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Josh Felser and Dave Samuel should be sailing the tropical seas in luxury yachts. The pair lived the dot-com dream, selling Spinner, their Internet radio start-up, to America Online for $320 million in 1999. After leaving AOL two years later, the newly minted millionaires attempted lives of leisure. Felser, 40, raised his two young kids and tried to buy a carwash. Samuel, 32, got married and traveled and had a son. But the pungent scent of opportunity finally lured them back into the high-tech game last year. "It felt like the time was right for big ideas," Felser says. Grouper, their new 17-employee startup, makes free software that allows friends and family to share photos and music over private, encrypted networks. Their offices, just north of San Francisco, have a crowded, bootstrapped feel. There's a stuffed sailfish hanging on the wall, a Ping-Pong table in the conference room, and the few small rooms are so cluttered that an anxious local fire warden has visited three times.
Things are heating up all over Silicon Valley. Even while the NASDAQ sputters, starting a dot-com has become fashionable again, drawing back entrepreneurs who thrived or merely survived in the first round of activity on the Net that began a decade ago. These tech leaders are inspired by a variety of factors, not just the prospect of replicating Google's blockbuster success. Many want to take another crack at leaving a lasting impression in high tech, or have simply discovered that they miss the frantic pace of life at a start-up. And they are intrigued by the proliferation of broadband and mobile phones, and the insinuation of the Internet into the fabric of everyday life. According to a recent Stanford study, 75 percent of Americans use the Internet and spend an average three hours a day online.
Which means that many of those dot-com ideas proposed, funded and ultimately ridiculed a few years ago are suddenly viable (OK, perhaps not the pet-food sites). That's why so much of the activity stoking this high-tech renewal feels oddly familiar. Many of the new ideas are actually old, with fresh angles. Last week a Seattle-area start-up called Jobster launched. It's yet another service for job seekers and recruiters. The twist: it asks users to pass on news of job openings to qualified friends and colleagues who may not even be looking for a new job. There are entrepreneurs hawking new peer-to-peer file-sharing software, new search engines that comb through video files and travel sites that look for the best deals by... scouring other travel sites. Sound like deja vu? "We thought about all these things in the '90s but it was too early," says Joe Schoendorf, a venture capitalist at Accel Partners in Palo Alto, Calif. "The management teams were too inexperienced, the ideas were not well thought out and the infrastructure was not in place to support them. But now every one of those factors has changed."
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As recently as last year, it was hard to find tech veterans who would admit to even considering something as cliched as a dot-com aimed at consumers. Then a funny thing happened: Internet users came to the rescue. They kept migrating online in droves, spending more time, money and particularly creative energy on the Web. Google went public last summer, but perhaps more significantly, it bought a start-up called Pyra Labs in 2003, which was making it easy for users to build the online bully pulpits called blogs. The acquisition showed that there were financial opportunities in catering to vibrant communities of active--some say obsessed--Internet users. Meanwhile new advertising technology, rolled out by Google and Yahoo, paired specific ads to Web pages with related content and demonstrated that entrepreneurs could make money in every far-flung, lightly populated nook of the Net--what techies now fashionably like to call "the long tail."
The odor of opportunity lured back the prodigal entrepreneurs like dogs to a T-bone. Andy Rubin is a technologist who a few years ago founded Danger, the company responsible for T-Mobile's (and Paris Hilton's) popular Sidekick phone. Rubin says many of his entrepreneurial friends did lots of "hanging out" for five years: traveling, "soul-searching" and "building monster houses." But now, he says, "they are starting to realize there is still opportunity and still technology that needs to be created." He includes himself: Rubin is now working on another mobile-phone venture--still secret--called Android.com.
As a result of the renewed activity, the byways of high tech are again bursting with optimism even while the overall economic climate remains dicey. Job growth in Silicon Valley is still stagnant and commercial real-estate prices are still down. Nevertheless, the traffic on the Bay Area's Route 101 is up, as are the lunch lines at Palo Alto and Menlo Park eateries. The pace of start-up creation is accelerating--venture-capital investment increased 15 percent from 2003 to 2004, according to Bay Area research firm Joint Venture: Silicon Valley Network. "At lunchtime, I see people writing on napkins again," says the firm's director, Russell Hancock.
While their scribbling may evoke old ideas from the boom, serial entrepreneurs say that starting a business today is a different experience than it was just a few years ago. Free open-source software, inexpensive Dell computer servers and economical office rents make it cheap and easy to take the first few steps. Joe Kraus, a founder of first-generation Web portal Excite, spent millions in the old days on the computers needed to start up his search firm. With his new firm, Jotspot, which aims to bring collaborative Web sites called "Wickis" to corporations, he spent only $100,000 in seed money to jump-start the concept and prove its merits.
Because of the availability of cheap contractors at home and abroad, start-up payrolls are also staying lean. Paul Ryan was a top exec at search-advertising firm Overture when Yahoo bought it in 2000 for $1.63 billion. He defected to Microsoft soon after, but lasted only four months in an environment he found frustratingly slow. Today he's quietly building a new company called Perform Local that will help household contractors like plumbers find customers on the Web. His 10-month-old venture has only five employees. "I'm a tech guy and I haven't hired any tech people," he says. "Between a few consulting dollars here and there, you can set something up pretty quickly."
Entrepreneurs are also finding less expensive ways to promote their companies. In the boom years, they funneled their capital into pricey highway billboards and TV ads. Dot-coms following the new playbook are letting communities of bloggers find their technology and evangelize it for them. Grouper, for example, has no ad budget, yet its software has been downloaded 500,000 times in the last six months. A similar social-networking firm, the Los Angeles-based MySpace, has attracted 12 million members "virally"--the online equivalent of that old marketing saw, word of mouth.
The new economics of starting a Web business may even be changing the entrepreneur's celebrated goal: striking it rich with an IPO. With the market for new stocks still flat, many entrepreneurs just want to get scooped up by one of the few Internet giants like Yahoo, Google or media mogul Barry Diller's AIC/InterActiveCorp. In this respect and many others, the Vancouver-based Flickr is typical of the dot-com revival. It's yet another photo-sharing site, but with a few nifty innovations: users can tag their photos with keywords, adding them to groups of similar shots from other users, and can append comments to any picture. More than a year after married founders Stewart Butterfield and Caterina Fake started the company, it has drawn more than a million users--without promotional expenses, of course.
Earlier this year, the couple was close to raising money from top venture-capital firm Accel, which would have put their company on a traditional track and prepared them, one day, to go public. Instead, this month they sold to Yahoo for a rumored $35 million. Integrated into Yahoo, they won't have to build human-resource, finance or legal teams. "We'll be taken care of and can concentrate on what we like doing best, which is building the product," Butterfield says. And if there's another tech swoon, or if another set of hungry entrepreneurs cook up an even better photo-sharing mousetrap, Flickr will have Yahoo's might to protect itself.
That suggests a final change in today's tech leaders. They understand that a volatile economy can scuttle future plans and are wary of the greed of the past. At least, that's what they say. If the high-tech economy once again goes from hot to overheated, let's hope that this time cooler heads prevail.
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