question of tiered pricing and unlimited versus capped pricing at the high end.

In any case, Mobilized will be covering the Verizon event tomorrow, which is set for noon Eastern Time and will feature Verizon Wireless CTO Tony Melone.

Today at the Web 2.0 Summit conference in San Francisco, Yahoo announced a bunch of new features, most of which the Silicon Valley Internet giant had already unveiled.

(Yes, this is the riveting life of BoomTown.)

Delivered by Chief Product Officer Blake Irving and other execs, the presentation included Sketch-a-Search, quick apps in search and Search Assist, as well as integration of Zynga social games and Twitter into the site and more about its Yahoo Contributor Network.

But there was news: A local offers program, similar to offerings recently made by Facebook and others.

There are 20 partners in this iteration, including Groupon, which Yahoo has tried to buy outright for many billions of dollars.

It seems to have saved some dough with this deal, which is being tested nationwide.

Yahoo’s approach to the discounted daily local deal boom is integration, of course, as well as aggregation, which is its best quality.

Of course, like all the updates, what Yahoo was announcing was essentially table stakes to keep up with what has been going on across the Internet at companies such as Apple, Google, Amazon and Facebook.

In fact, one question at the press event this morning focused on the incremental nature of Yahoo’s changes in comparison to others, and whether it can innovate as quickly.

Irving, who is certainly a lively character and knows about those issues from his many years at Microsoft, said he is trying to force a culture where Yahoos can “quickly iterate [products] and “it is safe to innovate fast.”

Let’s hope!

Until then, here are the official press releases on the updates, as well as local offers.

Yahoo_Web 2 0 Announcement_FINAL

Yahoo_ Local Offers Release

At the St. Regis hotel in San Francisco, Mark Zuckerberg says young people say email is too slow. They prefer Facebook or SMS.

Zuck: IM or SMS are much simpler, and people want lighter-weight things that they can use all over the place. So we need…a modern messaging system.

350 million people actively use messaging on Facebook, in part because it’s really simple. Four billion messages are sent per day. This is “private, private sharing.”

Next-generation messaging would be: seamless, informal, immediate, personal, simple, minimal and short. (Those are a lot of synonyms, no?)

“This is not email. Email is one way that people will use this system, but it’s not even the primary way we think they will use it.”

Now a three-panel slide is up showing the key topics of the announcement–”seamless messaging,” “conversation history” and “social inbox.” Zuckerberg promises, “We can do some really good filtering for you to make sure you only see messages you really care about.”

Zuck brings on Andrew Bosworth to demo the product.

So this is actually a relaunch of the “Messages” tool. Not email-specific. Takes all correspondence between two friends and puts them in one place.

Everyone gets an @facebook.com email address with their username. “As much as we’re providing an email address, the system’s not email,” says Boz–more like instant messaging.

Boz uses convo about dinner plans as an example, with messaging across different platforms, including IM on Facebook, email, iPhone notifications, etc. The example restaurant is Piccino in San Francisco, where, fun fact, I was for a short time the Foursquare mayor. No longer though.

Integrates with Jabber, IMAP and one more I missed. (Sorry, first time liveblogging with this tool!)

Boz shows the history of Facebook messages with his girlfriend of the last four years. But doesn’t include their instant messages and other communication. Individual messages may not be profound, but collectively they provide a narrative about someone I care about, says Boz.

Facebook rebuilt infrastructure for this project, because it’s especially important that messages don’t get lost.

Instead of Cassandra (which FB created for email search and then open sourced), the company chose something new: HBase. They also used Haystack, Thrift, ZooKeeper and memcache.

This is the biggest engineering team Facebook has ever put together for a launch–15 people, Boz says.

Users have three categories: 1) Messages: Conversations with actual people. 2) Other: Email lists and the like. And 3) Junk.

The big idea is “picking up where you left off” no matter what device or medium.

This project has been in the works for the last 15 months.

Zuck: “This is not an email killer. This is a messaging system that includes email as a part of it. We don’t expect anyone to wake up tomorrow and say, I’m going to shut down my Yahoo account or my Gmail account and switch to Facebook.”

(Read: You silly press, we’re not competing with Gmail, we’re bigger than Gmail!)

Rolling out slowly over the next few months, starting with an invite system (ha! how Gmail!).

Oh, about IMAP: No support yet, so users can’t synch with other email systems. But Facebook wants to add later.

Interesting: Facebook messages won’t have subject lines. You just have a single messaging history with each person.

If you have been interacting with someone through email, then we’ll send replies back to email. You can indicate that you want a message to go directly to their phone. If you’re online, you get a message as an IM.

Boz: This is the end of “BRB” or “GTG.” Follows you wherever you go. (Sounds ominous when you say it like that.)

Question from audience: Will you add voice or video?

Zuck: For now only SMS, IM, email and FB messages–all are text. “We think this is a pretty big step by itself, and one we just wanted to take before we get started on the next set of things.”

Question from audience: Will you have contextual ads?

Zuck: Yes, ads work the same as on the rest of Facebook, but not targeted specific to content in a message.

Zuck on Gmail competition: “They have a great product. Email is still really important to a lot of people. If we build a great product that people want to use, then people will use it.”

Question from audience: Can users go off the record like in Gmail?

Boz: Users can delete any message.

Zuck: Off the record like in IM doesn’t make sense because users may be receiving messages in a different way than you send them. If someone gets something in email instead of IM it would be unnatural to have it off the record.

Question: How will this treat communication with people who are not on Facebook?

Boz: You can communicate with whoever you want to, and will have access to all that history of the conversation.

Zuck: If you’re not a part of the FB system and outside the social graph, your emails to FB users will go into “Other” folder to start off with, rather than the main. Once the recipient says you’re an important person, you’ll go into the main folder.

Question: What about silly joke emails from your mom? Can you filter those?

Zuck: There’s only one thread with every person.

Question: What about Facebook employee email addresses?

Zuck: “After a long discussion, the Farm Bureau has agreed to give us fb.com. And in the terms of that we have agreed not to sell farm subsidies.”

Facebook hasn’t mentioned this, but Microsoft just emailed to make sure people know they’re involved.

“As part of Facebook’s new messaging system: http://apps.facebook.com/facebooklive/ –Microsoft is integrating the Office experience. Over the coming months, customers will be able to access and share Microsoft Word, Excel and PowerPoint documents as attachments to their Facebook messages. Sharing new ideas, key points of inspiration and important information just got easier–even when the need to access or share that content strikes in the middle of your latest status update.”

Question: Can you fill in the blanks of associating email addresses with Facebook friends?

Boz: Not yet, but it’s imaginable.

(Uh-oh–how is this going to work when people have multiple contacts for themselves?)

Question: Storage?

“If you’re a good user, you have no concern. For people who try to find limits, they will find them.” Another ominous comment from Boz.

Okay, they’re cutting us off.

Here’s the Facebook blog post on the announcement.

Please see the disclosure about Facebook in my ethics statement.

The young company has really gotten way too into these show-and-tell events. The formula is down pat: The usual crowd of tech bloggers and mainstream media types, plus some partners, show up at Facebook’s Palo Alto, Calif., office park and wait around for an awkward amount of time. Mark Zuckerberg walks up to the front of the company cafeteria and gives unscripted remarks about how great a few new products are. Product managers come demo them, questions are asked, lunch is served.

This time, at least, the Facebook product launch is in San Francisco, where the Web 2.0 Summit kicks off a little later in the day. (Google CEO Eric Schmidt goes on stage a couple hours after the Facebook event ends.)

Certainly, worse things could happen to me than having to write about a new Facebook product. But if the company wants to make such a big deal about these launches, it should come up with some really great stuff and/or bunch it all together (see: Steve Jobs).

It’s not so much the events; it’s the products themselves. Facebook’s last few launches–coming out of a self-imposed “lockdown” period of intense product development and much overtime work by employees–haven’t knocked any socks off: A gaming platform redesign, the Places check-in tool, a revised Groups feature, a way for users to download their archive of activity on the service, the Kleiner Perkins sFund launch (which Facebook got roped into hosting), single sign-on for mobile, the beginnings of a deals platform. And there were a few launches made sans event: Facebook Questions, high-resolution photos, etc.

All these are nice enough but, at best, slow-burn products. So far, none of them dramatically impact the way the majority of users value and experience Facebook.

That’s because many of them are fringe products; for instance, Pew says only 4 percent of U.S. online adults have ever shared their location with friends using a mobile device. Surely, Facebook can raise those user numbers, but location-sharing is not a mainstream activity and won’t be for a long time.

Still, even as I am bitching, I am setting Facebook up to succeed, because email is actually a mainstream product. The company will have to come through on the feature front, but there’s a good chance tomorrow’s launch could actually matter.

We can only hope.

Please see the disclosure about Facebook in my ethics statement.

Image courtesy Flickr user Robert Scoble.