By Michael Copeland

It’s not your 15-year-old daughter’s Internet anymore. On the first full day of the Web 2.0 Expo, that more than anything seemed to be the message from the conference room floor.

Tech stalwarts like Oracle (ORCL), IBM (IBM) and Microsoft (MSFT) were showing off technologies that bring elements of the consumer Internet to the workplace. Startups that last year might have been flogging a consumer video service or photo sharing site, instead were demonstrating web-based technologies to develop better Flash sites for business, a cheaper CRM software or an easier way to collaborate on projects. Dubbed Enterprise 2.0, the movement has been gathering steam for some time, but at the Web 2.0 Expo, business seems to have at last eclipsed the consumer Web.

The usual laptop-covered-in-stickers crowd was present as well, but for the most part this is not a gathering of people breathless over the latest Facebook app or keen on launching a widget that makes it easy to find where your favorite band is playing.

Part of that is by design: The companies that can afford to set up in the Expo hall are companies with money, like IBM, Microsoft, Adobe (ADBE) and others. But that itself is a sign of where Web 2.0 is heading. Last year, consumer Web companies had cash to burn. This year, many of the darlings of the social Web, startups that nailed funding at lofty valuations over the last 12 to 18 months, are holding onto what cash they have in anticipation of tougher times ahead.

It has been harder to monetize the social Web than many have thought, and buyers have become harder to come by, especially at the prices many Web2 companies thought they could command. As a result, companies are switching business models like spent horses. “People are realizing that advertising is not good for everything, that it’s not going to make them the next Google,” says Raju Vegesna, an engineer with online applications developer Zoho. “They are starting to get worried.”

Easy for Vegesna to say - Zoho is going directly after the business world, and makes money from subscriptions for its Web-based software. There is no question, though that smart entrepreneurs are starting to see things the way the Zoho team does, and creating applications and services that cater to business. That’s the good news for the corporate world. It’s about to get a slew of new tools that are informed by the best of the consumer world, but that pack the scaleability, security and customization that business users require. We’ll highlight the best over the next two days. It’s enough to make a 15-year-old girl jealous.

By Scott Moritz, writer

The yelling phase of the proposed Microsoft/Yahoo merger got a bit louder as Yahoo (YHOO) turned in good numbers ahead of the deal negotiation deadline.

In the wake of a solid first quarter performance from Yahoo Tuesday, Microsoft (MSFT) chief Steve Ballmer said his company was standing pat on its original $31 a share unsolicited takeover offer. Microsoft has given Yahoo until Saturday to come to the table with a counter proposal, or face a proxy battle.

“We know what Yahoo is worth to us. We offered a lot of money: $44 billion,” Ballmer said in Milan Wednesday, according to a Reuters report. “If their board thinks that’s fair, great. If not, we’ll move forward,” Ballmer said.

Ballmer is likely waiting to see what Yahoo does come Saturday — the end of the three-week period Microsoft gave Yahoo to consider its options. Microsoft has threatened to start a proxy fight if the two companies fail to come to terms. This would open up an ugly process where Microsoft takes its appeal to shareholders calling for the ouster of Yahoo’s top management and key board members.

Last week, Yahoo rejected the Microsoft bid for a second time saying the proposal undervalued the company. Yahoo also held discussions with Time Warner (TWX) about a deal involving a 20% stake to be held by Time Warner in exchange for AOL and a pile of cash for share buybacks.

But many analysts and investors favor a more amicable conclusion that seems to call for a slightly sweeter offer from Microsoft, either a price higher than $31 a share or an all-cash offer.

Yahoo’s earnings Tuesday, while far from dazzling, did show that the company is not deteriorating as quickly as Microsoft may have suggested. Both companies, however, continue to lose business to Google (GOOG) a point that industry observers say makes the Microsoft Yahoo merger a growing necessity.

The trouble for Yahoo is that it must convince Microsoft to outbid itself, says Darren Chervitz analyst with the Jacob Internet Fund, a big Yahoo investor.

It’s well known that Yahoo has long been losing Net search traffic to Google. And by passing on the acquisition of Facebook last year, they’ve done little to improve their competitive position, says Chervitz.

And for its part, Microsoft has gained very little traction on the Internet. Efforts like MSN mail and .Net haven’t exactly hit any jackpots. Meanwhile, Google has expanded into Microsoft’s software domain with word processing and other office applications available to users online for free.

An even bigger threat to Microsoft is Google’s push into wireless applications. The Google-sponsored Android project hopes to create an operating system for a new generation of mobile devices, a direct threat to Microsoft’s Windows Mobile system. Microsoft can’t easily afford to miss the mobile Internet opportunity, says Chervitz.

“Yahoo,” says Chervitz, “is the only acquisition that gets Microsoft into the game.”

By Michael Copeland

On the eve of the latest and largest Internet gathering this year, O’Reilly’s Web 2.0 Conference and Expo, Forrester Research dropped a report that concludes that companies will spend $4.6 billion on Web2-related technologies by 2013. What that means for you, fellow office dweller, is that Forrester believes the world of wikis, widgets, blogs, mashups and social networks will increasingly find a way into your work life.

The emphasis won’t be entirely on internal collaboration, Forrester analyst G. Oliver Young writes, but will also offer “a fundamentally new way to connect with customers and prospects…By 2013 investment in customer-facing Web 2.0 technology will dwarf spending on internal collaboration software by nearly a billion dollars.”

In other words, you will interact with your customers and prospects the same way you do with friends on Facebook or maybe more likely with colleagues on LinkedIn, and with the same Web-based communication and tracking tools.

It makes sense that companies embrace the same easy-to use Web-based tools that we use increasingly in our social lives. Mark Benioff at Salesforce.com has been preaching that for some time now, both through AppExchange and his latest brainchild Force.com, his so-called platform-as-a-service offering. There are numerous other Web-based services including Jigsaw, BaseCamp, Yahoo’s Zimbra, Zoho, and many others that are already bring a Web2 flavor to the work world. What Forrester is arguing, however, is that for everyone who still thinks AJAX is a cleaner, and Twitter is what birds do, a lot of Web2.0 will come.

Does that mean you will be getting Twitter updates from your customers or your boss? If not actual Twitter updates, than perhaps a more corporate version that can offer the same immediacy and easy access to a list of key people. Much of the consumer Web2.0 stuff that makes it fun won’t make the leap, no doubt, but the ease of use and connectivity will.

Will it be a less exciting and dynamic Web-based world that Forrester anticipates? Clearly. What it might also be, however, is a more profitable one. And that is something that many of the Web2 startups that are piling into San Francisco at the moment will be very happy to hear.

By Yi-Wyn Yen

Microsoft signaled Friday that it could rescind its offer to buy Yahoo at $31 a share.

Microsoft (MSFT) and Yahoo (YHOO) executives met earlier this week but the talks ended in a standstill. Microsoft execs, who had earlier hinted that they would not raise their bid, refused to pay the $40 per share that Yahoo demanded, a source familiar with the matter told Fortune.

A Yahoo spokeswoman declined to comment.

The source said that Microsoft doesn’t plan to revoke its offer, but is merely using a tactical maneuver called “market signaling” to put pressure on Yahoo’s board of directors. Microsoft is broadcasting to Wall Street that Yahoo’s stock would become vulnerable it if withdraws its bid.

The software giant has said that it does not need to raise its offer because it doesn’t believe Yahoo has any alternative but to accept the deal. Yahoo has repeatedly stated that Microsoft’s offer significantly undervalues the company and formally rejected the offer in February.

After Reuters reported Friday that Microsoft was “evaluating” its offer, Yahoo shares slipped 6% in after-hour trading. The software giant made its $44.6 billion offer on Jan. 31. The deal is now valued at about $42 billion.

By Yi-Wyn Yen

Yahoo has joined Google and MySpace to form the three musketeers of social media. The companies announced Tuesday they are starting the OpenSocial Foundation to create universally-accepted standards for social networking sites and applications.

Yahoo’s endorsement of Google’s OpenSocial initiative comes two weeks after MySpace (NWS) opened its doors to developers using the OpenSocial standard. MySpace was the first social networking site to adopt OpenSocial.

Yahoo (YHOO) did not disclose which of its web properties will use OpenSocial. “We’re supporting OpenSocial because it’s rapidly growing and maturing,” said Wade Chambers, Yahoo’s vice president of platforms.

The OpenSocial Foundation plans to provide a formal intellectual property and governance framework for developers. Google OpenSocial director Joe Kraus argues that as the web becomes more social and social networking sites open up their platforms, developers will benefit from using a set of common standards. Kraus says the nonprofit will set up shop in 90 days.

“Open source is important,” Kraus told Fortune last week. “It gives [sites] and developers the confidence that they can use OpenSocial in perpetuity without concern of something bad happening. It’s always available to them and it’s not going to be obsolete.”

Google (GOOG) announced its OpenSocial initiative last fall one week after Microsoft (MSFT) agreed to pay Facebook $240 million for a minority stake. Facebook became the first social network to open its platform to developers last May. Facebook, which uses its own open-source platform, says it does not have any immediate plans to join the OpenSocial Foundation.

By Michael V. Copeland

I was having lunch with Flixster CEO Joe Greenstein the other day when we came to the topic of how to monetize all these widgets that are cropping up like poppies in a Silicon Valley spring.

Flixster, for those of you who are not Web geeks or film-buffs, is an online community of more than 1 million people focused on movie recommendations and reviews. While it has its own Flixster.com site, where it has really grown over the last six months is as a Facebook application — so much so, that Barry Diller’s InterActive Corp. (IAC) was rumored to be interested in buying Flixster in a deal estimated to be worth $150 million.

Greenstein spends his waking hours thinking about ways not just to grow that user base, but also how to make money from it, and he’s got a novel idea.

One way his service — and vast numbers of other widgets out there — could monetize more easily, Greenstein says, is if there were a button embedded on a site to make small purchases. “If you want to charge for a virtual teddy bear, there’s the button, you charge 99 cents for it, and that’s it,” Greenstein says. “PayPal is too cumbersome for something like this, it needs to be really simple.”

If that 99-cent button did exist, all those Facebook and MySpace applications that now depend on online advertising would suddenly have another way of making money: by charging small amounts for small items.

Those items might be virtual goods — a digital photo of a favorite band, a simple game. The point is that it could enable an economy that has been mostly missing from the widget world. If you think charging 99 cents doesn’t add up to much, remember that the ringtone business grew to a multibillion dollar industry worldwide by charging similar amounts.

So who is best suited to introduce a simple, secure 99-cent button?

In many ways Facebook is the logical choice, and one of the worst-kept secrets in the Valley is that Mark Zuckerberg and crew are working on a Facebook “wallet.” It makes perfect sense that a next step for the Facebook platform would be to introduce a simple, universal payment scheme. Facebook has already collected credit card information on some portion of its users, so it wouldn’t take much to turn something like the 99-cent button on.

I’ll bet almost a buck on Facebook doing it, and soon. The larger question is whether Facebook’s wallet becomes the standard for the rest of the Web, or if some other, more enterprising gang swoops in with a better version of PayPal for the widget world.

What are you waiting for? Get on it.

By Jessi Hempel

At long last, the MySpace Developer Platform is open for business. News Corp’s social networking behemoth is launching a dedicated site for developers Tuesday and it will go live to all audiences in a month.

Says MySpace COO Amit Kapur: “We want to make sure that we build a rich platform for monetization for the developers.” That’s jargon for the promise that MySpace will make widget-makers money.

That’s a significant turnaround for the site, which just one year ago considered third-party developers to be parasites, sucking away traffic and ad dollars. While Facebook embraced widget makers, MySpace (NWS) originally tried to control them and was accused of booting them from the site. That changed, though, as Facebook gained a major boost in traffic and valuation from the applications that outside developers launched. Speaking at the Web 2.0 conference last fall, MySpace co-founder Chris DeWolfe promised to open the site up.

The MySpace Developer Platform will be a social networking hub for creators of applications that run on the site. The site will host a blog, and it will give developers the tools to build their applications in a live environment. It will also offer forums, sample code, and an opportunity for developers to test their applications on pools of five member profiles in advance of release. The platform will support OpenSocial, the Google initiative to establish a common set of tools for developing widgets so they work across platforms, right from the start.

MySpace has also promised to help developers profit from their widgets. The site plans to offer developers access to much of the information the company has gathered in testing hyper-targeting strategies with advertisers and its experiment in self-serve advertising. “It’s a long-term play for us,” says Kapur, a MySpace veteran who assumed the COO post last week. “If we can tie those technologies into the developer platform environment, we are going to help them make money and we can build a new business for ourselves.”

“It’s an important evolutionary step for Myspace,” says analyst Rich Greenfield of Pali Research. “They need to harvest the power of developers across the Internet. It will be interesting to see how attractive this platform is compared to the Facebook platform.” With an eight-month lead, Facebook has a rich developers’ community. But with 69 million users logging onto their profiles in December, MySpace offers a lucrative and attractive environment for widget makers.

The challenge for MySpace will likely be attracting developers by giving them access to marketing data without compromising member’s experience. Before MySpace was a place for developers, it was, after all, “a place for friends.”

By Josh Quittner

Yesterday, I considered opting out of Beacon on my Facebook account. I pulled up the Privacy page, and looked at the tick box, which would turn off the controversial feature that broadcasts a user’s purchases at participating websites everywhere. But I didn’t pull the trigger. It was still on an open tab in my browser this morning.

Partly, I didn’t do it because I was too busy dealing with e-mail and phone calls from people about my recent Facebook rant. John Perry Barlow once said that “the media is a blunt instrument” — somehow my column was being used as a sledge hammer, and suddenly, I was the Jerry Lewis of the Facebook Hate-A-Thon. Nearly 200,000 people had swung by fortune.com to read that piece in the first day it was up. One of them was my colleague at Fortune, David Kirkpatrick, who, not surprisingly, wrote an excellent rebuttal. (I say “not surprisingly” because David wrote, as far back in October 2006, the first story I had read that convincingly explained why Facebook mattered.) With his counter-point now online, I also had to spend a part of the day yesterday fending off the excitable editors in New York who wanted me and David to argue our positions via video for the site. (One of them suggested I wear a luche libre suit.)

I am not that stupid. Nor do I look good in a Speedo. If I could do video, why would I waste my time with the other low-paid mutts in the print world? No, there is, sadly, a reason my medium is words. David is far better looking than me and infinitely more charming (though I think I have better legs.) And besides, the thing that had gotten me riled up in the first place — Facebook’s ongoing contempt for its users — had been addressed by the time David weighed in. Facebook CEO Mark Zuckerberg had issued a mea culpa and made it simple for anyone to opt out of Beacon.

But beyond all that, I didn’t want to be forced into the position of being a Facebook hater, mainly because I don’t hate it. I use the thing a dozen times a day to play Scrabulous, Texas Hold ‘Em, and to harry my daughters, wife and friends. And that’s why, in the end, I decided not to opt out of Beacon. Facebook is a great social experiment and I want to see how it turns out.

Besides, the idea of Beacon doesn’t really bug me. Reid Hoffman says that “privacy is an old man’s concern” and I tend to agree with him. I had reached the same conclusion when writing a cover story for Time about online privacy many years ago. The joy of a social network is the shared experience — the give and take among friends. I like the peripheral view I get of my friends when I log in, and I don’t mind publishing personal artifacts in exchange. Further, I’d argue that most of us get a kick out of sharing personal details within our networks. That’s what humans do in real life. It makes sense that we should crave it online, too.

What I adored about Facebook, and blathered on about endlessly, was that it gave us near-perfect control over our online relationships. (e.g. You can block jerks.) The few people I loathe, or who have spammed me, can no longer contact me on Facebook. The creation of the Innernet was an important step in the evolution of the social web: Now I can define not only who I am online, but who I want to hang out with. That’s why Facebook grew so quickly. At 50 million people, it’s about the size of South Korea and ought to overtake the UK in population within the year — if the current growth rate holds.

It won’t grow, though, if Facebook messes with its users’ right to control their social graph. It’s tough to build something this big and takes a fair amount of finesse. But it’s far easier to lose it all. Facebook’s response to the events of the past few weeks has mainly been, If you don’t like it, leave. That kind of customer service was also found on Delphi, Prodigy and AOL. If I were Zuck, I’d craft a simple Bill of Rights guaranteeing members that they own their own relationships. With Facebook’s users in control, the company is free to try anything it wants.

Well, I’m running out of time. Nurse is here for my shot, then it’s time for a nap. Have a nice weekend.

On Wednesday, Fortune’s David Kirkpatrick weighed in on the latest controversy surrounding Facebook and its new advertising system. While some critics in the media say the social networking site is doomed based on its own mistakes, Kirkpatrick argues that the site will not only survive concerns about violations of members’ privacy, but will continue to thrive. What do you think? Are you a Facebook fan or foe?

From Fortune’s David Kirkpatrick:

“The press rarely grants an autumn reprise for those it loved in the spring,” once wrote the great New York Times columnist Russell Baker. How true in the case of Internet-darling-turned-reviled-evildoer Facebook.

Facebook, the popular social networking site, has ridden the hype curve up and down in recent months, reaching a low Tuesday over claims that a month-old advertising system violates members’ privacy. CEO Mark Zuckerberg took a big step Wednesday toward silencing naysayers - one of whom was my own colleague Josh Quittner - when he issued a contrite apology and made a key change to the new advertising feature, dubbed Beacon.

“We’ve made a lot of mistakes building this feature,” acknowledged Zuckerberg, “but we’ve made even more with how we’ve handled them. We simply did a bad job with this release, and I apologize for it.”

A little history: When Facebook, the popular social networking site, announced its strategy to host applications created by outsiders in May, the world and the press was dazzled - none more than me. Facebook found itself on the covers of magazines and the lips of Silicon Valley.

Then, in October, Microsoft (MSFT) bested Google (GOOG), winning the right to invest $240 million for 1.6 percent of Facebook and a new contract to display ads on the site. The deal valued Facebook at $15 billion. Meanwhile, the number of active members, 24 million in May, has soared to 57 million. Suddenly, Facebook was king of the hill.

Aiming to capitalize on its newfound acclaim and scale, Facebook announced its bold new advertising strategy in November. But Zuckerberg made a few strategic errors. First, he showed a touch of hubris when he intoned portentously to ad executives in New York during the announcement: “Once every 100 years, the way that media works fundamentally changes.”

Much worse, one part of the new Beacon ad system had not been fully thought through. It automatically alerts a member’s friends when she buys a new product or rents a movie. But the features intended to allow the member to control this alert system were hard to find and insufficient.

Journalists dug up unfortunate cases, like the wife who was automatically informed by Facebook of the ring her husband bought her as a Christmas present. Consumer and privacy watchdog groups began darkly criticizing Facebook’s “disregard” for members’ privacy. Meanwhile, a group called “Petition: Facebook, stop invading my privacy!” has 68,000 members, which isn’t much for a service with 57 million users but enough to send a clear signal that people are upset.

The blogosphere - and in its wake, much of the mainstream press - went wild with derision. Here was Baker’s maxim come to life. We built them up and now we were going to bring them down.

Though Facebook has progressively taken measures to address the problems, the 23 year-old Zuckerberg until now had said nothing about the latest brouhaha. He broke his silence Wednesday with an apology to members and a fresh promise not to broadcast a member’s buying habits without her explicit approval. In a key move, he also allowed members to turn off Beacon.

Still, questions linger, including how much member information is pinging around the Net without permission or knowledge. If Zuckerberg stays attuned to these and any other ongoing concerns, the controversy will go away and Facebook will be as strong as ever. After all, that’s what happened when he wrote a letter of apology last year after a much bigger on-service protest erupted over a new Facebook feature that tells friends what other friends are doing on the site.

At first, the outcry over the Newsfeed feature was fierce. But then Facebook tweaked the feature, Zuckerberg apologized, and protesters realized they were making much ado about nothing. Newsfeed became one of Facebook’s most popular features. It’s also become part of the essential infrastructure for the viral dissemination of third-party Facebook applications created since May.

Until now, Zuckerberg’s silence has fueled press anger over Beacon and Zuckerberg’s apparent rigidity, including from my Fortune colleague, Josh Quittner, who argues Facebook may be dead.

Facebook is not anywhere near dead - and there’s zero chance it will be anytime soon, no matter how boneheaded some of its recent actions may have been. It would be virtually impossible for a new, as-yet-unheard-of service to come along and quickly steal Facebook users.

For all Facebook’s own successes, former social networking superstar MySpace, now owned by News Corp. (NWS), remains larger than ever by most measures. It takes a lot of work for a member to create a useful Facebook (or MySpace) network. They won’t flee lightly.

And while Zuckerberg may not have listened to them until now, Facebook has several “old hands” in the management suite to help guide the young company. Chief operating officer Owen Van Natta and privacy boss Chris Kelly are both in their late 30s. Chief financial officer Gideon Yu is 36 years-old and Vice President for Sales Mike Murphy is 45. All are industry veterans.

Facebook remains a seminal part of today’s technology landscape. It’s changing the way many people around the world use the Internet. For me personally, it’s the first Web service to come along in a decade since MyYahoo where I routinely spend at least half an hour daily.

Josh ends his post by saying, “Facebook has turned all the people who rooted for it into a lynch mob. In the space of a month, it’s gone from media darling to devil.” He’s right about that. But it may say more about the press - and today’s blog-led penchant for sensationalism - than it does about Facebook