The 3,000 or so people who packed into the ballroom of the Palace Hotel in San Francisco this afternoon to hear Mark Zuckerberg at the start of the Web 2.0 Summit (see note below) were treated to a vintage performance from the Facebook founder. And I chose that word carefully: he may be just 23, but Zuckerberg has already mastered the art, vital for the CEO of any company that has whipped up such a firestorm of interest, of saying precisely nothing.

The nothings about which Zuckerberg’s silence spoke volumes included whether he is going to sell an investment stake to Microsoft and whether he is going to build an advertising system to rival Google’s AdWords/ AdSense. The one telling moment came at the end, when Zuck was asked whether it wasn’t time for Facebook to hire a little "adult supervision" in the shape of a more experienced CEO. The young internet tycoon visibly bristled. It was as though someone had asked the young Bill Gates (and fellow Harvard drop-out) the same question in the early days of Microsoft. Clearly, unless things start to go badly wrong, Zuckerberg is going to see this through to the end.

Meanwhile, it was left to an older hand, Mike Moritz of Sequoia Capital (that’s his picture above,) to try to pour a little cold water on all the internet euphoria that was bubbling up in the room. Some choice quotes from the venture capitalist who was an early investor in Yahoo and Google:

About a possible cyclical slow-down in internet advertising: "This year clearly there is a softening in consumer spending and the Web companies are not immune from that. They are of a size that they aren’t immune from general industry trends."

About the risk that another internet bubble is being inflated: "Undoubtedly there’ll be carnage… But there will also be a handful of companies that emerge to become very significant companies."

And, most chilling of all for the Web 2.0 acolytes packing the hall, a reminder that Chinese internet companies like Baidu and TenCent are growing like weeds: "Are the US companies any longer as relevant as they used to be?"

With Silicon Valley’s most important internet conference of the year about to start, expect the love-in with Facebook to reach a new level of intensity. Since May, when it opened its APIs to let other developers build their services on top of its social network, the murmur of approval for Facebook in the Valley has grown steadily to a deafening din. In the latest confirmation of his new standing, founder Mark Zuckerberg will get the prime slot when the Web 2.0 Summit starts in San Francisco on Wednesday afternoon.

How fitting, then, that Rupert Murdoch will be on hand to remind the Valley of the attractions of his own social networking site. In a carefully choreographed appearance that avoids making Murdoch play second fiddle to Zuckerberg, the News Corp founder will get to address the Web 2.0 crowd over dinner later in the day. He will be accompanied by MySpace head Chris DeWolfe, who began a charm offensive from his Los Angeles base this summer to win back support in the Valley.

It seems amazing that an internet service that has been this successful should have been forced into such a defensive position. To hear some in the Valley talk about it, MySpace is fast becoming the Yahoo to Facebook’s Google. The disdain in which it is held is reminiscent of the Valley’s former contempt for AOL, another wildly popular service that was once deemed to have completely missed the technology boat.

In case it is needed, DeWolfe has a reminder up his sleeve of the sort of power that MySpace wields. On Wednesday, he will announce a partnership with Skype to let MySpace users embed the internet voice service into their profile pages. Skype will get the chance to reach MySpace’s 110m users. In return, MySpace will share in any revenue that Skype makes from selling its "premium" services on the social network.

This is a clear demonstration of the strategy that has led many in the Web 2.0 world to turn their noses up at MySpace. Neither side will say whether there is any exclusivity to the deal, but it clearly favours one communication service in return for a cut of the action. MySpace says it won’t block its users from continuing to add "widgets" to their pages to link to other rival services, but it obviously hopes that the deeper integration with Skype will make this the voice service of choice on its network (couldn’t eBay have tried something like this rather than buying Skype outright?)

Linking two networks as broad as MySpace and Skype sounds like it could have strong attractions - particularly since the two say there is very little overlap at the moment between their users bases. That should give the Valley’s MySpace naysayers something to think about.

Where???s the love gone? Facebook seems to be adding more
enemies than friends these days.

First, the blogmeister Dave Winer writes a post called Why
Facebook Sucks, criticising it as an address book that he can???t export to other
formats.

Then Robert Scoble, the biggest Facebook friend collector,
agrees the social networking site sucks ???because it isn???t scalable and falls
apart at 5,000 contacts. It pisses me off more and more every day because of
that scaling wall. Damn I wish I hadn???t locked my Rolodex in this trunk.???

Of course, few people have 5,000 friends on Facebook and
many may be irritated by inaccurate descriptions of it as a glorified address
book.

In which case, they may like to make enemies of Messrs Winer
and Scoble through Enemybook ???an anti-social utility that disconnects you to
the so-called friends around you.???

Adding this Facebook application, or a similar one offered
by Snubster.com, can quickly dissociate you from erstwhile friends and put the
mark of Cain on others.

And if you???re feeling particularly misanthropic, Techcrunch
points out that Hatebook.org is a German-built doppelganger to Facebook.

Upload blackmail material, publish lies and take over the
world, the service promises. There???s even an Ask Dr Evil section that puts a
new spin on hate mail.  

Shawn Fanning???s follow-up to Napster seems to be in trouble.

Snocap, a company he co-founded in 2002, has cut its workforce from 57 to 26
and put itself up for sale.

???We think it???s probably best for us to be part of a larger
entity,??? Rusty Rueff, chief executive, told CNET.

The San Francisco company handles digital rights management
for online music stores and artists??? sites. It enabled a legal version of the
file-sharing peer-to-peer technologies that Napster under Fanning exploited. It says laying off staff will make it more
attractive to potential buyers.

Snocap does not appear to have gained much traction as
online music stores and P2P as a method of distribution have struggled ??? one of
its customers ??? Mashboxx.com ??? even failed to launch.

Fanning is only listed as a member of the board at Snocap. For the past 18 months, he has been working on his third start-up, Rupture, a service adding social networking to online gaming.

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.