Does anyone want to dance with Yahoo? Well, Bloomberg is reporting that Yahoo is continuing to talk with Time Warner about buying AOL. The report says the two companies have met “in the past few weeks,” and are discussing a plan where AOL’s advertising business would be given to Yahoo in exchange for Time Warner receiving a stake in the combined company. Spokespersons for both Yahoo and Time Warner declined to comment on the report.

Do you see the cup as half-full or half-empty? Despite the troubled economy, the Interactive Advertising Bureau (IAB) announced today that Internet ad revenues were nearly $5.9 billion in Q3 of this year — that’s up 11% over Q3 of 2007, and up 2% over Q2 of this year. The IAB says the $5.9 billion in Q3 is the second-highest quarter results ever. Says David Silverman of PricewaterhouseCoopers LLP: “… a weakening economy will continue to be a challenge to all forms of advertising-supported media. However, the Internet should be better poised to withstand the storm given its ability to combine performance-based advertising along with broad-based branding.” That’s the half-full argument. But, if you see the glass as half-empty, you can look at these numbers and see that the revenue numbers for 2008 are pretty much flat, and that the growth rate of online ad revenue is about half of what it was in 2007.

Google’s “Don’t Be Evil” mantra was the subject of a healthy debate this week in New York. According to the NY Times, two teams debated whether or not Google has violated it’s unofficial motto. Before the debate began, 20% of the audience said “yes” Google does violate its motto, while 31% said no (the others were undecided). After the debate, however, the audience vote was a dead heat: 47 percent said “yes” and 47% said “no.” There’s even a PDF transcript of the event for your enjoyment.

Speaking of Google, the company’s major contribution to Mozilla’s revenues may lead the latter to lose its status as a non-profit organization. According to TechCrunch, the IRS is auditing the Mozilla Foundation and at issue is whether the Google-related dollars should be treated as royalties or revenue. If it’s the latter, the foundation can say goodbye to being a non-profit organization.

Finally, local advertising company WebVisible has announced the acquisition of Adapt Technologies, a company that makes web-based SEM management tools. In their announcement today, the companies say their clients “will benefit from an expanded solution that gives additional controls over campaign management, optimization and analytics reporting.”

Search Marketing company consolidation continues with iProspect acquiring Range Online Media today. This acquisition increases iProspect’s US staff base by more than 60 employees, bringing the them to a U.S. employee base to over 230.

How will this impact the respective client’s accounts? The current Range customers will continue to be serviced by the same people. New customers will be able to pick which geographic area they would like to be serviced from. Range is run by some familiar names including Cheryle Pingel and Misty Locke – huge congrats to you guys!

Misty Locke will continue to serve as the president of Range Online Media, but will assume the new role of chief strategy officer of iProspect.

Our friends over at the Search Marketing Standard, one of the first successful search marketing focused print magazines, has been acquired by iNET Interactive.

Search Marketing Standard launched in the first month of 2006, with many supporters. Boris Mordkovich & Eugene Mordkovich of MordComm founded and finance the magazine. iNET Interactive’s Director of Marketing, Kevin Gold, has been writing for the publication since their debut issue, and now he can call the magazine his own

Not much will be changing with the magazine; the staff will remain on board. Boris will remain involved on an advisory level, and the same guiding principles should remain intact under the new management.

Search Engine Land wants to wish iNet, Kevin, Boris, Eugene and the staff, Editor-in-Chief Andrey Milyan, Associate Editor Frances Krug, Advertising Director Alex Lukashov, Office Manager Alina Vernikov, and Graphic Designer Jonathan Limoanco a congratulations!

Global ad agency WPP, which paid almost $650 million for 24/7 Real Media last year, will be bringing together all its search agencies under the Outrider brand and under the GroupM media division. That includes the search group at 24/7, Catalyst, Quisma, and Outrider, which won Yahoo’s Searchlight Award in New York last night for its Smirnoff campaign.

This consolidation creates a global search agency with offices on multiple continents.

Washington Post buys search engine firm from the Washington Business Journal reports that The Washington Post bought a search engine marketing firm, CourseAdvisor.

CourseAdvisor is an online education site that helps pair up students’ skills with college and university programs nationwide. Washington Post is hopeful that CourseAdvisor can boost their traffic and ad revenue through search engine marketing strategies and other means.

Internet marketer iCrossing acquires Va. firm from the Arizona Republic reports iCrossing has purchased Proxicom, a web development firm based in Virginia after getting $62 million last week.

Janet at Marketing Pilgrim looks at the other firms they have recently acquired and speculates that iCrossing is on a value building exercise.

It was about to be one spicy Friday, as Searcharazzi received a call on Thursday from a recruiter looking to replace a top editor in the search space.

The conversation went something like this:

Recruiter: “Our client is looking to replace the top spot at [name of publication].” Searcharazzi: “I thought that role was filled a month or so ago by [name of person]?” Recruiter: “Didn’t last 2 weeks.” Searcharazzi: “Are you sure?” Recruiter: “Yes, I got this job req a few weeks back.”

As it turns out, our friend the recruiter had been wrong, very wrong, and frantically called back to clarify, leaving Searcharazzi without a good scoop. (How do these people keep their jobs???)

In any case, a few juicy tidbits have come in. To kick it off, we’re pondering what we would do with iCrossing’s additional $62 million in funding. Redherring covers the story here.

Searcharazzi interprets this cash as a sign of future consolidation. So who will it be? Another SEM? A handful of SEMs? A tech play? Or perhaps a very sizable creative firm? Our lips are sealed, but feel free to take your guess.

Over in the UK, our spies have intelligence that consolidation is occurring at a faster pace. The latest news is that online ad shop TradeDoubler picked up The Search Works and its sister company The Technology Works as part of a its £56 million acquisition of IMW Group. The firm plans to expand its range of services as well.

In the Direct Marketing field, R.H. Donnelley picked up Business.com for a whopping $345 million. The initial auction included IAC, the New York Times, Dow Jones and News Corp. R.H. Donnelley is perhaps best known for its yellow pages. Could it be that the big old yellow book companies have finally gotten it right? The jury is out.

UK based global advertising firm WPP has acquired the publicly traded 24/7 Real Media for a whopping $649 million. The company was previously being looked at by Microsoft (for $1 billion) according to rumor. It follows on the heels of several high-profile acquisitions, including Yahoo’s intended purchase of Right Media and Google’s planned acquisition of DoubleClick. On a smaller scale ad firm Interpublic bought SEM Reprise Media last month.

WPP already has investments in VideoEgg, mobile search firm JumpTap and Spot Runner.

Let’s just get it out there: it appears that Zunch Communications, a Dallas-based SEM, has filed for bankruptcy.

While some might call this an isolated incident, some speculative minds suggest that a correction is on the horizon for SEM agencies. Indeed, Searcharazzi is dumbfounded by the hundreds of firms that have grown and multiplied during the early years of search, which traditionally means that the environment is ripe for consolidation. Take a quick tour of any Search Engine Strategies exhibitor hall and you will get the drift.

Let’s start with a tour of SEM and related acquisitions:

1998 Outrider acquired by WPP

2000 Website results acquired by 24/7

2003 iFrontier acquired by Avenue A GoToast acquired by aQuantive

2004 SendTraffic acquired by Traffix Marketleap acquired by Digital impact Performics acquired by DoubleClick Global Promoter acquired by Websourced Decide Interactive acquired by 24/7 Rawhide acquired by eXact Advertising iProspect acquired by ISOBAR

2005 Proceed acquired by Websourced MarketSmart acquired by Websourced SearchIgnite acquired by 360i 360i acquired by Interactive FastClick acquired by ValueClick

2007 NewGate acquired by iCrossing Spannerworks acquired by iCrossing Reprise Media acquired by IPG GSI acquired by Oglivy Google agrees to buy DoubleClick Fathom Online reportedly being shopped around

Yet another fate lies for those who are stuck on the idea that their firms have a much higher valuation than the market is demanding. Case in point: an unnamed West Coast-based SEM had been offered $60 million, but refused, insisting on $80 million. Some time later, an offer of $40 million was made, which was then refused, insisting on $60 million. Clearly, the longer one holds out for an ideal valuation (without increasing value), the less likely it is that such an offer will be made.

So on to the first in a new section of the SEM graveyard:

2007 Zunch Communications files for bankruptcy

Searcharazzi looks forward to your tips and will update these lists accordingly.

Postscript: James Sadler from Zunch Worldwide, which has assumed Zunch Communications assets and debts, sent this:

Here’s the story of Zunch Worldwide and Zunch Communications. As you may know, in October 2005, several key executives left Zunch Communications, Inc. to form Kinetic-Results (which Kevin Ryan has since left and they’ve renamed themselves Dexterity Media).

That move cost Zunch Communications several large clients, including a $1 million+ a year client.

Essentially, Zunch Communications never fully recovered from that split. In what I think is going to be an increasingly common story for SEO and SEM companies, Zunch Communications fell further behind both in paying its obligations and in servicing its clients.

The company found itself on the receiving end of several lawsuits, and it lacked the funds to pursue arbitration with the former employees who left to form Kinetic. The hole they were in just got deeper-and-deeper.

In September 2006, things came to a head. Zunch Communications was sinking and no one could get the ship righted. It was kind of like the Titanic, the hole torn in it was too big to repair and was dragging the ship down. Although in this case, rather than a hole filling up with water, we had a hole that was bleeding.

After consulting with attorneys, it was decided that there was nothing that could be done but put Zunch Communications into bankruptcy. At first a Chapter 11 was considered, but the assessment was there weren’t sufficient assets to make that a viable option.

Again acting on advice of counsel, a new entity was formed — Zunch Worldwide, Inc. Zunch Worldwide planned to purchase certain assets and take over a few of Zunch Com’s liabilities.

In order to do this on both a legal and ethical basis, an independent appraiser was retained to value Zunch Com. Based on his valuation of the assets, a purchase agreement was entered into wherein Zunch Worldwide assumed assets and some debts of Zunch Com.

Fortunately, Zunch Worldwide is in a much healthier position and has taken on a number of new clients. And Zunch China, Inc. was recently formed to service clients in China, several of whom have signed on with Zunch China and several others who are negotiating with Zunch China for services.

Both Zunch Worldwide and Zunch China are healthier, more viable entities.

Zunch Communications will remain an active entity until its bankruptcy winds down. The Trustee in bankruptcy will continue to collect on payments being made to Zunch Communications, primarily the purchase price of the assets Zunch Worldwide bought, which are being paid for over a period of time. That money will then be distributed to those creditors who file claims with the bankruptcy court.

It’s tragic, but the timeline you developed and posted, together with your belief that a consolidation is coming, is probably dead on. I told a reporter yesterday that I though we were on the verge of seeing a number of SEO/SEM companies close their doors.

In my time in the industry, I’ve seen story after story of people leaving one SEM company to start their own. All too often, these people lack all the necessary tools and skills to make the company a success. And there are only so many clients with the money to pay for SEM services to go around.

Postscript 2: Is Zunch Communications’ Bankruptcy a Sign of Things to Come? from Kevin Newcomb at Search Engine Watch focuses on how the Zunch refugees that went on to form Kinetics (later renamed Dexterity) have been successful despite supposedly bad market conditions. IE — the Zunch downturn had little to do with that.

Certainly there’s consolidation that will happen in the space, some of which is outlined above. But I don’t know that looking closely at this one firm downturn is necessarily a sign that the industry is in trouble.

Many have wondered if it’s a conflict for Google to keep the search marketing-focused Performics division of DoubleClick as part of Google’s planned DoubleClick acquisition, since it would seem odd for Google to own a firm with an interest in helping people rank well on Google.

Kris Jones of Pepperjam has the latest statement from Performics on the issue. Stuart Frankel, president of Performics, says there are no plans to change the business. The key part of his statement:

We have consistently and repeatedly communicated to our clients, publishers and employees that it is business as usual at Performics. Let me make this absolutely clear. We are not dissolving or shutting down or significantly altering the Performics business. To the contrary, we continue to actively build our core affiliate and search business units. In fact, we are currently recruiting for 25 open positions across all areas of Performics. In particular, our affiliate business has seen dramatic growth in 2007 and as a result, DoubleClick has accelerated its investment in this area of its business. We are a large supporter and participant in industry forums and we support an open and active dialogue regarding the affiliate marketing industry.

In Danny’s postscript of Google To Acquire DoubleClick For $3.1 Billion, Danny agrees with Kris that he “fully expects to see Performics get sold off.” Time will tell.

Postscript From Danny: Frankly, and with respect to Google, DoubleClick and Performics, the entire conflict Performics poses feels like an afterthought. I simply cannot see how Google thinks it will maintain running a search marketing firm. The responses I’ve seen so far suggest the conflicts have simply not been carefully thought out, and I feel it is almost a certainty that Performics will either significantly change or be sold off. I’m checking with the companies further on this.

Postscript 2: Google sent a statement:

They have built a strong business that is valued by their clients, and we will be evaluating all strategic alternatives for this business. We are committed to continuing to meet the needs of Performics clients, and we expect no interruption in service during this transition. Google has many important agency, SEM, and other partner relationships, and we continue to value those relationships.

This is the same listed in the FAQ on the planned DoubleClick purchase but a different statement than that FAQ originally had, where Google talked about having “no plans to dispose of it at this time.”

DoubleClick said it had no comment other than:

Each company will continue to operate independently until close. We defer to Google since this is about post-close.