Most of the public Internet companies have reported their second quarter earnings by now. In a research note sent out to clients today, J.P. Morgan provides a few takeaways from the quarter. We already know that the recession continues in overall online advertising (see chart), but even normally-strong search revenue was down. And display advertising shows “no signs of recovery.” Travel, finance, and entertainment remain especially weak advertising sectors.

But even in a down market there can be winners. Both Google and Amazon gained share in search and e-commerce revenues, respectively. Google now commands 72.3 percent of all search revenues, according to J.P. Morgan. Online travel sites are also benefiting from the weak economy, with hotels giving them more inventory.

Here are some key takeaways from the note:

The global rise of Facebook is nothing less than astounding. In the month of June alone it gained 24 million unique visitors worldwide, compared to the month before, for a total of 340 million unique visitors worldwide. It is now the fourth largest site in the world, trailing only Google, Microsoft, and Yahoo sites, according to comScore (see table below). Facebook itself only officially acknowledges 250 million active registered users (but you don’t have to be a registered user to visit some Facebook pages).

In the past year, it has grown 157 percent, gaining 208 million visitors. It long ago passed its rival MySpace on a global basis, way back in April, 2008. Since then, it has passing even bigger sites on its way up. In the chart above, the blue line is Facebook. It passed Amazon back in August, 2008. eBay fell by the wayside in January, 2009. It surged past AOL sometime in February, 2009, and just last month it finally passed the Wikimedia Foundation sites (which includes Wikipedia).

While there’s a lot of talk about Apple’s rumored tablet device as it relates to new initiatives from the music industry, the device is undoubtedly a lot larger in scope. The music-angle talk is mostly thanks to the Financial Times all-over-the-place first report yesterday. But a second story also released yesterday with much of the same information, clears things up a bit, and adds a few interesting new nuggets of information.

Here’s the best excerpt:

“It would be a colour, flat-panel TV to the old-fashioned, black and white TV of the Kindle,” one publishing executive said.

Uh oh, Amazon.

How awesome is this? All credit goes to MeetTheBoss for creating this visualization (better quality image available when you click through), but it was too good not to share it with you.

It’s a visual representation of Amazon’s acquisitions and investments from 1998 until its most recent purchase of Zappos for a reported $928 million.

Last week, Amazon sent a shiver down the spine of the Internet when it remotely deleted copies of the books “1984″ and “Animal Farm” from users’ Kindles. As just about everyone was quick to point out, the incident showed a very “Big Brother”-like side to the company. It was simply dumbfounding, and left many people very, very angry. And it made many question whether they should ever buy any books on their Kindles again.

Amazon quickly admitted that the move was a mistake to the press with a bland statement, but that wasn’t enough. So today, right before the company announced its earnings, CEO Jeff Bezos personally apologized for the incident as follows:

During this afternoon’s Amazon Q2 conference call, there was one topic that was clearly on many analysts’ minds: the Kindle. With the recent release of the Kindle DX and the Kindle 2 only a few months before it, the financial success of the device is still very much a mystery, especially since Amazon has long been tightlipped about releasing any Kindle sales figures. CFO Tom Szkutak, who led the call, kept to that script.

Szkutak had little interest in getting into questions about the Kindle, other than to repeat that growth was “very strong” multiple times. When one analyst asked what kind of trends Amazon is seeing with regard to the Kindle cannibalizing book sales, Szkutak danced around the question, stating, “We’re not doing any updates in terms of the units, in terms of specific numbers. We’re seeing very good growth. It’s exceeding our expectations.”

News has just broken that Amazon.com has purchased hot ecommerce up-and-comer Zappos for 10 million Amazon shares or $880 million. (The Amazon release said it was $807 million, but that was based on a trailing 45-day estimate of its share price. Closing price today bumps the deal up to $880 $888 million.) Zappos employees also will get $40 million in cash and restricted stock. In other words the deal is more like $920 $928 million all told. And Zappos management will remain in place.

This is a great exit for Zappos’ investors, including Sequoia Capital and Venture Frogs, who put in about $60 million in seven rounds.

This isn’t just one of those times when companies say the management will stay and the company will be run independently. People close to the company say Zappos has long struggled with its desire to build a company for the long term and pressures to deliver a return for investors. This deal appears to be the best of both worlds. The way it’s described to employees, it’s less an acquisition and more a swap in shareholders.

I’m digging around for details now but here’s a video Jeff Bezos did that just went to Zappos employees. The post by Zappos CEO Tony Hsieh is here. In a letter to employees he writes:

So I just bought House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, by William D. Cohen, from the just-launched Barnes and Noble e-book store. Long story short, it works pretty well, but there sure as heck isn’t a hint of polish on this thing.

So here’s how it worked. I went to barnesandnoble.com, typed in the name “William Cohen,” then clicked “Read Now,” indicating that I wanted to buy the e-book version. It downloaded to my Desktop (well, Downloads folder). Then I had to download and install the reader software.

So plenty has already been said about this, but we’re going to weigh in too because it’s just so ridiculous. Amazon began remotely deleting books from Kindles this morning. Illegal books? Nope. Perfectly legal versions of George Orwell’s “1984″ and “Animal Farm”, purchased through Amazon.

Why? Well, apparently the publisher changed their minds about having digital versions of the books available for the Kindle, reports David Pogue. Okay, that’s up to them — from this point forward. But those who already paid for the books, own them. In a word, this is bullshit.

Seriously, why doesn’t Amazon just come into our houses and burn the print copies as well while they’re at it?

I put this out on Twitter earlier, and there seemed to be a lot of interest, so I figured I’d publish it here as well. If you have a Kindle, head on over to Amazon to pick up Chris Anderson’s book Free: The Future of a Radical Price, for free. While the regular print edition will set you back $26.99, for whatever reason, the entire book is available for free right now in Kindle form.

Naturally, you have to have a Kindle to get it (it’s delivered over the Amazon Whispernet network to your device), but you can also grab it and read it on your iPhone or iPod touch if you have the Kindle app. Sure, there may have been a few plagiarism issues with the book recently (maybe that’s why we’re seeing it for free in digital form, with corrections), but it’s hard to argue with the price.

Well here’s a hot little rumor. Netflix stock has surged today on news that it may be acquired by Amazon.

The stock is currently up over 7% in trading today, at an 11-week high. Sources seem pretty thin, based seemingly on stock analysis from places like WhatsTrading.com. And neither company is commenting. But the idea is a hot one.

Both Amazon and Netflix are in the midst of a full-on push to get digital video content into the living room. Amazon via its On Demand service, and Netflix through its streaming service. The two are battling the likes of Apple (with the Apple TV) and to some extent Microsoft (though Netflix also works on the Xbox 360 — and Netflix CEO Reed Hastings is actually on Microsoft’s board).

And you thought self-published books were all rubbish. Author Boyd Morrison sold two books, the first one called The Ark, to Simon & Schuster. Boyd uploaded and sold the books himself and raised awareness for his novels by being a member of Kindle Boards and generally self-promoting.

He will be published in hardcover in 2010 and is working on his next book featuring swashbuckling adventurer Tyler Locke.

Well, this sucks. I had not yet gotten around to downloading the new Delicious Library iPhone app, which I heard was great. And now I can’t because the developer had to remove it from the App Store. Why? Because of Amazon.

A recent change to Amazon’s Product Advertising API means that apps like Delicious Library are being restricted from using it, according to Alan Quatermain. And what’s really perplexing is that this change apparently only matters on mobile devices, meaning bye bye to an iPhone app that took its developers 8 months to build.

It looks like PayPal is rolling out a more flexible payments API called Adaptive Payments. We’ve obtained a confidential document, which is embedded below, explaining the details of the new system. Basically the API is designed to give developers full access to PayPal’s features, allowing them a lot more freedom in building applications which include the ability to accept and distribute payments.

Very similar to Amazon’s Flexible Payments Service (FPS), the Adaptive Payments API handles payments between a sender of a payment and one or more receivers of the payment. Adaptive Payments allows almost the same functionality as FPS. The new API lets developers become a payment aggregator, which we are told is something against PayPal’s current Terms of Service. Amazon’s FPS also lets developers aggregate payments. Moreover, Paypal’s Adaptive Payments has built in micropayments support, another feature of FPS.

Bad news for Amazon over the weekend. The Tokyo Regional Taxation Bureau slapped Amazon’s affiliated unit “Amazon.com International Sales” with a $119 million tax bill. Japanese newspaper Asahi Shimbun reported yesterday [JP], the subsidiary is accused of failing to report income in Japan between 2003 and 2005.

Japanese tax authorities started making these allegations as early as 2007 but now seem ready to pull out the hammer. The way Amazon operated so far is that every time Japanese customers buy something from Amazon’s Japanese website, they legally make contracts of purchase with Amazon offices in the US. The problem for the Japanese taxation bureau: These sales were booked and taxed in the US, even though Amazon operates two companies in Japan, Amazon Japan and Amazon Japan Logistics. (Click here for more background on Amazon’s position in Japan.)

Reportedly, income of several hundred of millions of dollars wasn’t taxed in Japan under the U.S.-Japan tax treaty, as demanded by local tax authorities now. Amazon is currently in talks with authorities to invalidate the accusations.

The term “e-commerce” still lacks a universally valid definition, but even if you just bundle B2B and B2C transactions under it, it’s a multi-trillion dollar business globally. Last year, Nielsen found [PDF] 86% of the global web population made an online purchase already (North America: 92%). For the US alone, B2C sales are expected to grow from $130 billion this year to over $200 billion by 2013 (excluding travel).

In North America, Amazon is the 800-pound gorilla in the B2C arena – by very, very far. After the US launch in 1995, the company quickly established separate websites in Canada, the United Kingdom, Germany, France, China, and Japan. But although Amazon wins in Canada and Europe, things are not going as well in Asia. In China (where Amazon started offering a localized site in 2004), it practically gets destroyed by local player Taobao [CN]. Traffic-wise, Amazon gets dwarfed by a local e-commerce site in Japan, too: Rakuten.

Amazon is active in Japan for a good reason: In its last report [JP, PDF], the Japanese government said the country’s online B2C sector grew by 21.7% to over $55 billion in 2007 on a year-on-year basis. (Note: Statistics from different sources can vary widely because of totally different methods of measurement. The Japanese numbers, for examples, do include travel.)

Now it seems Rakuten wants to take its global plans (laid out numerous times in the past) to the next level, with CEO Hiroshi Mikitani saying just this weekend he wants to see his company generating $1 million in daily sales outside Japan by the end of this year.

This short case study tries to shed light on Rakuten’s background and key success factors, why they win against Amazon in Japan and what efforts they make to go global.

Before everyone gets in a huff, let’s consider Amazon’s intentions with these patent applications. Surely they would never allow advertisements to be placed in books which you have purchased legitimately at full price, so let’s put that out of our heads. But what if you could take a few bucks off the cover price at the cost of a few contextual ads relating (if possible) to the book’s content? Personally, I wouldn’t mind — partially because I don’t use a Kindle or intend to any time soon, but more because it’s a no-lose situation. Amazon wouldn’t risk alienating its loyal Kindle base with dirty tricks like this, so it’s safe to assume it’ll be at least somewhat opt-in.

An abundance of free or reduced-price content would widen the appeal of the reader — I imagine many people are put off e-books by the idea that they are not getting their money’s worth. As offensive as the idea of inserting ads into a book is to me (and surely to the average reader), it’s almost certainly part of a value proposition which increases the utility of these expensive little buggers.

Does embattled music streaming site imeem think it can take on iTunes? For the most part, nearly every streaming song on the site has a download button which links to both iTunes and the Amazon MP3 store. But it is quietly testing its own music download store which bypasses iTunes and Amazon and sells MP3s directly. For instance, this is the case with some Sub Pop artists, such as Iron and Wine and The Shins. When you hit the download button on songs for those artists, a window pops up showing the album where that song came from with with the option to download the entire album or any individual song for $0.99. You can then pay imeem directly by credit card or Paypal and download the song to your computer.

(Screenshots after the jump).

We’ve received numerous reports of Amazon Associate members in North Carolina receiving emails stating that Amazon is going to have to discontinue the service there due to a pending change the in state’s tax structure. Sometime in the next two weeks, Amazon expects that it will be terminating the service for all North Carolina residents. That will be very bad news for a lot of people who rely on Amazon’s popular affiliate sales program as a source of income.

Here’s the full email:

So this isn’t new, it’s actually been available since late 2007 as far as I can tell, but enough people are tweeting about it today, that’s it’s worth mentioning again. Amazon has a page where you can download the Kindle’s source code.

What is new today is that the Kindle DX, its new larger reader, has also been added to the mix of downloadable code. And you can also download the code to all the previous firmware version of both the first and second generation Kindles.