The fantasy that someone will buy AOL from Time Warner in a complicated deal is getting even AOL CEO Randy Falco hot and bothered. A tipster told Silicon Alley Insider that Falco recently fumed, "When is New York going to sell us?" And to whom? "Sources close to AOL" told VentureBeat's Matt Marshall that Microsoft plans to aquire both Yahoo and AOL after those companies merge. We planned to give you a 100-word version of Marshall's story, but seven paragraphs in, we realized it made no sense.Here's our theory: Some executives at Time Warner bent Marshall's ear in an effort to drive up AOL's price. Or rather, prop it up. Recent reports suggest Yahoo wants to pay $5 billion for all of AOL, only months after deal chatter put the price more in the $10 billion range. When Google bought its 5 percent stake in AOL in 2005, it valued the company at $20 billion.

Every time AOL comes up for sale, the price drops. When Yahoo-AOL merger talks began last spring, the tentative plan was to combine Yahoo and AOL and give Time Warner $10 billion worth of stock in the new company. Since then, Yahoo has weathered both Microsoft and Carl Icahn, and AOL's advertising business — the only reason why anyone would buy it — has stalled. So while merger talks continue, Yahoo now only wants to hand over $5 billion or so in stock, reports BoomTown's Kara Swisher. One reason why the deal might actually happen?When Yahoo's leadership first broached the idea of a merger with AOL, executives in Sunnyvale balked. But a lot of those Yahoos are gone now. Sources told Swisher that the consensus is that a merger would replenish Yahoo's executive roster and "bolster its ad business, international portfolio and email and content offerings." Which is all true, I'm sure. But instead of spending $5 billion or more on a dying brand no one remembers why they use, why doesn't Jerry Yang just buy VH1's I Love the '90s? That seems easier.

Everybody who's anybody has had an online-advertising exchange since the spring of 2007, when Google announced it would acquire DoubleClick and Yahoo overpaid for Right Media. AOL's advertising network, Platform-A, is finally catching up. Today it announced BidPlace, which top exec Lynda Clarizio told PaidContent will launch next year. How it works:AOL will make some of its ad-banner space and partner sites' inventory up for bid in an online auction. Advertisers will be able to make cost-per-impression, cost-per-click, and cost-per-action bids. The good news for advertisers looking for cheaper alternatives in a tough economy — such as General Motors, which just announced it plans to cut online ad spending — is that the process will remove costly "friction" from the ad-buying process. The bad news for publishers: "Friction" is another word for "profit." Another concern: Allowing advertisers to buy space on their sites through ad networks will discourage them from developing relationshps with their highly paid salespeople.

Let us say it, since every other writer seems too kind: As CEO of AOL, Randy Falco is an utter embarrassment. Silicon Alley Insider recounts his perplexing performance in front of a crowd of media executives gathered for Advertising Week in New York. "Radio was supposed to die 50 years ago," Falco said. "The reason radio is still around is because of mobile. The reason broadcast will still be around 50 years from now is because of mobile. All of our businesses up here will continue to grow because of video applications on mobile." What?It's as if he thought that playing a game of buzzword bingo would masquerade as strategic thought. A television salesman by trade, Falco was plucked by Time Warner CEO Jeff Bewkes from NBC Universal to replace Jon Miller, in a universally derided move. A commonly held belief among insiders: Falco and Bewkes thought AOL would be sold off by now, with Falco moving on to some role at Time Warner's film and television properties. AOL has continued to embarrass. And so has Falco. The only question is which exit will come first.

Why is a router maker buying Jabber, an open-source AIM clone? Disgruntled network admins (I'm still one in my heart) understand what Cisco's own press release doesn't spell out in English.Jabber isn't just another AIM wannabe. It uses XML trickery to connect to every popular instant message service — AIM, ICQ, Windows Live Messenger, and Yahoo — and to let programmers connect it to other services, be they for man or machine. It's already widely adopted by the IT workers whose managers sign the purchase orders for Cisco networking hardware. By building Jabber support into its switchers and routers, Cisco can make it easy for admins to get alerts from their hardware in the same IM window as their buddies. Cisco can also sell companywide IM setups that are closely tied to Cisco network gear for security and monitoring. Cisco recently picked up PostPath, which makes Linux-based email, calendar and collaboration software. I'm sure someone at Cisco plans to bundle Jabber's instant messaging with PostPath's Outlook-like features and dub it a "platform" to compete with Microsoft. But Jabber's main competition isn't Redmond, it's Dulles. Cisco can now offer managers a way to ban AIM from the workplace, or at least to manage it locally with Cisco equipment rather than routing employees' conversations straight to AOL.

Sometimes I hear people ask: "Who uses Yahoo Mail anymore?" The answer, of course, is just about everybody. ComScore puts the number at around 260 million people — far more than Google's 90 million. But statistics can feel abstract. Now that a 4chan reprobate has hacked into Alaska governor and "average hockey mom" Sarah Palin's private Yahoo email account and discovered, among other things, her contact list, we have a more concrete demonstration of Yahoo's dominance of Palin's decidedly down-home demographic. Here is a list contains six Yahoo addresses, an AOL address, a Hotmail address and exactly zero Gmail addresses.Sarah Palin's contact list: Beth Leschper (Beth Leschper SOA) [Edit] [redacted]@alaska.gov Blanche Kallstrom (Blanche) [Edit] [redacted]@starband.net Bristol Palin (Bristol) [Edit] [redacted]@hotmail.com Chuck Heath (Chuck) [Edit] [redacted]@yahoo.com [redacted]@yahoo.com (Todd) [Edit] [redacted]@yahoo.com (Frank) [Edit] Heather Bruce (Heather) [Edit] [redacted]@gci.net [redacted]@alaska.gov (Ivy SOA) [Edit] [redacted]@yahoo.com (Ivy Personal) [Edit] Judy Patrick (Judy Patrick) [Edit] [redacted]@mtaonline.net [redacted]@alaska.gov (Kris Perry SOA) [Edit] [redacted]@yahoo.com (Kris Personal) [Edit] [redacted]@yahoo.com (Molly) [Edit] Roseanne Hughes (Roseanne Hughes SOA) [Edit] [redacted]@alaska.gov Sally Heath (Mom) [Edit] [redacted]@mtaonline.net Sean Parnell (Sean Personal) [Edit] [redacted]@alaska.com Sharon Leighow (Sharon SOA) [Edit] [redacted]@alaska.gov [redacted]@aol.com (Sharon Leighow Personal) [Edit] Track Palin (Track) [Edit] [redacted]@hotmail.com

“I retain my AOL mail address because so many of my friends and mailing lists have it that it would be a pain to switch.” That's the succinct summary of the 394 comments posted to New York Times Bits blogger Saul Hansell's post, "Who Uses AOL and Why?" Hansell had posted the question because he wasn't sure AOL's latest portal redesign — quite probably offered to him as an exclusive story — was newsworthy. Instead, he came up with a dry suggestion that AOL take a clue from phone companies. It's so crazy it just might work:

Time Warner CFO John Martin told investors yesterday that while online subsidiary AOL's ad network Platform-A "had been growing like a weed,'' the company now doubts it will hit its revenue targets. "We have seen some cancellations," Martin told conferencegoers. "It gives us pause in terms of our confidence to ramp advertising in the back half of the year.'' AOL also laid of 5 to 10 employees from its "Shared Services" group yesterday, SAI reports — the only surprise there being the small size of the cut. AOL's recent efforts to combat waning advertiser and consumer interest in its brand include creating a new huge banner ad format and also allowing AOL.com visitors to access email from other providers.

Time Warner's underperforming online subsidiary AOL updated its homepage today. The biggest change is that AOL now allows users to access their Gmail, Yahoo Mail and Hotmail accounts from AOL.com. Along with new ad formats on AOL.com such as photo galleries and video players, AOL also announced new sites for women, pop-culture junkies, and parents of gamers. It's just AOL's latest desperate attempt to recapture the relevance it's lost since it ceased to be Middle America's only way of getting online. Nothing else has worked yet. Analytics firm Compete says unique visitors to AOL.com are down 12.7 percent in th last year, from around 62 million in August 2007 to 54 million in August 2008. And while the rest of the online ad market grew 20 percent, AOL advertising revenues grew only 1.5 percent last quarter.

Austin-based interactive ad agency Tocquigny embarrassed itself with a video meant to show prospective interns how fun it is to work at the company over the summer. Instead of showing how quirky and Internet-savvy Tocquigny was, it proved to be a turnoff — and a ripoff. Besides not copying someone else's work, what could Tocquigny have done differently? Using five examples the agency should have followed, we'll explain how to do a self-promotional corporate video right:Rule No. 1: Convince the video's participants that the end product will be less embarrassing if they don't worry about being embarrassed while they make it. Get your people to either commit themselves fully to the project, or stay out of the way. Vimeo's companywide lip synch of Harvey Danger's "Flagpole Sitta" wouldn't work nearly so well if the girl listening to her iPod at the beginning didn't keep such a straight face. Know what else doesn't hurt? Actually memorizing the lyrics.

Nobody reads terms of service agreements, those legal documents new users have to click a box to say they've read. And the truth is, they hardly matter to anybody but the cyber-rights-now crowd who get worked up by articles on Boing Boing, and the paranoid lawyers at large Web companies who want to avoid money-fishing lawsuits. But sometimes they go far beyond protecting corporate interests into la-la land. Did you know that when you download Google's new Chrome browser, you agree that any "content" you "submit, post or display" using the service — whether you own its copyright or not — gives Google a "perpetual, irrevocable, worldwide, royalty-free, and non-exclusive license to reproduce, adapt, modify, translate, publish, publicly perform, publicly display and distribute" it? Google's ambitions for Chrome are even larger than we thought; by the letter of this license, Google will own all information that flows through its browser. But Chrome's terms of service are just the latest in a long line of ludicrous legalese.

The deal isn't finalized yet, but AOL will acquire Colorado-based startup SocialThing, News.com reports. Best known for a raging party it threw at this year's South By Southwest conference, SocialThing also aggregates an Internet user's feeds and activity from sites like Flickr and Twitter. If that sounds familiar, its because you've subjected yourself to the ramblings of people like Jason Calacanis, Michael Arrington or Robert Scoble who use a similar service called FriendFeed and talk about it a lot. They talk about it a lot because they think its really popular, but the truth is that FriendFeed suggests them as new friends to every user who joins the site. A thought: Wouldn't it be funny if AOL bought SocialThing because AOL dealmakers read too much Scoble, Arrington and Calacanis and so they think FriendFeed is the new, new thing and rushed out to by its closest competitor? Don't put it past the bunch that paid $850 million for Bebo.

What's a clever way AOL can avoid datacenter layoffs? Today's featured commenter, Tnuc, has the plan:

He's only 24 years old, but Michael Dolan of West Haven, Conn. has been slapped with the maximum sentence after pleading guilty to fraud and aggravated identity theft. Dolan and five accomplices spammed AOL users for four years with messages such as, "Due to a central server meltdown, your credit card information was lost." The prosecution claimed the scams had taken in at least $400,000 from 250 users who fell for it. Dolan's defense lawyer had argued that Dolan suffered mental illness, made worse by his father's suicide.

On August 20, big layoffs are expected in AOL's technology operations. AOL CEO Randy Falco's vision for the Time Warner-owned Internet company: Get rid of all that messy Internet stuff. Madison Avenue, let's do lunch! Stripping AOL down to an ad-sales operation (and a collection of Web properties on which to place ads) requires shedding some of the things AOL was best known for — like hosting large-scale websites. After AOL bought Weblogs Inc., gadget blog Engadget handled Macworld-keynote traffic like a champ. Alas, the server farms are soon to be put out to pasture, if a tipster is correct. Commenter aoltech1 writes:

During a conference call to reports Liberty Media's second-quarter earnings, CEO John Malone told analysts the company was open to exchanging its stake in Time Warner for AOL's online access business. Liberty owns 103 million Time Warner shares, or about 2.8 percent of the company. Such a swap would value AOL's access business at around $1.6 billion, lower than the $2 billion to $3 billion analysts say its worth. A swap would lower Time Warner's tax burden, however, possibly making the deal more attractive. Earlier this year, Liberty performed a similar swap with News Corp., trading its stake in the company for control over DirecTV.

David Colburn: Prepared to get biblical on your ass Back when he ran ad sales at AOL in the late '90s, David Colburn earned himself quite the nickname. The peons called him God — you know, the guy who turns water to blood and rains locusts down from the heavens. Once, at a holiday party in December 1999, Colburn called three rabbis up on stage and told them to pray for AOL's success, promising to donate $1 million to any Jewish cause if AOL's stock hit certain levels. The rabbis agreed, startling offended partygoers. But according to author Alec Klein, who recounts the anecdote in his book Stealing Time, none of them were about to say anything.

AOL ad revenue grew at an old media-like pace in the second quarter, increasing just two percent. So what's Middle America's favorite Internet property to do? Get super-sized, of course. "Beginning today," a breathless flack writes us:

• The bill for the auction-rate securities mess is now adding up by the hour. Merrill Lynch, Citigroup, UBS, and Morgan Stanley have all contributed to to the tally. [Dealbook]

In a statement filed with the SEC late today, Google stated that its 2005 purchase of 5 percent of AOL "may be impaired." Analyst guesstimates of AOL's value peg it at about $10 million, or half the value at which Google bought in. It's a blow to Google, but not a big one — a couple hundred million in paper value lost, to a company that takes in more then ten billion a year. The investment still met its primary goal: Cockblocking Microsoft. [AP] (Photo by AP/Paul Sakuma)