Henry Blodget, the disgraced dotcom stock analyst turned blogger, provides futher evidence to support his theory (and ours) that fallout from the subprime mortgage crisis could hit companies like Google and Yahoo. Mortgage lenders and the companies that serve them are among the biggest buyers of online ads. If fallout from the mortgage crisis caused these companies to stop buying online ads, it could hit the internet sector and its flush stock valuations hard. 

The latest figure from Nielsen//Netratings show that purchases by the top ten online ad buyers have indeed slowed from August to September. Blodget sums it up neatly:

Spending by Top Ten Web Advertisers, June-Sept (Nielsen, 000s)
June             $278,404
July              $279,850   
August          $323,814   
September    $290,246

There are caveats: The numbers reflect esimates (repeat - estimates) of spending on banner ads - not the search ads that account for most of Google’s revenue. Furthermore, August looks to have been an unusually rich month  - the adjustment downwards from $323k to $290k could be a return to normal conditions more than a collapse in ad spending. Nevertheless, the fact that online ad spend appears to have reversed after many months of gains is troublesome. Next month’s figures will be an important indicator of whether this month’s drop in advertising by the top ten online ad buyers is merely a blip or a sign of  rough waters ahead.

San Jose: The hottest discussion on the second and final day of the Virtual Worlds Conference here involved the founders of several virtual worlds debating where the platforms would go next.

The “Visionary Panel” comprised Raph Koster, president of Areae and founder of Metaplace.com, Hui Xu, founder of China’s HiPiHi and (left to right in the photo) Michael Wilson, chief executive of Makena Technologies (There.com), Stephen Lawler, general manager of Microsoft’s Virtual Earth, Chris Klaus, founder of Kaneva and Corey Bridges, co-founder of the Multiverse Network.

Corey Bridges predicted web integration would be a near-term growth area for virtual worlds, including integration with existing social networks such as Facebook.

"[Social networking] will really propel virtual worlds into the mainstream, that’s going to be the killer app, it’s been video games driving it up to now," he said.

Michael Wilson disagreed: "We are looking at gaming, I don’t think virtual worlds are going to be that different from games," he said.

Microsoft’s Stephen Lawler demonstrated how Microsoft had added 3D to its maps.live.com’s photo representations of 150 cities, zooming in on San Jose. Wilson said he could imagine a TV news channel recreating a bank raid in San Jose using the technology, although bloggers would come up with their own different versions of what happened first.

"The web is going 3D," said Lawler, "It’s going to be a really exciting transition over the next decade."

Areae’s Koster disagreed violently: "3D is a red herring," he said."Shopping on Amazon in 3D will suck."

He argued we were heading for a "representation-agnostic" web, where information would be presented in a way that best suited the user’s needs and the device they were using - such as providing turn-by-turn driving directions in text on a mobile phone’s screen, rather than showing a 3D map. The most successful virtual worlds, such as Neopets and Club Penguin, were flat 2D experiences, he pointed out.

Lawler responded that retail experiences could be improved by 3D - such as grocery shopping down 3D aisles rather than having to choose from lists in the current web iteration.

"Interiors are best represented in 3D - there’s no 2D representation that could  capture this [conference] room [with its audience]."

2D was fine for views from a distance, such as a satellite map, but as you zoomed in to a building or a corridor, 3D was the better form, he said.

No one sent their avatars to the Virtual Worlds Conference in San Jose today – the event was an opportunity for real facetime between content creators, media companies, venture capitalists and analysts.

IBM and Linden Lab, the developer of Second Life, announced they would collaborate on developing universal avatars and interoperability between the growing number of virtual worlds.

Electric Sheep, the virtual world services company, unveiled its OnRez viewer – a browser-like program that simplifies the Second Life experience. It will be used by viewers of CBS’s CSI:NY TV series to pursue a mystery killer into the virtual world, in the latest crossover experiment by media companies with the metaverse.

The viewer is a tacit admission that Second Life is still too difficult to master for most people.

Michael Cai, director of broadband and gaming at the research firm Parks Associates, told me the audience is still relatively small for virtual worlds, compared to membership of social networks.

Less than 2 per cent of US internet users are daily visitors to such worlds while 45 to 50 per cent are active users of social networks such as MySpace and Facebook.

Yet virtual worlds seem natural extensions of social networks and inhabitiants of Kaneva and Gaia Online use social networking tools extensively in their worlds.

“Social networking sites are all about asynchronous communication with friends, while virtual worlds are all about real-time interaction,” says Giff Constable, head of software at Electric Sheep.

“Neither has been very good at the other’s mode of interaction so far, but there is no question that they will need to come together.”

Jaiku will be hoping for a better fate than that of the last micro-blogging service bought by Google.

The European rival to San Francisco’s Twitter was picked up by Google for an undisclosed sum today.

Jaiku, who visited our offices in June,  enables lifestreaming - broadcasting to the world short messages about what you are up to - and includes a location feature on some smartphones.

Google bought a similar US start-up called Dodgeball in 2005, but let the service languish and the founders quit in April, complaining that Google had not given them the support they deserved.

Helsinki-based Jaiku may get better treatment. It is based on talent from Europe, where Google is eagerly expanding, and it is focused on mobile at a time when the Mountain View company appears to be on the verge of announcing a Google-enabled cell phone.

Still, Twitter may feel it is in a better position now its biggest rival has been swallowed by a huge company with competing priorities. In fact, Google’s first step has been to stunt Jaiku’s growth by putting a hold on any new sign-ups.

Wiki means quick in Hawaiian and the adjective was made a noun by Ward Cunningham when he developed the first Wiki website where users could easily edit information and share ideas.

Eurekster has used search for an even Wiki-er way of developing and sharing knowledge on subjects.

Its “swickis” allow users to build and customise a specialised search portal on any topic. As other users carry out searches on it, it becomes smarter and more relevant.

This month, Eurekster has partnered with the Blinkx video search engine to enable video swickis. They can also be accessed through a “buzzcloud” widget. As in the Family Guy example below, it can be pasted into any blog.

var swickiSidebar= { quickFormat: ‘_QUICKFORMAT_’, // for html = {’narrow’, ’short’, ‘wide’} canvasColor: ‘_BACKGROUND_’, // use ‘#EEAAFF’ hex format or TextColor: ‘_TEXTCOLOR_’, // web standard color names TagLinkColor: ‘_LINKCOLOR_’, TagHoverBGColor: ‘_BGHOVER_’, TagFontFamily: ‘_FONT_’, // eg. ‘Times New Roman’ or ‘Arial’ TagFontSizeMax: _FONTMAX_, // eg. 24pt TagFontSizeDiff: _FONTDIFF_ // eg. 5 };

Grab this swicki from eurekster.com

There are already more than 100,000 swickis, which can all be distributed and monetised by their creators with ad placements. San Francisco-based Eurekster takes a share of revenues.

The video swickis pose new advertising challenges and Eurekster is going to test various ways of inserting ads into the feeds.

Meanwhile, Blinkx is experimenting with an advertising platform it calls Ad Hoc. Using speech-to-text technology, metadata, behavioural targeting and some visual analysis, it hopes to serve more relevant ads to video watchers.

Another price cut appears imminent for the PlayStation 3 and can’t come soon enough for Sony, given the latest news from its rivals Microsoft and Nintendo.

Industry executives believe Sony is about to announce a $399 version of the PS3 to coincide with the holiday season in the US. It currently offers an 80-gigabyte version for $599 and a  60Gb one for $499. There are reports that a 40Gb version will be offered in the UK for £299.

PS3 sales have lagged far behind those of Microsoft’s Xbox 360 and the Nintendo Wii and the gap could widen if Sony does not take action by cutting prices. Microsoft said yesterday that initial reports from retailers worldwide showed 360 sales, after the launch of its Halo 3 game on September 25, had nearly tripled compared to their weekly average.

Microsoft reported more than $300m in Halo sales worldwide in its first week. More than 2.7m gamers played it on its Xbox Live service in that period - nearly one-third of the worldwide membership of the online service.

Meanwhile, Reggie Fils-Aime, president of Nintendo of America, has told the San Jose Mercury News that the company will not be able to keep up with demand for the Wii this Christmas.

"We’re working very hard to make sure that consumers are satisfied this holiday, but I can’t guarantee that we’re going to meet demand. As a matter of fact, I can tell you on the record we won’t," he said.

Great company it may be, but VMware’s share price is starting to exhibit some very bubbly symptoms.

The virtualisation software company’s shares are now trading at more than three times what they were sold for at the time of its IPO less than two months ago. That has lifted its stock market value to $34bn, and raised the value of EMC’s remaining stake in the company to around $30bn.

This is where things start to get weird. EMC’s total market value is only $44bn. Sure, it has been buoyed by the VMware IPO, but to nothing like the extent that would seem logical given what’s happened to the VMware stock.

It is all faintly reminiscent of what happened when 3Com sold a small stake in its red-hot Palm division during the tech boom. Back then Wall Street accorded Palm a valuation well in excess of 3Com, even though 3Com continued to hold most of the stock.

Of course, things righted themselves pretty fast. 3Com rushed through with a spin off of the rest of Palm, the market became flooded with Palm stock, and the price collapsed. Something similar could be in store for VMware shares if EMC decides to distribute a sizeable portion of its holding. A "lock-up" agreement prevents any of the VMware holders from selling until six months after the IPO, so the scarcity premium may last a while longer, but it seems a fair bet that supply will quickly catch up with demand after that.

It looks like, right now, things are running about as smoothly as they could be for tech financings. Wall Street’s IPO window has been open all year. Now the mergers and acquisition market is warming up nicely as well. Ironic, really: the sub-prime debt crisis has done nothing at all to hamper the risky end of the stock investment spectrum.

According to the National Venture Capital Association, M&A activity involving venture-backed companies in the US has just rebounded to its highest level since the beginning of 2001. Valuations are also going up: for transactions where the price was disclosed, the average deal size in the latest quarter reached $226m, the highest since late 2000.

The IPO market, for its part, took a bit of a pause over the summer, but Wall Street’s attention was kept firmly on the tech sector’s charms thanks to the eye-popping debut of VMWare (not included in the NVCA figures.) We mused a while ago about the apparent "underpricing" of VMWare’s IPO, but that turns out to have been an understatement: the virtualisation software company now has a stock market value of $34bn, or $23bn more than the bankers valued it at when they took it public six weeks or so ago. It isn’t hard to find the reasons why VMWare has taken off: a small float of shares, a super-hot company, and a stock market that is hungry for quality growth companies. A perfect storm like this rarely lasts.

With all the exits now open, expect venture capital to keep flowing strongly. This is about as good as it gets for tech financings - just as long as the party doesn’t start to get completely out of hand.

Sales of Sony’s Portable Reader System (PRS) have hardly been an open book since it went on sale almost a year ago.

The company has refused to give out figures on units sold of the eBook reader, although an executive insisted, during a demo of a new version to me, that it had "done very well from a sales perspective."

The Reader has appealed mostly to commuters and travellers from major metropolitan areas such as San Francisco, Los Angeles, Houston and Chicago. It is only sold in the US but Sony is "taking a serious look at a UK launch," he said.

The Reader was seen as a possible breakthrough product that could popularise electronic books when it was first shown at the Consumer Electronics Show in Las Vegas in January 2006. But it has been restricted to downloads of books bought from Sony’s own Connect store, which has only a fraction of the titles available on say an Amazon.com.

Sony says it had 10,000 titles at launch and this has now grown to 16,000

The successor to the original PRS 500, the 505, is being announced today and will go on sale in time for the holiday season in the US at $300, $50 cheaper than its predecessor.

It is available in silver or black, is slightly wider and sturdier, and has improved contrast on its screen, which now has eight levels of grayscale compared to four before. The page-turn action has been improved, buttons have been added and it can now hold 160 books in its internal memory compared to 80 previously.

But why would anyone want to carry around 160 books at a time? The most books I have ever been reading simultaneously is four. But I suppose memory is cheap and bigger always seems better. The 20 volumes of the Oxford English Dictionary would be nice, but the Reader lacks features to input search terms.

Sony has been collaborating with Adobe to help the Reader deal better with displaying documents in the portable document format (pdf) and perhaps the best news about the new device is that its readers should soon have more choice.

Sony is backing Adobe’s Digital Editions eBook reader software, announced in June. As the standard gains acceptance, a global library of digitised books, beyond Sony’s Connect service, should be available for download and consumption.

"You’ve Got Mail!" is the familiar AOL alert that presumably inspired the name GotVoice, a service that puts voicemails into a friendlier email-inbox format.

The Seattle-based company has introduced two new innovations in the past month to give it a leading position in a pack of services now available that convert voicemails to text, including those of SpinVox, SimulScribe, Callwave and Jott.

 “There’s been a lot of things you can’t do with voicemail – you can’t forward or prioritise it, for example,” Curt Blake, chief executive, told me.

His company was formed in 2003 by former Microsoft, RealNetworks and AT&T employees. The first version of its service made its début in March, allowing users to receive, play, manage and store all of their cell phone and home phone voice mail in their inbox or through a web page.

In the second quarter, the ability to consolidate all voice mail, including that received through an office switchboard, was added and an interface for smart phones was introduced.

In September, it introduced voice mails being transcribed to text and sent as a text message to a phone or as an email to an inbox. It also added avatars, from President Bush to a selection of animals, which lip-sync to voice mails as users play them.

GotVoice allows two numbers to be consolidated on its service for free and has a $9.95 a month premium package for three or more. It expects to “white-label” its product for carriers and cable companies that offer phone services.

Users may particularly enjoy the feature that allows them to record and send a voice mail themselves with added background noises, making it sound as if they are in the middle of a jungle trek, standing in a club or sunbathing on the beach.