The new young tech entrepreneurs

BusinessWeek has a great article on the new face of the Silicon Valley entrepreneur. Their article focuses heavily on Digg and its founder Kevin Rose and portrays a thrilling success story chock full of inspiring quotes for budding netrepreneur superstars. There has been major controversy about the article’s claim that Kevin has “made” $60 million. Both Jason of 37Signals and Scott Rosenberg (cofounder of Salon) have called BusinessWeek on their flub, saying basically that a business is only worth what someone is willing to pay for it, not what some unspecified authority estimates it is worth. Apart from the estimating flub, the rest of the article really is inspiring. Here are the best parts:

My favorite quote is about AOL’s attempt to copy Digg:

The corporate giant’s failure to gain inroads so far shows that simply copying Digg won’t work. It also spells out why Old Media types are so afraid of being eaten alive by the creative destruction these young new players are delivering. The barriers to entry are now so low that all it takes is a laptop and a $50-a-month Internet hookup to make a kid the next mogul.

On the launch of Digg v3:

As Rose sat in the middle of the office, managing a final countdown, a Puma cap yanked over his eyes, his posse of twenty- and thirty-something engineers sat at their desks with contingency plans and extra servers ready. They flipped the switch. Stories started trickling in. The pace picked up, and suddenly, it was a deluge. Digg staffers grew frenzied, screaming at one other to stay one step ahead of the traffic. By 4 p.m. on launch day, the site had signed up more than 13,000 new registered users, eight times the average number. Traffic was clocking in at four times the volume of the previous Monday. The news of Digg’s launch was lighting up the blogosphere. An exhausted Rose collapsed for a snooze under his desk.

Digg’s stature changed dramatically that day. It is now the 24th-most popular Web site in the U.S., nipping at the The New York Times’ (No. 19) and easily beating Fox News (No. 62), according to industry tracker Alexa.com.

On making money (here’s the controversial part):

Digg gets advertising via Federated Media, the company Silicon Valley veteran John Battelle created to pair Web sites with advertisers (Digg sparingly places ads in a narrow band at the top of the Web page). So far, Digg is breaking even on an estimated $3 million annually in revenues. Nonetheless, people in the know say Digg is easily worth $200 million.

It’s not as dot-com déjà vu as it sounds. YouTube, the enormously popular video site, posts similarly fledgling revenues, but some experts say it could easily fetch $500 million. What’s more, Digg registered users have been doubling every three months. As such, Digg is attempting to follow the path laid out by Google Inc (GOOG ). and now being adopted by many Web 2.0 companies: focus on building a user community, and the ads will follow. “It’s one of those things where we know we could put crazy ads all over the site and clutter it up, but we don’t want to do that,” says Rose. “We have a clear path toward becoming a profitable company, and we’re fully funded. We don’t have to worry about it now, as long as we keep hitting our numbers.”

More of My Favorite Quote (notice how Rose said “no thanks” to being controlled):

Two weeks before the Digg.3 release, AOL launched a rival under the old Netscape brand. (It was headed up by former Silicon Alley superstar Jason M. Calcanis, owner of Weblogs, who early on offered Rose an investment in Digg and an option to buy it for $5 million. That deal would have left Rose with no control. Forget it.) On July 18, AOL tried to lure Digg’s top 50 contributors with $1,000 a month to switch to its site, which led Rose to rant on his weekly podcast that Calcanis and AOL were trying to “squash Digg.” The corporate giant’s failure to gain inroads so far shows that simply copying Digg won’t work. It also spells out why Old Media types are so afraid of being eaten alive by the creative destruction these young new players are delivering. The barriers to entry are now so low that all it takes is a laptop and a $50-a-month Internet hookup to make a kid the next mogul.

What’s changed since the previous dot-com days:

Clearly much has changed since 1999, and Rose and his fellow wealth punks have little in common with the sharp-talking MBAs in crisp khakis and blue button-downs who rushed the Valley as the NASDAQ climbed. In the late 1990s, entrepreneurs were the supplicants, and Sand Hill Road, dotted with venture-capital firms, was the mecca. Dot-commers relied on VCs for the millions needed to buy hardware, rent servers, hire designers, and advertise like crazy to bring in the eyeballs. For their big stakes of, say, $15 million for 20% of a company, venture capitalists received board seats, control of the management levers, and most of the equity.

Now, it’s more like: Maybe we’ll let you throw a few bucks our way—if you get it. Otherwise, get lost. That’s possible because the cost of jump-starting a good idea has plummeted. At the same time, the sources of money have multiplied, swirling in from new VC shops, angel investors, and strategic partners galore. The awash-in-capital environment has flipped the power dynamic. Sure, they’ll take money from the “sweater vests,” as Digg CEO Jay Adelson calls the VCs, but they’ll do it on their own terms. “It’s a good time now for the entrepreneur,” says John Freeman, a professor at University of California at Berkeley’s Haas School of Business. “There are lots of different pots of money. It gives them the ability to modify when they take it, [and] how much they take, and leaves them with more control.”

More Web 2.0 ravaging of the big corporations:

Digg is emblematic of the ethos of Web 2.0, new consumer and media sites revolving around social networking and do-it-yourself services. Others include YouTube, which serves up some 100 million requested videos a day, rivaling the audience of NBC. Then there’s Facebook, where the college crowd practically lives. The average gamer on Xfire spends an astounding 91 hours a month on the site—it’s like a part-time job. As a result, superhigh valuations are again coming out of the Valley. In a world in which Facebook turns down $600 million deals, the $580 million that Rupert Murdoch’s News Corp. (NWS ) shelled out for MySpace.com in July, 2005, is widely considered to be a steal.

Enter the Muse:

It was just two years ago that Rose was the host of an obscure cable show, The Screen Savers, on a low-rent channel called TechTV. One day, he was at lunch with Apple Computer Inc. (AAPL ) founder Steve Wozniak, a favorite interview subject. Woz was in a deep riff about the glamour of Apple’s garage days, and Rose realized he was jealous of Woz’s place in Valley history. This guy has actually done things, Rose remembers thinking, while I’m, like, a visual stenographer. That night, Rose returned to his five-person Santa Monica house, head down, and plopped in front of his computer. Like every other night, he explored the back caves of the Internet, scavenging for hidden gossip and unearthed news that eluded most mainstream editors. They were all so clueless, Rose was thinking. And then it occurred to him: Oh my God. I could do this SO. MUCH. BETTER.

Fill your own need:

Rose is listening to his gut, he says. Digg arose out of his everyday life, just as Facebook and YouTube and Xfire did for their founders. During the boom, MBAs dreamed up stuff they thought could nab money. Today, the geeks insist they’re looking at ways technology can fill the gaps in their own lives. Then they build those services and share them with their friends. Once something works, they start to dribble it out to the world. But nothing too fancy that needs money to get started.