Innovation

Over the holidays, I spent some time with my younger cousin. As a senior in college, he's glued to the "Facebook" and "MySpace" -- two companies that are changing the way teenagers and young adults socialize. He says he goes on both sites each day because, well, all of his friends (and potential friends) are there.  They meet online; they create groups online; they update their profiles (with tons of pictures) or share a bit about themselves online. When I returned to work on Tuesday, I went on my own "social-network" services of sorts. I received invitations or requests to be part of  LinkedIn or to update my information on Plaxo.

One could argue that it wasn't until this year -- 2005 -- that these social-networking sites or services became mainstream. Yet it was back in late 2003, that Silicon Valley was trying to figure out just what would become of such services, notably Friendster - the social-networking pioneer. Read column on MarketWatch When I first wrote about MySpace, back in December 2004, the site had 3 million visitors. Read column

Across Silicon Valley, I don't see many investments into social-networking services, but I see a plethora of dollars flowing into user-generated services. Last week, Ron Conway - an angel  investor in Google (at $70 million in market cap) - e-mailed me to check out Wink.com, which is a user-generated search engine. Other user-generated services range from user-generated phone books, like Insider Pages, to user-generated local news operations, like Backfence. If the evolution of social-networking sites is any guide, maybe mainstream America will begin to understand user-generated services in 2007. 

It's not easy to be an early investor in these startups. But they certainly change the rules of the game for many public companies out there.  What's more, these young companies are getting attention and the funds to build up their operations. The optimism and relatively easy-money environment nearly smacks of 1999 - when nearly $100 billion was invested in venture-backed startups. Of course, roughly $21 billion will be invested in startups this year. And, unlike 1999, when public investors lined up to snap up unproven and unprofitable startups at wild prices, there is another group of buyers out there. They're big; they've got cash, and they're looking to stay alive in the Internet age.

Here's the TV package that ran on MarketWatch Weekend on CBS.
Watch report on startups in Silicon Valley