The bad news for startups keeps on coming in. This time it’s RubyOnRails application hosting provider Engine Yard that has laid off 15% of its staff, as publicly reported on the company’s blog earlier this week. We’ve contacted co-founder Lance Walley and can confirm that 12 out of 82 people have been let go, across several departments.

The TechCrunch Layoff Tracker has been updated accordingly.

Engine Yard, which essentially delivers a platform to build, manage and host Rails applications, raised raised a $15 million Series B round of funding from new investors New Enterprise Associates and Amazon last July, with investor Benchmark Capital also participating. The round brought its total amount of funding to $18.5 million.

Want to work an IT Product Manager? Maybe an MySQL Database Administrator, or Senior Client Server Engineer?

Jobs are available in Toronto, New York, Santa Barbara, San Francisco, or Seattle.

Canadian model Liskula Cohen has sued Google for a number of snarky remarks that were made by a blogger using the company’s Blogger service. The NY Daily News reports that the former Vogue cover girl has been called ’skanky’ and ‘an old hag’ by an anonymous blogger on a website called Skanks in NYC (could be deemed NSFW).

The defamation suit, filed in Manhattan, seeks a court order compelling Google and its Blogger service to identify the anonymous blogger. Google declined to discuss any specifics, only responding to the claim by saying they sympathize with victims of cyberbullying but “take great care to respect privacy concerns and will only provide information about a user in response to a subpoena or other court order”, so we’ll leave you with a quote from Cohen instead:

“I’m tall, I’m blond, I’ve been modeling for many years, and people get jealous,” she said. “If I had to deal with everyone who is jealous, I wouldn’t have time to do anything else.”

Sun Microsystems is elevating its presence in the cloud with the acquisition of Belgium-based Q-layer, which is in the business of automation of cloud computing deployments. Q-layer will become part of Sun’s cloud computing unit.

The official statement doesn’t provide much more details, and the terms of the agreement remain undisclosed ‘as the transaction is not material to Sun’.

Q-layer’s technology simplifies and automates the deployment and management of both public and private clouds and allows users to quickly provision and deploy applications, a key component in Sun’s refocused strategy, according to the company.

Interest in troubled Internet giant Yahoo has not waned, it just took a break for the holidays. A group of well known Silicon Valley executives and top investment bankers are putting together a Yahoo takeover deal that would be financed largely from debt supplied by Microsoft, we’ve learned from sources with knowledge of the proposed transaction.

Under the terms of the proposed deal, the investment group would make a takeover bid for Yahoo at a relatively low premium of around 20% to its current price of around $13 per share, valuing the company at just over $20 billion.

A complicated financial structure would be put in place to finance the deal, but the bulk of the cash for the transaction would come from Microsoft as debt.

After being sued by Facebook in December for violating its terms of use, social-networking aggregator Power.com is now close to settling the dispute, we have been able to confirm. The final settlement terms are still being ironed out, but are being reviewed by both sides.

Power.com lets you sign into multiple social networks and manage them from one place, but it did not use Facebook’s API or Facebook Connect. As part of the settlement, Power will access this data via Facebook Connect. Power was scraping the data from Facebook and caching it, which it won’t be allowed to do with Facebook Connect.

The financial meltdown of 2008 all but shut down venture-backed exits, as we all know. The National Venture Capital Association declared a crisis back in the second quarter, which got worse in the third quarter. This week, the NCVA released its numbers for the fourth quarter and, as expected, they are pretty grim. There were zero venture backed IPOs in the quarter, and only 37 M&A deals (down from 78 in the third quarter). Of the 37 M&A deals tracked by the NCVA, 30 were in IT.

So for the year, that’s six IPOs (down 93 percent) and 260 M&A deals (down 27 percent). The proceeds from those six IPOs brought in $470 million, down from $10.3 billion in 2007. That is the smallest amount of IPO dollars since 1979. The M&A activity was a little better, bringing in $13.9 billion (for those deals with disclosed values). But even that was down 51 percent.

Hearst Corporation unit UGO Entertainment has agreed to acquire 1UP.com, a property attracting a gamer audience along with its associated sites including GameVideos.com, MyCheats.com and GameTab.com. There had been rumors about a pending acquisition for a couple of weeks (more specifically, reported by Joystiq), but yesterday evening the company released the official news.

The acquisition deal is structured as an asset purchase between UGO Entertainment, which itself was acquired by Hearst Corp back in July 2007 for a reported $100 million plus, and the Ziff Davis Games Group who owned the 1UP Network. Sadly, the acquisition also meant a number of lay-offs at 1UP, with the ‘1Up Yours,’ ‘1Up FM’ and ‘1Up Show’ podcasts being terminated.

MOG demo’d the next version of their popular music service to me today, and I was impressed. It combines a best of breed interface with free on demand streaming and a Pandora-like music recommendation engine. The trouble is, it may never launch because only two of the four major music labels are supporting it so far.

MOG has a history of doing cool new things around music. The service today includes a media player plugin that records and analyzes your music habits, a website that has a dedicated page for every artist, album and song with user generated reviews and posts, and an advertising network that provides revenue for 300 top music blogs. Users can also stream music via an excellent front end to Rhapsody.

All of that brings about 5 million unique visitors a month to their network, and the company says they should bring in about $5 million in revenue in 2009.

Vacation rentals are big business. HomeAway, which owns a dozen or so vacation home listing sites, just raised $250 million in a venture round that values the company at more than $1 billion.

But listings are spread across lots of sites - what the industry needed was a good central search engine for all those vacation home rentals. It’s also a pain to do lots of searches on different sites because you have to enter where and when you want to go, making it a lot more complicated that a standard search engine query.

AOL’s EVP of Products and Marketing Kevin Conroy is leaving to take a new position at Univision.

This isn’t much of a surprise - we speculated on his future back in July when he announced (internally) the shuttering of four of his products (Xdrive, AOL Pictures, Bluestring and MyMobile). That still left him with AOL Mail, MYAOL, the AOL client, Userplane and Truveo, among others. But each of those products seemed to be a better fit in a different organization.

CEO Randy Falco’s memo to AOLers:

Today’s keynote presentation by Phil Schiller has been widely regarded as a relatively lackluster affair. That isn’t to say it went badly - I’m genuinely excited about some of the new software updates. But the Macworld keynote in years past has been home to some very major product announcements, including the Macbook Air, the MacBook Pro, and perhaps most notably, the first iPhone. Investors have learned to expect big things from Apple every January, and for at least the last four years their reactions to the keynote have weighed heavily on Apple’s stock price.

Except for this year. And that’s no accident.

Pandora Radio, the personalized internet radio service that has remained among the most popular iPhone apps on the iTunes App Store since its inception in July (and that I’ve previously called the iPhone’s killer app), will be releasing its most significant update yet later today.

Dubbed Pandora 2.0, the application will now include artist biographies, streaming samples for songs you’ve bookmarked, and perhaps most notably, the ability to create a station using a single song (much as you would using the iTunes Genius features). Other features in the new release include a CoverFlow-like view for song history, the ability to share stations with friends using Email, and a song progress bar (which has long been annoyingly absent).

12 inch Netbooks are coming. Dell has the Inspiron Mini 12, Samsung will unveil its 12 inch netbook model to the U.S. shortly, and more are coming. And Intel isn’t happy about this at all.

In fact, the whole Netbook market may be making them nervous. Despite the fact that they power most of these devices with their new Atom chip that handles some PC chores well and uses a lot less power (so batteries are smaller and last longer). Intel sees Netbooks as devices for people who can’t afford normal laptops, or as second devices. But it’s clear that a lot of people are buying them instead of normal dual core machines, despite their very serious limitations.

That means that for the most part, every Netbook sold is one less Dual Core that Intel can sell at a higher price and higher margin. Which explains exactly why the company has been publicly criticizing the performance of the machines. “If you’ve ever used a Netbook and used a 10-inch screen size–it’s fine for an hour. It’s not something you’re going to use day in and day out,” said Intel VP Stu Pann at an event last year.

MixedInk, a document editing site that allows large groups to democratically create a single collaborative document, has launched its service to the public. The service fuses concepts from Digg and popular wiki sites to create a unique document creation tool that is ideal for groups far larger than you’d normally encounter in the workplace. In conjunction with today’s public launch, the site has also partnered with Slate to create a community-written inauguration speech for President Obama, which will be published on the site in two weeks.

ResizeImage is the simplest and most usable tool I’ve seen to handle quick image resizing and cropping. It’s not as useful as Skitch, which a downloadable application for Macs only, but it works in a pinch.

Nearly two years ago, Steve Jobs published an open letter to the music industry calling for the death of DRM (digital rights management). He convinced EMI to ditch DRM back in April, 2007, but the three other major music labels held out. Until today. Now all the songs on iTunes are DRM-free, or soon will be.

And, with that, the DRM era of digital music finally can be put to rest. But it looks like the labels prevailed in sticking it to consumers on one last point.

Artiklz is debuting its conversation search engine to the public today, and it’s definitely worth taking a look. What the service does is aggregate comments from the more popular blogging and commenting platforms as well as a number of services including Digg, Reddit, FriendFeed, Delicious, etc. and make them available through a single search engine.

This is very similar to what companies like Crunchies finalist BackType and also uberVU are all about, and I definitely see the need for this type of service: regardless of one’s interests or line of work, dedicated comment search engines make it easy for users to find out what the content and tone of conversations across social media really are. I like the fact that you no longer need to visit every web service that has comments separately in order to find out what’s being said, but that you can go to a single place, do a simple search and find out.

I just downloaded the Slumdog Millionaire soundrack for $8.99 and it came automatically in Plus format. The files themselves are considerably bigger than the average previous iTunes download and the quality is quite nice. Most importantly, however, there is now a “create MP3 version” selection when you right click on the song.

It’s an annual tradition. Every year at Macworld, Apple releases a smattering of stats that gives a peek at how its business is doing. At this year’s Philnote (Phil Schiller gave the speech instead of Steve Jobs), which was Apple’s last Macworld appearance, the stats were few and far between. A few morsels for the information-starved Apple faithful (and investors). But here they are: