The state of the state? "A train wreck," says one official.

If the world’s eighth-largest economy were a member of the proper religious order, it’d be time to call in a priest to administer last rites.

Name almost any serious malady and the state of California has it: the nation’s highest marginal tax rate coupled with an abysmal public education system; the most home foreclosures; a free-falling commercial real estate sector; lame-duck governor with no legislative support and a disdain for an annual budget process that he refers to as kabuki theater; unemployment somewhere between the official number of 12% and the whisper number of 18%; a 20% drop in year-over-year revenue; municipalities that have either declared bankruptcy (Vallejo) or are on the verge (Los Angeles); and a black-box permitting process that scares away business investment even while every week, 3,000 more taxpayers migrate to greener pastures.

Californians may be a can-do lot, but faced with all that evidence and much more, the political and economic leaders who spoke at the Milken Institute’s annual “State of the State” conference held yesterday at the Beverly Hilton could hardly have been more dour. “It’s a train wreck, and it’s getting worse,” said Bill Lockyer, California State Treasurer. Added former Assembly speaker Bob Hertzberg, now co-chair of governance reform group California Forward, “A high-speed train wreck.” More

Photo books are replacing 4x6 prints as the most important products in the printing business. Photo: Shutterfly.

Photo site offers lens into the post-print world.

At lunch on a recent afternoon in Silicon Valley, Shutterfly CEO Jeffrey Housenbold is remarkably upbeat, considering the miserable year the overall photo business is having.

Almost any way you slice it, people are making fewer glossy prints in a rough economy. The numbers are off for at-home printing (down 2%), photo-counter printing (down 6%) and kiosk printing (down 12%), according to the Photo Marketing Association. The only big growth category? The under-the-table printing that people do for free at work. (That’s up 42%.)

Fortunately for Housenbold the photo recession hasn’t hit online photo finishers like Shutterfly (SFLY) as hard as some other parts of the industry. In fact, Shutterfly and rivals like Eastman Kodak’s (EK) Kodak Gallery and Hewlett-Packard’s (HPQ) Snapfish are still growing – partly because they’ve embraced ideas like photo books, social networks and smartphones to push their business beyond the old-fashioned glossy print. More

All you 480 million Skype users out there should be rejoicing today, now that the Internet calling and video service has been freed from the clutches of eBay.

As was announced this morning, eBay is selling a 65% stake in Skype for $1.9 billion in cash to a group of private equity shops and venture capitalists. The deal also includes a loan from eBay of $125 million.

So let’s call it $2 billion. That’s about what eBay CEO John Donahoe said he thought Skype was worth when he announced in April that he was looking to take Skype public. Both the intention to spin Skype out (or sell it), and the price tag were points of data that investors have had months to digest. That is why eBay investors reacted fairly calmly today. This wasn’t a surprise  – good or bad – and the market reflected it. Shares of eBay (EBAY) were down about 2% on the news.

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Alibaba.com expands staff, launches ad campaign in a bid to sell wares to American small businesses.

You might not be in the market for mass quantities of biodegradable flower pots or fly masks for horses, but chances are there’s someone out there who is. Both are for sale–along with hydraulic briquette presses and canned sweet corn in bulk–on Alibaba.com.

Never heard of Alibaba? More

Don't give up on eBay yet. Despite posting a second quarter drop in earnings for the second quarter, the company beat analyst estimates.  Merrill Lynch and Bank of America upgraded it to neutral on the news, while Goldman Sachs and Credit Suisse raised their earnings targets. Since the announcement yesterday evening, eBay’s stock has jumped over 10% to $21.52.

eBay (EBAY) CEO John Donahoe helped explain that show of faith today at Fortune's Brainstorm Tech conference. More

Tech gathering brings together best of tech and digital Hollywood.

Next week Fortune Magazine continues a nearly annual tradition, its mid-summer Brainstorm conference. We'll gather some of the smartest, most connected and powerful people we know in the technology and entertainment industries to talk about where we are and where we're going. Check out the agenda to see who'll be with us.

We began almost a decade ago in Aspen, Colo., then moved for a year each to San Francisco and Half Moon Bay, Calif. We'll convene this year in Pasadena, close to CalTech, NASA's Jet Propulsion Lab (whose director, Charles Elachi, will appear), the Idealab-Overture axis of the Internet world and yes, Hollywood, no slouch when it comes to using technology. A brainchild of the consummate technology writer and networker David Kirkpatrick, Fortune started this conference as a way to literally brainstorm with our community of sources and the companies we cover about what should appear in the magazine. We liked the format so much that now there are two Brainstorms, Tech and Green. We appreciate the power and privilege that come from bringing together a unique group of the some of the mightiest companies in the industry alongside some of its smallest — the biggest spenders and sellers, if you will, rubbing shoulders with the trend setters. More

A year ago this week Apple opened the floodgates and began letting software developers sell software for the iPhone, and geeks everywhere caught iPhone fever.

Since then Apple's iTunes App Store has swelled to more than 50,000 titles, logged more than 1 billion downloads, and inspired an entrepreneurial surge that's reminiscent of the dot-com gold rush — only without the illusion that everyone is making tons of money.

In fact, aside from Apple and AT&T, it's hard to point to many folks that are raking in a pile of iPhone cash quite yet. Matt Murphy, a venture capitalist at Kleiner Perkins Caufield & Byers, guesses that as many as 95% of the developers building iPhone apps "aren't trying to build a company on the iPhone" — they're just hobbyists making a little money on the side, or companies using fun iPhone apps as marketing vehicles.

The world is still waiting for the equivalents of eBay, Amazon, or Yahoo — the groundbreaking new companies that will redefine and inspire the mobile ecosystem.

Not that people like Murphy are discouraged.

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On NBC's Press: Here, I talk with a panel about the latest issue of Fortune, the Fortune 500 list, and changes to the tech landscape. (AAPL) (MSFT) (INTC) (CSCO) (GOOG) (TIVO) (EBAY) (YHOO)

Skype, the world's most popular program for making free overseas phone calls over the Internet, was released as a free download to Apple's (AAPL) iPhone and iPod touch on Monday. You can get it here.

This could be big. How big? Let's look at the numbers.

• In 2008, Skype users spent 33 billion minutes talking to people in other countries, representing 8% of all international voice traffic, according to TeleGeography Research. (link)
• That makes it the world's No. 1 provider of cross-border voice communications, according to the same report. By comparison, Verizon (V), iBasis (IBAS), and Tata (TCL), each provide about 20 billion to 30 billion minutes of international traffic each year. (link)
• Skype ended 2008 with 405 million user accounts, a 47% increase from 2007.  (link)
• Skype is adding new users at the rate of 35 million subscribers per quarter. (link to pdf)
• Skype usage hit an all-time peak on March 23, 2009, when more than 17 million users were online at the same time. (link)

Despite all this, Skype is said to be a disappointment for EBay (EBAY), which acquired the Luxembourg-based company in 2005 for $2.6 billion. EBay had hoped that buyers and sellers on its online auction site would use Skype to chat about their purchases. When that service didn't click with users, EBay had to write off nearly $1 billion of its Skype investment, according to Businessweek. (link)

Adding to EBay's disappointment is the fact that revenue from Skype users isn't growing as fast as its user base. As Businessweek points out, its 2008 Q4 sales of $145 million were up just 1.3% sequentially, even though registered users increased 10% in the same period. (link)

So now Skype is making a big push into what's expected to be the real engine for future growth: VOIP (voice over Internet protocol) calls made over cell phones, a field Google (GOOG) is also exploring.

In January, Skype became available on phones that run Google's Android operating system, including T-Mobile's (DT) G1. In February Skype announced that Nokia (NOK) will be selling smartphones with a Skype client pre-installed.

Late Monday, shortly before midnight, Skype came to the iPhone and iPod touch — an installed base of 30 million users. In May the company plans to release a client for selected models of the Research in Motion (RIMM) BlackBerry.

There are already several VOIP clients available on the iPhone, including Fring, Truphone and Nimbuzz, but none has the name recognition of Skype.

iPhone calls between Skype accounts are free, but in deference to AT&T (T), its U.S. partner, Apple will allow them only to be made over Wi-Fi connections, not over AT&T's cell phone network. [UPDATE: 9to5Mac reports that when run on a beta version of iPhone 3.0, the Skype app allows calls to be made over AT&T's 3G network.]

Skype calls to landlines and cell phones not running the Skype client are charged a fee. These are usually considerably lower than overseas rates, but higher than charges made for calls within networks.