The people spilling out of Ritual Coffee Roasters on to the San Francisco sidewalk scent more than coffee beans. Inside there are 20 and 30-somethings, most of them male, working intently at laptops and harnessing the power of the Internet. They are not merely logging on to look at MySpace or YouTube or "The Next Big Thing." They plan to be "The Next Big Thing."
It's boom time again in Silicon Valley and there is opportunity around every corner. Each month US$180 million is invested in technology companies aspiring to change the lives of every person on the planet.
A combination of youth, entrepreneurial spirit, technical insight, financial muscle and the American Dream, flavored with West Coast utopianism, has formed a perpetual motion machine that is driving the information age.
The brilliant brains of students and geeks, businessmen and scientists, angel investors and venture capitalists are feeding and thriving off each other, sparking the kind of electricity one imagines filled the air of northern England during the Industrial Revolution. A whole new world wide Web is on the horizon.
"If you like the idea of going to a coffee shop and everyone works in software and in the conversation next to you someone is starting a company, this is the place to be," said John Merrells, 37, who emigrated from Harrogate, England, and runs a mobile phone software company here.
"Everyone you bump into is potentially something. The physical concentration of people is phenomenal. Like in the City of London [the financial district] the continual rubbing up of people is how ideas come about," he said.
In the beginning you needed an office. Then a house would do. A mere garage was enough for Larry Page and Sergey Brin to start the company now synonymous with searching the Web.
Less than 10 years later, the original Google computer servers -- balanced on flimsy cork boards to prevent them melting down -- are an exhibit at the Computer History Museum in Silicon Valley.
Google's shares reached US$500 on Wall Street last week, giving the young firm a market value of around US$154 billion. Page and Brin each own shares worth more than US$15 billion. If you had invested US$100 in Google when it launched in 1998, you would now be sitting on an asset worth US$14 million.
Now all anyone needs to try to emulate the pair is a coffee shop offering wireless access to the Internet. Since opening last year, Ritual Coffee Roasters' plain wood tables and leather sofas have become a cradle of start-up companies, including Rubyred Labs. The firm aims to "turn ideas into top class Internet products and services."
"We would come here a lot with our laptops, because so many people come here," explained Jonathan Grubb, 27, one of its co-founders.
"The coffee shop has replaced the garage for Internet start-ups. To rent a garage in San Francisco costs at least US$100 a month, which people can't afford. It's also a social thing -- people make business deals because they're sitting next to someone and start talking," he said. "In our case the three of us put in US$5,000, but some companies can be set up for a few hundred dollars. The technology now makes it easier than ever."
The Internet has famously empowered bloggers, citizen journalists and film-makers, and here in the valley it dangles the carrot of becoming your own boss before your 30th birthday.
Some call this the second dotcom bubble. Others, mindful of how the first bubble burst six years ago, prefer to say it's "frothing."
Everyone, it seems, has a business plan, only sometimes it's the same business plan.
"We work with a lot of start-ups. Everybody wants to be the MySpace of coffee drinking with iPod-like simplicity -- `We're going to be the MySpace of music.' Well, MySpace is the MySpace of music. The best products grow out of trying to solve a problem, not just copying a success story," Grubb said.
The geek crowd runs with the San Francisco arts set in places such as Ritual Coffee Roasters and, on a recent Saturday night, in an urban warehouse turned nightclub under the aegis of a company called Laughing Squid. Partygoers hurtle past the entrance in vintage cars and gawp at a street artist conjuring fire in a sandpit. They are here to drink, enjoy "cool stuff" like a live cabaret and, of course, talk tech.
Here is Jeremy Kassis, 31, about to launch Bumpq, a Web site for people to share creative ideas.
"We're here to network," he said.
Nearby stands Shahram Shokrian, 30, who realized the potential of podcasting when he set up Podkive two years ago and now gives advice at a regular "pod camp" in the city.
"Podcasting is damaging radio and is going to destroy traditional media," Shokrian predicted.
Christian Perry, 22 and just graduated from Chicago, is running ZapTix, an online ticket agency for small venues and event organizers. This was set up from a coffee shop for just US$14,000.
"It's a lot easier to start a company now but a great idea doesn't guarantee anything. The standards are far higher than in 1999," he said.
Some hope to become celebrities, within this community at least. They even have their own gossip columnist patrolling the room in search of mischief to post on her "Valleywag" blog. The Cassandras might be tempted to warn that partying as if it's 1999 is bound to end in another crash.
One partygoer with an edge of Detroit cynicism observed: "I remember the first boom and I'm as scared as shit. I've had three people come up to me today all trying to sell the same idea."
Web 2.0
The idea of the moment, over-hyped perhaps, is Web 2.0. Before it, according to the definition, the Web was a "lean back" experience like television, in which official content providers' Web sites would be passively consumed by the rest of us.
No one quite agrees on the meaning of Web 2.0, but everyone thinks it has something to do with social networks and content generated by users -- a "lean forward" experience in which consumers become creators.
There are more than 1,000 such sites with prime examples including Wikipedia, an online encyclopaedia written by users; Flickr, a photo sharing site; Facebook, which enables social networking and Digg, in which the community selects and prioritizes news stories like an editor.
Web 2.0's unprecedented army of contributors is capable of providing more detailed information about your special interest or geographical location than any traditional organization could dream of. The race is now on to turn it into a commercial proposition.
Among the most promising exponents is Yelp, which invites users to write reviews of everything from restaurants to doctors to beauty spas. Squidoo asks people to set up a page about any topic they feel passionate about. It gives contributors financial rewards and donates some of its revenue to charity. Zebo is a site where you can take advice from both friends and experts on shopping and which product will serve you best.
Each of these sites, and their many imitators, is taking something as old as human civilization -- word of mouth -- and formalizing it in a single space, giving consumers once unimaginable access to the recommendations of friends and the "wisdom of crowds."
Roy de Souza formally launched Zebo in September and said it already has 5 million regular users.
"The things that work best on the Net are things that work in the real world. If I wanted a new car, I would call my friend for his advice. It's what human beings do and the Internet makes it a lot easier to tap that knowledge," he said.
The latest start-ups are finding out how we can navigate the billions of Web pages, remember the best bits and tell our friends. The answer so far has been social bookmarking sites, such as del.icio.us, which allow you to retain pages for yourself and show them to others. Now come Blue Dot, Netfish, Plum and 3B, each offering new ways of remixing and "mashing up" the Web to suit your taste -- and to share with others.
Plum, set to launch publicly this week, invites users to collect and annotate Web pages, blog posts, photos, email, feeds, music and other elements, potentially share them and then see whose collections are closest to their own.
This is the fifth Internet start-up for a Norwegian, Hans Peter Brondmo, 44, who estimates the cost at up to 10 times less than a decade ago, partly because the Web allows him to employ staff in half a dozen countries.
Speaking in his glass penthouse study overlooking San Francisco Bay, he said: "We tear things out of magazines but not out of Web sites. I'd like to tear pages out of Web sites. There is intelligence on the Net and it's you."
The Web site 3B allows you to build a "3D village" out of favorite photos and Web pages, represented as giant wall panels through which you can guide a digital representation of yourself, or avatar, and chat with avatars controlled by friends.
The graphics are reminiscent of Second Life, the hugely popular virtual world where real money changes hands, and offer a glimpse of a possible future in which the entire Web will be more about vision and touch and instinct than text. Its founder, Nicky Morris, 41, is a British woman in an American man's world.
"I love coming here. There is a fundamental entrepreneurial difference between here and Britain. Just as everyone in LA is a budding actor, everyone in Silicon Valley has a business plan," she said.
Everyone has a business plan but not everyone knows how to turn popularity into profit. Does Web 2.0 equal Bubble 2.0?
The general consensus is no, because this time high speed broadband connections are widespread, companies need less start-up capital and the most outrageous megabucks are flowing not from public investors but private companies.
News Corp bought MySpace; eBay acquired Skype; Google and Yahoo gobbled up numerous start-ups, among them YouTube, the video sharing site with the strapline "Broadcast yourself." This was sold to Google last month for US$1.65 billion on the basis of people traffic rather than revenue, earning a fortune for the three young men who devised it in a garage.
For some it's a perfect get-rich-quick scheme -- identify a feature missing from Google or Yahoo, set it up cheaply from a coffee shop, attract enough eyeballs and headlines and hope for a quick sale. This is the art of "flipping." There's a saying in the valley: "Build to flip versus build to last."
Once known as the "Valley of Heart's Delight," it runs south from San Francisco Bay between the Santa Cruz Mountains and the Diablo Range. By 1971 a journalist had coined the phrase "Silicon Valley," a series of hotspots such as Palo Alto, Mountain View and San Jose. Roughly half of the US' venture capital is concentrated here, providing the finance to fuel the revolution.
Michael Malone, author of a book on the area, relished "the thrill of being in the cockpit of one of the greatest technological and social transformations in history."
This is an America where Sixties idealism and belief in the transformative reach of technology never died, and where George Bush and terrorism seem distant specters.
But Merrells admits the valley has its downside.
"You can't get away. Even if you drive for miles you'll find other people who are also trying to escape Yahoo and Google. I remember lying by a camp fire under the stars and someone coming over and saying, `Are you John from Netscape?' It can seem parochial because everyone's obsessed with the deal they've just done. Everyone talks about `Did you see the YouTube deal?' but that's all anyone can talk about," he said.
Some of the bucolic innocence that drew tourists to the valley a century ago has been sacrificed to roads and motels and nondescript buildings that belie the digital alchemy happening within their walls. But to most eyes this is a paradise, the America would-be immigrants dream about.
Nowhere is this more true than in Woodside, a town dubbed "the Beverly Hills of Silicon Valley," where billionaires are more numerous than in Los Angeles and ride their horses among the forests of redwoods, oaks and eucalyptus. Property rarely becomes available and local people estimate the average price of a two-bedroom house at US$6 million.
At the town's heart since 1991 has been a diner, Buck's of Woodside. At 8am it is packed with people debating, engaging, persuading. For it is here that some of the most important deals in Internet history have been struck, as some of the world's wealthiest venture capitalists give the thumbs up or down to would-be entrepreneurs over their breakfast burritos and black coffees.
"Over there, table 15, is where Hotmail was founded," said Jamis MacNiven, the diner's owner.
"Netscape had a lot of its early meetings here and PayPal got their funding here. Yahoo was turned down twice for funding here," he said.
"In the last two-and-a-half years there's been a vibrancy increasing," added MacNiven.
"It's like a hum in a hive and right now it's very loud and the thinking about Silicon Valley is overwhelmingly optimistic. We're back to where we were in 1999, but without the craziness," he said.
Venture capitalists
The venture capitalists are the dream makers and breakers. They spot, support and sometimes "incubate" new hi-tech companies. Like the royal patrons of Renaissance artists, their favors are eagerly sought and can make the difference between obscurity and a mansion on Billionaires' Row.
When they gamble wrong on a start-up flop, millions of dollars are written off with a shrug -- the penalty for backing a loser is small change compared to the penalty for failing to back a winner.
Welshman Michael Moritz, senior partner at Sequoia Capital on the hub that is Sand Hill Road, had the vision to nurture and champion Google, PayPal, Yahoo and most recently YouTube -- a US$11.5 million investment which reportedly returned US$495 million, a 43-fold increase in just over a year.
Such math has created a less hard-edged version of US capitalism -- entrepreneurial failure is regarded as positive, a learning curve. You failed? Here's more cash. You failed again? Here's more cash. Better to fail five times and learn, it is said, than to succeed first time and learn nothing.
When the dotcom bubble burst, venture capitalists described it as a "nuclear winter."
But in the first three quarters of this year they raised US$455 million for Web 2.0 companies -- more than twice the amount that had been raised over the same period last year. The YouTube deal has concentrated minds on Web 2.0's potential and whether user traffic really can be given a commercial value through online advertising or other means.
Something else is stirring, however. It is already being called Web 3.0 and it offers the possibility of the most profound change the Internet has yet seen.
Nova Spivack, 37, is the chief executive of Radar Networks, a San Francisco company currently in "stealth mode." Next year, building on technology used by the US military and intelligence agencies, he intends to pioneer Web 3.0, or the "semantic Web."
According to his vision, the semantic Web will offer new ways of mining and searching for information. It will use new content and applications to "understand" the meaning of words and their contexts, making search results more precise and rewarding. Whereas current search engines, including Google, work by finding a match for the keywords you've entered, the semantic Web will be capable of answering questions like: "How many times have Manchester United won the FA Cup?"
Spivack explained by example.
"If you do a search on Google today for publications with headquarters in London, Google will find any page that merely has the word `publication', `London' or `headquarters' in it. It doesn't understand what you mean, what a publication is, the relationship of a headquarters in a location -- it doesn't connect these dots together. What the semantic Web provides is a way of formally, explicitly, defining exactly what you mean when you say a publication and when you state that it has a certain kind of relationship with a certain place, by finding a way to put that meaning into the context in an invisible way that software can see. Applications can then start to search for things in a more human, intuitive way," he said.
He said this would allow the Web to function like a single coherent database.
"The Web will move from a bunch of silos and separate applications to something that starts to feel much more like one seamless medium. Your user identity, your account, your search history, your personalization and preferences will travel with you wherever you go," he said.
"All your information will be connected, searchable, organized and manageable wherever you are. In many ways it will bring the Web to you instead of you having to go to the Web. Web 3.0 means the third generation Web, and I think that's what the next 10 years will be about," he said.
Web 3.0
If Web 2.0 put users at the center, Web 3.0 is about an infrastructure that will give them new possibilities. It would be impossible for two geeks in a coffee shop to find the immense processing power needed to create the semantic Web. But not for Google.
Spivack, however, believes he has stolen a march on the giant.
"I think we're building something equally big right under their nose. They're too busy running Google. We've discovered a goldmine in their own backyard," he said.
The ultimate vision of Web 3.0 is of a collective "global mind" which increasingly resembles the human brain. Every person on the Internet will function as its consciousness, from whose chaos will emerge cohesive patterns of thought and decision, perhaps even a sense of "self."
When the first Web was born in the 1990s, the typical home computer was used as a toy to play games and coffee shops were places where people went for coffee. Most of the young gunslingers in Ritual Coffee Roasters were yet to start high school, still less dream of "flipping" for a billion dollars. Today, concocting businesses from their laptops, reordering the way people run their lives, they are living proof that the pace of evolution is accelerating.
For users, the Web's opening phase allowed us to look at text on a screen, maybe with static pictures -- it was about information. Now it's about community, making our own content and sharing it with others -- text, audio, movies and more.
And 10 years from now? In the cascade of ideas even the Google boys begin to look like old hands and the only question for the money men, their dotcom confidence restored, is whether they can keep up. The question for the rest of us is where are we heading, how we will use the Internet, a never-ending exercise in the art of the possible.
And it will have begun here, in the valley, where optimism about progress is undimmed and everyone is potentially something.
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