When I read the news on TechCrunch that Valleywag’s longtime editor, Owen Thomas, was leaving the gossip site, I wondered whether there was a bit of schadenfreude in this reporting. After all, TechCrunch’s founder, Mike Arrington, was a constant target of the Gawker Media blog and once famously ejected a Valleywag photographer from a party he was co-hosting simply because of the publication the photographer worked for.

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The news that Google (GOOG) is placing ads on Google News has sent a renewed wave of hand-wringing through the newspaper industry. How dare those Googlers make online news a profitable business!

Of course, Google is planning to keep most of that profit. If Larry and Sergey plan to share anything more than links with the newspapers whose headlines it displays in Google News, they haven’t signaled their intentions.

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Like Napoleon marching into an abandoned Moscow, Larry Page and Sergey Brin have led Google’s advance into traditional advertising only to find nothing to loot. Now begins Google’s long imperial retreat, starting with 40 layoffs.

Susan Wojcicki, the millionaire sister-in-law of Brin who also holds a management role in the company, announced the job cuts in a blog post, as she laid out plans for Google (GOOG) to exit the business of brokering radio ads, a business it entered in 2006 when it bought dMarc Broadcasting for $102 million.

Up to 40 Googlers will lose their jobs, a small percentage of the 20,000 remaining employees at the search giant. But the real cut here is to Google’s ambitions.

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Already, computers are more intelligent than most people you watch on television. But what will happen when they are smarter than everyone? Google (GOOG) is starting a new institution, the Singularity University, to ponder that question.

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Freedom of the press belongs to those who own one. After hackers took down SoapBlox, a one-man blog-hosting company which runs local political Web sites, a silenced liberal commentariat found out how true that was.

SoapBlox grew out of Scoop, the software used on DailyKos, Markos Moulitsas’s left-of-center superblog. Paul Preston, its developer, found himself running 25 different sites–the likes of My Left Wing, Blue Hampshire, West Michigan Rising, and Swing State Project. (All politics is local!)

And yet SoapBlox remained a one-man band. So when still-unidentified hackers infiltrated SoapBlox’s servers, causing them to be taken offline, Preston despaired.

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Groans are issuing from the Googleplex over this year’s holiday bonus. In the past, the search engine paid cash–as much as $20,000 or $30,000 per Googler, we hear. This year? A cellphone.

Oh, but not just any cellphone: A version of the G1 currently sold for $179.99 by T-Mobile, which runs Google’s Android operating system. Android is the fruit of Google founders’ Larry Page and Sergey Brin’s strange obsession with the wireless market, launched in a fit of jealousy over the growing number of phones running Microsoft’s Windows Mobile. (Imagine that: Google, jealous of Microsoft for a change.)

In an email, Google management blames the economic crisis and suggests that this is a great opportunity to “dogfood” the phones–an unappetizing tech-industry euphemism for testing products in-house. This is what has become of the company that was once deemed the best place in the world to work: Canceled bonuses and unpaid labor.

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Google (GOOG) has shut down Lively, a service where people log on to chat and explore 3D virtual spaces, after a few short months. The MBAs of Silicon Valley have a pat phrase for the arrival of a competitor on the scene: They say it “validates their space.” What does it say, then, that Lively is gone? It means that Second Life, the best known of these unreal universes, is doomed, too.

The notion of a metaverse has long fascinated geeks. The idea of “avatars”–three-dimensional representations of the self rendered in pixels, often fantastical or surreal in nature–wandering through a computer-generated environment has been explored in the science fiction novels of Neal Stephenson, William Gibson, and Bruce Sterling, among others. The Matrix trilogy introduced the idea at multiplexes from coast to coast.

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Is YouTube making Google a political player? The video-sharing site, with its stratospheric bandwidth bills and questionable new ad formats, may never pay Larry and Sergey back in cash for the $1.65 billion they shelled out to buy it in 2006. But it doesn’t have to. YouTube, having conquered online video, is taking over political broadcasting. The conventional unwisdom in Manhattan and Washington, D.C., is that this election made YouTube. Pah! It’s true that campaign videos spread faster than ever thanks to YouTube. But they made up a tiny fraction of clips and traffic on the site. Politicians owe YouTube a debt that Google is just starting to collect on–and hosting President Obama’s 21st century fireside chats is just a down payment.

Google (GOOG) has plenty of business in Washington these days, from the Federal Communications Commission to the Department of Justice. Convenient, then, that CEO Eric Schmidt endorsed Obama weeks before the election, joining his board of economic advisers and appearing in Obama’s primetime infomercial. Schmidt doesn’t need a government job–he’s clearly volunteering to be America’s CTO in his spare time.

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It’s more than a rumor: The great Silicon Valley gossip rag experiment has come to a humbling conclusion.

Two and a half years after launching Valleywag, blog magnate Nick Denton has decided to fold the site into Gawker, which covers the media business. For the past month, Denton has been saying to everyone who will listen that online advertising is undergoing a sharp slowdown as the economy continues to tank, and Web publishers are going to get nailed.

After recently paring the Valleywag staff down to two, Denton is now keeping only one–Editor Owen Thomas, who will write as many as a dozen daily posts about Silicon Valley gossip as a Gawker columnist. “Valleywag’s traffic isn’t enough to pay for two writers, even with Ketel One ads on every page,” writer Paul Boutin wrote in a post explaining the move. Boutin’s last day is Dec. 1.

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Why is Kevin Rose on a publicity binge? In the past two months, the founder of headline-voting site Digg has garnered two magazine covers. There he is, with a smoldering leer on local San Francisco magazine 7×7. The look reminds everyone why Diggnation cohost Alex Albrecht once said that Rose, a prolific dater, has “plowed through everyone in town.” For Inc., Rose participated in a wacky crowd shoot that echoed the Beatles’ “A Hard Day’s Night.” It’s obvious why Rose is a hot commodity: Write about him, and traffic to your magazine’s Web site will soar. (Will he sell print copies? I doubt Digg users visit newsstands.)

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Here are all the talking points you’ll hear about Kevin Johnson’s departure as the chief of Microsoft’s sprawling Platform and Services Division–and what to say about them. The failed Yahoo bid killed his prospects of becoming Microsoft’s CEO. Perhaps, but Steve Ballmer, who is more to blame for the Yahoo debacle, wasn’t going anywhere, and Johnson may not have been prepared to wait.

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Why so gloomy, VMware investors? The company’s stock drop, while likely driven more by the virtualization software maker’s newly slenderized forecasts and the resignation of its founder, seems like a slap in the face to incoming CEO Paul Maritz. And that would be a shame, since VMware is now getting one of the princes of the software world as its boss–and just in time, as it’s facing tough competition from Microsoft, where Maritz used to work.

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Prices in the online advertising’s world bargain bin are cratering. PubMatic, a consultancy which helps Web-site owners shop for the highest-paying ads, says that average rates for its largest publishers have dropped from $0.38 per thousand page views to $0.18. Some fret that this is the sign of an economic slowdown. I doubt it. More likely, it’s a reflection of the glut of inventory available, and the failure of an ad-selling business model.

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Jerry Yang’s spin campaign about why the Microsoft bid fell through is transparent. He’s not trying to cajole Steve Ballmer back to the negotiating table; he’s trying to cover his rear and appease indignant shareholders. The only reason he’s so open about accepting a new bid from Microsoft, I think, is that he’s not expecting another one to come.

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Google’s top executives desperately want to convince Wall Street that it’s on the verge of cracking the $70 billion television-advertising business–automating it, rationalizing it and ruling it, as it has done with the considerably smaller search-advertising market. They’ve even hired an NBC executive, Michael Steib, to sell broadcasters on the idea. The only problem: It will never work, as Google’s own documentation shows. Google’s triumph in search is a product of its skillful use of data. By analyzing what Web searchers click on and what advertisers say they’ll pay, it’s able to continuously refine the ads it displays to yield the most clicks for advertisers and the most profits for itself.

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