Eli Goldberg emails us. He writes:

“If you’re ever having a slow news day, you might be able to do something funny with this.

It’s the instructions I received in summer 1996 when starting at Apple explaining how to employees how use a Netscape web browser to obtain our benefits information, including how to use a web browser’s back button.”

Dear Eli, there’s no such thing as a slow news day. And there’s no chance we’re not posting what you sent us. Below, find Apple’s instructions on how to use Netscape Navigator, the Web browser and flagship product of Netscape Communications Corporation.

My favorite part of the document (along with the phrase “Netscape’s disclaimer when information is sent over the World Wide Web”):

Navigation Links

Navigation links are the underlined words that appear at the bottom of each section. You can move to specific parts of the document by clicking on these underlined words or phrases.

Back Button

The Back button is part of Netscape. It’s the square button in the top left-hand corner of your browser. You can use this button to get back to where you just were. By clicking this button several times, you will be brought through the same path you just took, only backwards.

Through the same path you just took, only backwards!

On an interesting sidenote: according to his LinkedIn profile, Eli Goldberg indeed started working at Apple in June 1996 (right before he started Prometheus Music). He went on to work for companies like Netscape (the irony!), Eazel, Sun, AOL, Flock and is currently employed by Microsoft.

Clearly, the man knows how to click the forward button, too.

Horace Dediu notes that Nokia and RIM are on a precipitous decline and that it is now, in short, a two horse race: Apple v. Android. The age of the smartphone – an era where anyone with a keyboard and some apps could make it in the world marketplace – is over.

I’d call this, now, the Age of Fragmentation – new devices are overlapping each other from both sides of the fence as users wait for new iPhones and swear that the next HTC, Samsung, or Motorola Android phone will be better than an undifferentiated predecessor. As a result, sales are fairly solid for each of those manufacturers but not amazing and the manufacturers who aren’t part of the game are losing market share.

We also see from this chart that HTC will soon be the brand to beat these days and that Samsung, though powerful, is already on par with Apple in smartphone sales. Remember that Samsung no longer announces handset sales so this could be the last time we see real data on smartphones with this sort of specificity.

In general, there are two players, and, barring amazing performance by Windows Phone, not much will change in the next year or so.

Before Mike McCue discovered how to flip an iPad into a device that made reading digital magazines a cinch, he himself was discovered by some of the biggest names in the tech world while working away in Silicon Valley Woodstock, New York.

In this episode of Founder Stories with Chris Dixon, you’ll hear them geek out about programming video games for the TI99 in Extended Basic, how McCue went to IBM instead of college, discuss how he made ends meet when money was tight, how that situation changed a million times over, and the idea behind his first startup, Paper Software. “The idea was to create technology as simple and practical as a piece of paper,” he says. After a few twists and turns, it was acquired by Netscape, where he found himself when a little thing called JavaScript hit the programming world.

Then, after AOL bought Netscape, McCue tells Dixon he decided to re-scratch his entrepreneurial itch and describes jumping back into the founder game with his startup, TellMe. “We we wanted to build Dialtone 2.0,” he says.

Hear it all in his own words.

In the below interview, McCue picks up where he left off and discusses narrowly steering TellMe away from a dot.com crashing landing while overseeing a staff of 200 and spending “$45 million a year and little revenue”  in the charred market of 2000. Fortunately, TellMe was able to raise a final $125 million round. “As the money was coming in from the banks,” recalls McCue, “the market was crashing.” He had some hard decisions to make as he prepared to “march through the desert.”

It all turned out okay. TellMe was eventually bought by Microsoft for $800 million. But getting there wasn’t easy.

Tomorrow, we’ll post more videos from this interview. Make sure to catch past episodes of Founder Stories with guests ranging Dennis Crowley and Mike Walwrath to David Karp and Lauren Leto here.

(Editor’s note: This is the third installment in a series about the late stage, secondary investing craze sweeping the venture capital business. For the first two installments go here and here.)

On May 26, 2009 Mike sat down with Yuri Milner, Mark Zuckerberg and a Flipcam to talk about the then-scandalous $200 million investment DST made in Facebook, at a price that valued the company at about $10 billion. The camera-work is Blair-Witch-Project-like at best. You can barely hear the audio,  and Zuckerberg can’t for the life of him figure out whether to look at the camera or Mike. It doesn’t really matter because, just after he asks, Mike proceeds to cut off half his face anyway.

But shoddy production aside, this may have been one of the most pivotal moments TechCrunch has ever captured on camera.

We didn’t know it at the time, but this was something more than an unexpected investment by an unheard of investor in a seemingly overhyped social network. It was a moment we’d been waiting for for more than a decade. Something we’d been obsessing about. It was the moment when a Web startup fundamentally broke all the normal rules of gravity that govern all Web startups. It was the moment that would eventually spawn a new, unchartered frenzy of late stage dealmaking. In my opinion, it was nothing short of the Web 2.0 generation’s answer to “the Netscape moment.”

THE. NETSCAPE. MOMENT. Anyone who was in the Valley in the 1990s likely hears dramatic music when they read those words. It refers to Netscape’s 1995 IPO, when an 18-month-old company that wasn’t yet profitable electrified the public markets generating one of the biggest first day stock pops in history. It wasn’t just the dream team of the Svengali-like Jim Clark, king of the geeks Marc Andreessen and the operationally rigorous Jim Barksdale. It wasn’t just that Netscape stood at the forefront of a multi-billion wave of Internet creativity that would transform nearly every industry and the lives of the billion people online today. And it wasn’t just that Netscape was a better business then than people like to remember, doubling revenues quarter-over-quarter.

It was also Netscape’s timing: The IPO coincided with a greater democratization of stock market investing. It wasn’t the banks– it was the everyday retail investors flooding brokerages to buy a piece of a product they loved that caused the stock to pop so dramatically. And Andreessen was a symbol to every hacker or geek that you could move to Silicon Valley and build something huge (and get rich) in a matter of months– something that had never been possible in business before.

Put the two together and there was an irresistible new reality where a smart idea posting dramatic growth that a huge number of consumers loved could now operate by new company formation and liquidity rules. Was it any wonder a flood of new companies followed? Of course, everyone knows the inevitable happened next: Greed and latecomers pushed things too far, and we ended up with a dramatic crash that psychologically much of the Valley is still reeling from. (Don’t believe me? How many times this week have you read an alarmist report about whether or not the Dot Com Bubble is back?)

It didn’t take long for nostalgia over Netscape’s IPO to set in. One of the biggest stories when I first moved to the Valley was the hotly anticipated IPO of Loudcloud, Andreessen’s second company. It was the fall of 2000 and the IPO market had ground to a halt. But there were still plenty of people who believed it was only the frothiest companies that would die and that, after a pause, the new economy would keep surging. Quarterly venture capital investments were still increasing, launch parties were still held, and the Red Herring was still as thick as a phone book.

As times got worse, everyone needed something concrete to pin their hopes on, and for many that became the Loudcloud IPO. Afterall, Andreessen had changed the markets once, why couldn’t he do it again? The story that rang across CNBC, the Wall Street Journal and countless other media organizations: Could the Loudcloud IPO be the new Netscape moment?

It wasn’t. And yet, the press still yearns. Since then there have been no fewer than 10 million Google mentions of the phrase, as the press and analysts have predicted that each impending liquidity event by an outperforming company lead by a charismatic CEO would be the thing to get the broader public markets moving again.

Would Salesforce.com be the Netscape Moment?

Would Google be the Netscape Moment?

Would Tesla be CleanTech’s Netscape Moment?

Each IPO above has been newsworthy and an industry milestone in its own right, but each has fallen short of the Netscape yardstick. Here’s a spoiler alert: When LinkedIn becomes the first social network to file later this year, no doubt the same story will be written, and LinkedIn won’t produce a Netscape moment either.

As each IPO fails to be the next Netscape, more expectations pile onto the IPO everyone really wants to see: Facebook. Since 2007, stock “experts” have been reading tea leaves to predict its imminent arrival, and even today every move the company makes is pinned to speculation that the IPO is coming soon, nevermind executives take every opportunity to say there are no immediate plans for one. Facebook has a young wonder-geek CEO. Facebook is growing a fast rate. Facebook has 650 million users, who no doubt will produce a strong retail pop. Couldn’t Facebook be it? The obsession is palpable.

Of course none of these things will be the next Netscape moment, because Netscape has already happened. Crash-aside, the new rules created by the Netscape IPO are still pretty much the rules high-growth startups play by today. It’s no longer shocking that a 20-something kid could move to the Valley and build a billion-dollar world changing company. We’ve seen it dozens of times– in good economic times and bad. And it’s no longer shocking that an Internet company can grow very fast because of quick product cycles and a huge market of 1 billion people these companies can reach. These trends have developed and intensified, but today they are the norm.

In our obsessive zeal to witness the next Netscape Moment, I submit we missed it.

As a business reporter, the Netscape moment wasn’t so pivotal because it was an initial public offering; it was pivotal because of what it represented. It was pivotal because of the impact that it had on entrepreneurs– allowing them to build companies based on a set of new rules, not the old rules that had been defined for them. It was about a company not only disrupting an industry, but disrupting the laws of gravity associated with being a startup itself.

Just as Netscape proved you didn’t have to be profitable or fully-baked to go public, Facebook has proved the inverse: That you don’t have to go public to get liquidity for investors, a huge marketing event, and cash to acquire competitors and keep growing. That you don’t have to go public just because the playbook says so. One was about pushing a wave of companies to surge towards an IPO faster; the other has been about giving permission to a wave of companies to put off the IPO as long as possible– but the two have been equally dramatic changes that have impacted the broader economy. Netscape gave Wall Street and investors a new high growth industry to pour money into; Facebook– starting with that first DST deal– has deprived the market of it. But because we were so conditioned to view the next pivotal moment in startup economics as an IPO, we continually saw these secondary deals as something leading up to that pivotal moment– not as the pivotal moment that changed everything itself.

Facebook and DST won’t comment on the record about things like this– particularly since it involves IPO specualtion– so the natural people to talk to are the two guys who have been in the middle of it all: Marc Andreessen and Ben Horowitz. Andreessen was the co-founder of Netscape and the Mark Zuckerberg before Mark Zuckerberg. He was the reason Loudcloud had so much hype. And he’s not only on Facebook’s board, his and Horowitz’s firm has been one of the most aggressive investors in the Web 2.0 late-stage frenzy DST sparked. Horowitz gets fewer headlines, but he was a manager at Netscape, the co-founder and CEO of Loudcloud and the co-founder of Andreessen Horowitz too.

When I mentioned this story to Andreessen at a dinner party a few weeks ago, I could see the involuntary facial tick as his smile faded. He was polite, but his face said: “You’re not actually asking me about the Netscape moment? You must know me well enough to know how much I’ll hate that.” Indeed. I do. There’s a reason I quickly added: “HEAR ME OUT!” I sat down with Horowitz this week for his take and I saw the same look momentarily cross his face– the fleeting desire to throw me out of his offices for bringing up such a silly, overused press gimmick that they’ve been asked about thousands of times. It’s the only thing worse than asking if the current wave of frothy valuations are “ANOTHER TECH BUBBLE.” It’s the same look I give when someone asks me if China is the next Silicon Valley. Um… for starters, one of those is a huge country with a billion people surging out of poverty, and one is a 50-mile stretch in California full of millionaires…

Both Andreessen and Horowitz granted the dramatic change prompted by both the DST and Netscape deals – but to them, DST’s investment in Facebook was still just a precursor to a potential IPO. They argue what was so revolutionary from within Netscape was the retail pop– the sense of every rabid user owning a piece of the company and that reinforcing the marketing of the company itself. “It was one big feedback loop,” Horowitz says.

Granted, just like a comparison of 2011 to 1999 is inane, so too are there huge flaws with my comparison. As Andreessen likes to say, “There are no ‘nexts’.” To call Facebook the next Google misunderstands what each company has built. Predicting the next industry changing moment is like predicting the next industry changing technology– by definition it’s something we can’t envision before it happens. And that’s why we didn’t realize at the time just how transformative that DST-Facebook deal would be.

In the Milner-Zuckerberg video above, Mike asks a few times why the company would raise this much money when it didn’t need the cash and why Milner would invest so much without a board seat. Zuckerberg says, “We have no plans to use this money immediately and we may never use it. We may use it to make an acquisition or to open up data centers, if some strategic option makes itself available, and now we might be able to do it whereas otherwise we wouldn’t have been able to, that’s the option value that we gain through this investment.” Was he being cryptic? Maybe. More likely, even he didn’t realize the flood of follow-on secondary opportunities the deal with unleash allowing Facebook to put off an IPO for years without hurting the company’s growth.

Some more parallels jumped out at me, the more I thought about the two moments:

Both had key enablers from outside the establishment. In the late 1990s four San Francisco-based boutique investment banks were the first to spot the potential of small tech IPOs that could get huge. The incumbent Wall Street vets missed it completely, obsessed with playing the old-economy game. This time around it was DST that was the outsider to the establishment who spotted an opportunity that all the billions of dollars in Silicon Valley was ignoring: Facebook couldn’t go public, and it needed money and liquidity.

The deal was reviled at the time and DST was deemed to be paying an outrageous price for such a speculative company– the same thing that’s been said at every Facebook valuation, by the way. But pretty soon everyone around the company warmed to the idea: With Facebook’s earliest investors using these secondary deals to lock in returns, Facebook’s earliest employees using them as a pseudo-IPO, major firms like Kleiner Perkins, Elevation Partners and Andreessen Horowitz using them to manage to get a pre-IPO chunk of the company, and of course, Facebook using them to put off going public, but still get the benefits.

Just as the boutique investment banks spotted an inflection point in the market to break the traditional rules that the establishment initially mocked and then jumped all over, so too did DST spot an inflection point in the market, broke traditional rules, was mocked and then billions of dollars and many of the biggest names changed their strategies to follow.

The Macro-Economic and Cultural Backdrop. The impact of each of these moments was about so much more than the companies themselves, and that’s what makes them different from, say, Google’s IPO which was a huge moment in tech, but didn’t have much of a macro-economic impact beyond Google, Google investors and Google millionaires. Netscape’s IPO came at a point in time that it represented a catalyzing of the birth of the modern startup, the birth of the Internet and the impact of a truly democratized stock market. The latter was continually goosed by CNBC and only become more pronounced with the birth of subsequent companies like eTrade and Ameritrade. The role so many individuals played in the bubble was what made the crash so devastating.

Likewise, Facebook’s reluctance to go public is wrapped up in a lot of bigger macro trends that have been more than a decade in the making. It’s not so much the psychological impact of the Dot Com Bubble, Mark Zuckerberg has always been one of the few people in the Web 2.0 world immune to that. As he once told me, “I was in middle-school then.” It’s the transformation of what it means to be a public company. To many CEOs, the benefits– liquidity, marketing and a stock currency to purchase other companies– have been outstripped by mounting costs.

There are hard costs like Sarbanes Oxley compliance, but more problematic are things like Regulation Fair Disclosure, or ‘Reg FD’. It was created to make sure all shareholders got the same information at the same time, but in practice means a company can’t defend itself against rumors started by hedge funds without the dangerous precedent of issuing a press release to rebut every rumor. That’s augmented a new reality where gossip and perception drives a stock price, not the actual health of a company. Technology has also changed how quickly investors can trade in and out of stocks, giving the entire ecosystem an increasingly obsessive short-term mindset. And the separation between research and banking meant research had to tailor to brokerages, who mostly want reports about the large-cap companies. As a result, smaller companies that manage to go public wither and die with no one evangelizing them to investors.

These changes help explain why the concept of going public radically shifted from something companies couldn’t do fast enough in the Netscape era to something companies wanted to put off as long as possible in the Facebook era. Without these changes, we wouldn’t be seeing the explosion of late stage funding. DST’s investment in Facebook might have been singular secondary deal, because by the time the markets opened back up, companies like these would have just filed. The public markets are starving today– it’s these companies that are dragging their feet.

Coming into the Web 2.0 movement, the appeal of the IPO was gone. Founders had three choices they didn’t like if they were lucky enough to succeed: Suck it up and go public, hire a new CEO who wanted to deal with Wall Street, or sell the company before it got to that point. Mark Zuckerberg gave everyone a fourth option: Put off the IPO for years, until you have $1 billion in revenues and are so dominant you can operate by your own rules and continually do secondary rounds to give anyone who doesn’t like that strategy a way to get a return in the meantime.

While Google’s IPO didn’t have an immediate impact ala Netscape, there are roots in all of this that go back to Google. Google was the first company to dramatically stand up to the new unpleasant Wall Street reality, going public by dutch auction and announcing it would never give guidance among other non-traditional terms. Horowitz describes Googles IPO without words– by dramatically lifting his arms over his head, pulsing two middle fingers in the air and making a face like a headbanger. And Google paid the price: The stock didn’t have a dramatic Netscape-like pop. But over the next few years it soared from $85 a share to more than $700 a share.

That sent a powerful message to Greylock’s David Sze of how much growth you could still have in Internet companies after the IPO when you weren’t operating in the dot com bubble– especially now that more than a billion people are online. He says that insight was a big reason he invested in Facebook in 2006 at the then-outrageous $500 million valuation and why Greylock has increased its late stage appetite in general.

The Ripple Effect. Of course the biggest similarity is how both Netscape’s IPO and Facebook’s lack of an IPO have set a new model for others. In the case of Netscape, the floodgates opened wide. In the case of Facebook, it’s been far more measured in terms of the number of deals. Less than a dozen startups have raised these kinds of late-stage secondary mega deals, and the total activity on secondary markets is estimated to be less than $1 billion a year. But in the case of Facebook, the best companies have followed suit, and that matters because venture capital is a home run business where the top 5% of companies make 95% of returns. Anything they do, effects the entire industry and the absence of those companies from the public markets has a big opportunity-cost impact too.

Within Silicon Valley, the impact has been massive– dictating the investment strategies of some of the Valley’s biggest and best firms, and impacting lives of thousands of employees of Facebook, Zynga, Twitter and every other company doing these secondary deals. This much liquidity before an IPO was unheard of before that DST-Facebook deal, and we don’t yet understand the impact. I’ve argued before that it makes the rank-and-file Valley executives more short-term focused and more mercenary, which isn’t necessarily a good thing. Pre Facebook-DST, companies could hold onto the best and brightest employees up through the IPO and its trading lockups. Now, the churn out of companies happens before they even file to go public. And the appeal of getting pre-IPO shares in a company like Facebook is a lot more nuanced when a company is valued at double-digit billions and employees are given restricted stock units instead of options.

But you could argue the downside for a company’s ability to retain employees through an IPO is the Valley’s upside. In the case of Facebook, we’ve already seen a handful of promising companies developed from early employees who were able to cash in and leave. Usually “mafias” like these don’t start to bear fruit until a company is purchased in the case of PayPal or Netscape.

The big question with the ripple effect is whether things get pushed too far as they did post-Netscape moment. Netscape itself turned a profit quickly after it went public and had heathy revenue growth. While that IPO was speculative compared to what had come before it, it was boring and rational compared to what came next. So too are we already seeing the degradation of quality in late stage deals. There is only one Facebook, and while  Spotify was “only” valued at $1 billion in its recent DST deal, that’s ten times what Pandora– a company that has solved its legal issues with the RIAA– was valued at back in 2009. I don’t care how much smaller the price tag is, $1 billion for a company that can’t legally operate in the world’s largest Internet market despite two years of trying is a different risk profile than buying shares in Facebook at a $30 billion price. Facebook, after all, is already doing more than $1 billion in revenues, used by more than 650 million people and growing.

It’s not just macro-greed the Valley needs to worry about: It’s micro-greed. Last week, we reported a story about a Facebook employee named Michael Brown being fired for insider trading. We use those words, because we were told those were Facebook’s words to describe the internal rule he broke – and that fact wasn’t disputed by any of the sources we spoke with.

We didn’t take the allegation lightly. Contrary to suggestions from Brown’s friends and associates, before we wrote the story we talked to several people around the case including the employee’s attorney. Moments after the piece posted, we talked to the attorney again and later that night we spoke with Brown himself for more than an hour. We would have preferred to speak to Brown sooner, but his attorney denied our initial request. The content of those conversations was off the record and will remain off the record, but we updated the story with information gleaned during those conversations and remain comfortable that, on several points, we gave Brown the benefit of the doubt.

But the fact that so many people rushed to the employee’s defense without knowing the facts could be a worrying sign that others view what he did as rational and reasonable, and not equivalent to insider trading at a public company. Maybe it was an isolated incident and a naive mistake. Hopefully shining the light on it will show how serious such mistakes are. But one thing is clear: Even if companies act as swiftly as Facebook did in this case, if more employees view this behavior as acceptable, the Securities and Exchange Commission will come down on secondary markets like a hammer, effectively shutting down a new way to get liquidity as quickly as it started. Congress and the SEC already made IPOs an undesirable route, through well-meaning reforms that had unforeseen consequences.

It’s up to the Valley to show restraint and make sure this is one way history doesn’t repeat itself this time.

A lot of things about Facebook have been impressive, even by the Silicon Valley standards. Almost no other Valley company has reached so many people around the world so quickly. Few Valley companies have been considered important forces in causes as disparate as planning a party or a political uprising. Rarely has a kid in his early 20s held onto the CEO reins this long. And of course, no other Valley company has been made into a star-studded, over the top Oscar-nominated film.

So it shouldn’t be surprising that the Facebook mafia– made up of high profile alumni responsible for building companies like Quora, Cloudera, Jumo, Asana and Path– has also emerged so early and become so distinct, well before Facebook has come close to a major liquidity event. Like most of the things that make Facebook unique, part of this is due to Facebook itself, and part is due to the time in which the company was formed.

But before we get to the specifics of the Facebook mafia, it bears noting that not all companies produce bona fide mafias. It’s more than just alums doing well. A true “mafia” is a collection of co-founders, early hires and top engineers who’ve been battle-tested together with an enthusiasm and financial resources to start many different ventures immediately. There’s also a communal sense of co-investing in and supporting one another, hence the idea of keeping it “in the family.” While plenty of smart entrepreneurs and angel investors came from or filtered through Google, Yahoo, eBay, Amazon and Microsoft, those gargantuan successes didn’t really create a mafia that catalyzed at a certain moment of time, resulting in an cluster of cool new stuff.

In fact, few big successful, lasting companies spin out mafias, because those companies grow to such a large size that the unique DNA of the culture gets watered down. And for financial reasons, insiders used to be tethered to the company until after its IPO. By then, they’d missed being in the middle of the next big startup wave. Instead mafias tend to fall out of companies that didn’t go as far as they could have. It creates a frustrated sense of still having something to accomplish, or as Peter Thiel said about the PayPal mafia, “You had a lot of smart, competitive people who all needed something to do.”

Think of the most noted mafias in Valley history: Fairchild Semiconductor started it all with a high-profile exodus of core talent that encouraged others to do the same. Netscape was another huge one, post AOL sale. Netscape was such a world-changing company, it was hard for anyone who was a part of it to go back to a regular day job, and Netscapers had more cred than anyone in the dot com heyday. There was Quincy Smith, Ram Shriram and Khosla Ventures’ David Weiden to name a few members of the diaspora. Of course, the biggest result of the Netscape mafia was the angel portfolio of Marc Andreessen and Ben Horowitz, who also founded Opsware selling it to HP for $1.6 billion. That angel portfolio included early bets on companies vital to the early Web 2.0 movement, including Digg, Delicious, Twitter and more. And that angel portfolio led to the formation of Andreessen Horowitz, which has funded everyone from Zynga to Foursquare to Skype.

Excite@Home spawned another mafia. For those who don’t remember, Excite@Home was an ill-thought out $6.7 billion mash-up of two hot companies that proved to be one of the highest flying dot-com disasters. But out of Excite@Home came Joe Kraus who founded JotSpot and is now a partner with Google Ventures, Brett Bullington an angel investor and board member in several Valley companies, Craig Donato of Oodle, David Sze who would fund Facebook, LinkedIn, and help revitalize Greylock’s West Coast brand.

Excite’s mafia may not have founded the next billion dollar company, but they’ve funded several of them. And, like most mafias, they do things collectively. Donato was funded by Sze and Bullington is on his board. Find an industry conference and you’ll find these guys clustered at a back table joking about the good-old-days. Mafias aren’t just about people who had a certain company on their resumes starting something new– there’s the cultural aspect of doing it together that makes them unique.

Of course, the most written about Valley mafia was the PayPal mafia. The three founders alone had a tremendous impact. Max Levchin started Slide which sold for $228 million to Google, and incubated Yelp, which has a good shot at becoming a billion dollar company. Peter Thiel started Clarium Capital and Founders Fund which backed many PayPal mafia companies and most famously, backed an early Facebook when no one else would. Thiel was an important early mentor for Mark Zuckerberg. Elon Musk invested in Solar City, and founded Tesla and SpaceX. Tesla has already gone public and revolutionized the automobile world, SpaceX and Solar City are expected to go public sometime this year. Oh, and the three founders have produced movies too.

And let’s not forget the biggest exit so far of the PayPal mafia: YouTube’s $1.65 billion sale to Google, which cemented the reputation of Sequoia’s then new partner, Roelof Botha– once PayPal’s CFO. Second biggest was IronPort, built by Scott Banister and sold to Cisco for $830 million. And soon, we’ll see the debut of the PayPal mafia’s first IPO, when LinkedIn– founded by former PayPal executive Reid Hoffman– goes public. Hoffman, too, has funded and mentored dozens of Web 2.0 companies.

And let’s also not forget some newer, promising companies from the mafia like David Sacks’ Yammer. Sacks was PayPal’s COO– and the guy who came up with that early viral marketing scheme of paying users cash to refer their friends. And PayPal’s Keith Rabois is one of the top executives at Square, a company leading the next wave of fundamental disruption of the financial industry. eBay loves to trumpet how fabulous PayPal was as an acquisition. But the PayPal mafia has created many more billions and changed the world far more.

I once asked Peter Thiel if PayPal made a mistake selling too early– something we fixate on in the Valley. He answered that he’d wrestled with that a lot, especially seeing how big PayPal has gotten under eBay, and imagining how much bigger it could have become as a stand alone company. But ultimately, he said, looking at all the companies that had been created as a result of those smart competitive people needing something to do, it was hard to argue selling PayPal was a mistake in the macro sense.

You could have the same conversation today about the good and the bad of Facebook’s hundreds of millions of dollars of secondary share cash-outs, which has largely made this early mafia possible. The secondary sales have been a challenge for Facebook, because it makes retaining some of those early employees harder, and I’ve argued before that it contributes to the Valley’s increasingly short-term, instant-gratification, mercenary culture. But if Quora, Path, Asana and others can live up to the early hype, the Valley’s ecosystem will get its cake and get to eat it too: Facebook keeps growing, seemingly unstoppably, to become the biggest company of this generation and we get a wide impact of startups spinning out of it too.

So what does the Facebook mafia look like, and other than its surprising early existence what makes it different? I wanted to examine it, because I was struck by three things: The continuing Valley love-affair with Quora, Dave Morin of Path’s almost incomprehensibly ballsy rejection of Google’s $120 million purchase offer and the many things about Dustin Moskovitz’s Asana that reminded me philosophically of the early days of Facebook, even though the product is decidedly not a Facebook for the enterprise. That got me thinking about other Facebook spinouts we don’t write about as much like Cloudera and Jumo.

So I decided to spend much of the last two weeks interviewing more than a dozen people who were early advisers, investors and insiders at Facebook on and off the record about what it was that was making the companies spinning out of this young mafia so striking, in so many different ways. Here are some of the core characteristics, and how they stand out from startups I’m seeing in the Valley at large.

Not for Sale by Owner

To a person, the early Facebook people I spoke with all mentioned Zuckerberg’s July 2006 rejection of Yahoo’s $1 billion purchase offer as a seminal moment that not only changed Facebook, but changed their thinking personally as entrepreneurs. In hindsight it looks like a no-brainer, but the outside world deemed Zuckerberg arrogant and delusional at the time. Inside Facebook, his decision caused a split within the company.

Dustin Moskovitz remembered several people saying to Zuckerberg at the time, “If you knew you didn’t want to sell, why did you take us so far down this path? Because that’s what was so painful, getting to the alter and then breaking up.” After that, Zuckerberg never went down the aisle again. And similarly, Moskovitz’s company Asana has refused to engage in conversations about a flip, and sources say Quora has the same philosophy.

And then, there’s Path– a mobile photo sharing site that doesn’t even have a million users and turned down a purchase of more than $100 million. As Mike said in his post, Morin is definitely crazy– we just don’t yet know if that’s a good crazy or a bad crazy. During the weekend Morin was agonizing over the decision, he holed up with his biggest angel investor– Moskovitz. Moskovitz was one of the only people who didn’t make Morin feel crazy, and it played a big role in giving him the confidence to do what he knew he wanted to do, turn the insanely generous offer down.

Engineers Are Gods and Education Isn’t what Made Them that Way

These companies all revolve around engineers in almost a cultish way. Their investors and competitors always note how good the team is– which is saying something in a Valley locked in a full-scale talent war. They are insanely picky about hiring engineers and when they find a good one they will pay him nearly anything. Asana gives engineers $10,000 to pimp their desks. Zuckerberg has described Quora co-founder Adam D’Angelo as one of the best — if not the best– engineers he has ever met. And Path’s team was reportedly one of the assets Google was so willing to pay up for.

But unlike companies like Google and Amazon who rigorously hired based on college degrees, GPAs and standardized test scores, Facebook and the companies that have spun out of it have hewed toward sheer, raw, hacker-like genius. That’s created a more entrepreneurial culture inside the company. Justin Rosenstein– who was at Google and then Facebook before leaving to co-found Asana with Moskovitz– says that working at Google is often described as a wonderland for academics, while Facebook’s early days were more of an extension of a messy dorm room full of engineers hacking away all night, then collapsing most of the day.

Rejection of the Lean Startup Ideal

One thing that made Facebook so distinct from its early Web 2.0 peers was how much money it raised and how rapidly it scaled up. In the aftermath of the dot com bust, there was a paranoid fear of taking too much money or doing in house what you could outsource. But Zuckerberg had missed the bubble and the bust, and built the company as he deemed appropriate.

Likewise, some of these companies still have small teams, but it’s not for the sake of being small. They’ve not been shy about raising money, and because there’s not an emphasis on selling the company, they have no problem hiring or raising more when needed. And as the salaries and perks paid to engineers show, it’s not a culture that wastes time nickeling and dimeing the important things.

Efficiency and Organization at the Expense of a Free-for-all

The hallmarks of each of these products are around efficiency, not sprawling messy communities. Quora seeks to organize information to benefit the person answering the question, not the person asking it. As such, some people posing the questions get annoyed that they don’t get the right to retain more control of the dialogue.

Similarly, Path is an efficient way to jump in and out of friend’s photo streams. Like Facebook, the emphasis is on engaging with the app seamlessly throughout a day, not spending hours in it at a time. And Asana controls work flow and collaboration through a core news-feed like layout. The emphasis again, is on living in the app, engaging with it throughout the day, not spending an hour doing things inside of it. It’s that difference between being a “utility” and a “media” property that Zuckerberg talked so much about in the early days.

Controlled Pacing, Not Cheap Viral Hacks.

Here’s a core difference between these companies and many I see in the Valley. Most companies put an implicit value on size for the sake of size, and doing any cheap viral game in the book to get there, even if it means a low percentage of users ever engage with your app or return to your site again. In the last five years the value of a unique user has been almost completely eroded.

Instead, many of these companies take a cue from the way Facebook rolled out with a deliberate controlled pacing that allowed it to scale as it went from just Harvard, to include Ivy League schools, high schools, work places, and eventually the world. Facebook had a confident sense of not being in a hurry, that helped keep its community from becoming overrun and eroded. Likewise, Quora’s press, valuation and influence has far outstripped its user base. Path has a small fraction of Instagram’s users. And Asana has more than 5,000 companies on its waiting list to use its product. These companies may all become huge one day, but that’s clearly not their priority now.

Solving Big, Messy Social Problems Others Have Failed Trying to Solve Before

Perhaps it’s because the founders were at Facebook before, and it would take something big to get them to leave. Or maybe they’re all idealists who want to change the world. But each of these companies has a big sense of mission. None of them started from building a cool app or site for the founder and his friends, they all started to solve a big problem. And what’s more: That problem isn’t typically a new problem. This is where you get these companies biggest haters: The people who say Quora is just Yahoo Answers, the people who say Instagram beat Path before it got the chance to get started, the people who look at Asana and see yet another collaboration software play.

But here’s the thing: The core problems still exist despite billions invested in solving them, particularly in the case of Quora, Asana, and Chris Hughes’ Jumo, an ambitious play to organize the messy world of nonprofits. We can all see the pitfalls these companies will face, because we’ve seen companies fall into them before. But call it arrogance, confidence, delusion or some insight we just don’t understand from the outside, these founders all think they have a key to solving it.

It’s hard not to compare this to Facebook. The biggest reason people wouldn’t fund it in the early days was because of the great flame out of Friendster. Then, when MySpace took off, no one thought Facebook had a chance of catching them. Those naysayers were all wrong.

And like Facebook, companies like Asana, Path and Quora are trying to solve problems that are inherently social. Not social in the capital-S SOCIAL MEDIA! sense of the word, rather social in the sense of the messiness that results from people trying to interact online and bringing all the messy aspects of human interaction, communication and relationships with them. They are problems that machines can’t purely solve and people can’t purely solve, and each of these companies tries to use both to solve them, rather than Google’s slavish love of the algorithm or Yahoo’s early belief in directories and curation. They are all likely problems that have no one solution, but a long road of getting closer.

Moskovitz says it’s less like they’ve all gone their separate ways, and more like they’re all still working in one bigger, deconstructed company that stretches through the Valley. He’s still trying to solve problems he was working on within Facebook, but on a bigger scale and for all companies. He uses Cloudera’s data processing engine and Quora to handle some of their press and messaging, and uses all the others on a personal level.

At the end of the day, this is exactly what makes Silicon Valley irrepressible as an entrepreneur hot spot–more than the money, the universities, and the rest. You can trace a whole lineage of mafias coming out of mafias. Facebook had its roots in the PayPal mafia, which had its roots in the early University of Illinois days along with Netscape and Mosiac. And Netscape grew out of Silicon Graphics. It’s this lineage that has taken decades to develop in the Valley that no government programs or well-meaning civic boosters can replicate.

It’s a sad day for the Internet, as today marks the final day of Netscape Navigator, the first mass market graphical Webrowser and the precursor to our favorite, Firefox.

As of tomorrow, AOL, who owns Netscape, will cease support of the browser entirely tomorrow.

At one time, Netscape was the de facto Internet browser, but due to some nefariousness on the part of Microsoft, Internet Explorer took over. Now, the spiritual successor to Netscape, Firefox, is chipping away at IE’s market dominance.

Still, it’s sad to see an old friend leave forever. So take a moment today to thank Netscape, for without it, the Internet would likely be a much different place than it is today.

Final goodbye for early web icon [BBC]

Now that I have your attention, Compete has released a list of the fastest-growing (and fastest-declining) sites of 2007. Some of the fastest growers include Veoh, LinkedIn, Reddit, StumbleUpon, Six Apart, and WordPress. Some of the notable sinkers are Bolt, Xanga, Netscape, and Autobytel.

TechCrunch has the distinct honor of taking the No. 5 spot in the fastest-growing list, right behind YouPorn and in front of DateHookup. I am not exactly sure what to make of that. I guess Compete thinks we’re hot.

Today, however, they split their endorsement. In a blog post titled “Netscape Recommends Flock, Too,” Netscape’s Richard Klein describes Flock as “Firefox with social integration” and gives it his thumbs up.

The only problem is that Netscape has next to no actual users left to make these recommendations to – less than 1% market share. Flock must love the endorsement, but it isn’t going to make much of an impact on actual downloads.

We’re fans of Flock here, too (Duncan gushes, whereas I think its excellent but very slow sometimes). Personally, I’m finding Firefox 3 for the Mac the best, fastest and most stable browser I’ve ever used.

In an email exchange yesterday with Tom Drapeau, Director of AOL/Netscape development, he said that only a handful of AOL engineers are still tasked with keeping the browser updated. Most of their efforts have been aimed at creating a Netscape-skinned version of Firefox with the Netscape look and feel.

The team has been unable to gain any significant market share against Microsoft Internet Explorer. In fact, recent surveys suggest that Netscape currently has only 0.6% market share among browsers, compared to IE’s 77.35% and Firefox’s 16.01%. This, of course, is the same browser that once claimed more than 90 percent of the market, sparking the browser wars of the 1990s and the subsequent Microsoft antitrust trial.

Drapeau says AOL’s transition into an ad-supported web business leaves little room for any real effort at maintaining and evolving the Netscape Browser.

He also points to the success of the non-profit Mozilla foundation, which spun off of Netscape in February 1998 with $2 million in funding from Netscape and an additional $300,000 from Mitch Kapor. Firefox, which is part of Mozilla, brought in nearly $70 million in 2006 revenues, mostly from a search deal with Google. In a sense, Netscape lives on through the open-source efforts of Mozilla and Firefox.

Support for existing versions of Netscape Navigator will cease on February 1, 2008. After that, users can visit the UFAQ and the Netscape Community Forum for support.

AOL is also setting up a Netscape Archive where users will be able to download old versions of Netscape, without any support.

I sadly place the first browser I ever used into the TechCrunch DeadPool.

One name with a long history is the AOL owned Netscape.com. The site was relaunched in June 2006 as a Digg clone with high hopes that a new generation would use the once great brand as an alternative to Digg. The strategy failed dismally, but the termination in the end was even worse. From November 2006 through to August 2007 (the last full month as a Digg clone) Netscape’s traffic dropped from 305 million pages views a month to 137 million, a 55.1% drop in 9 months. AOL dumped social voting on Netscape September 19, and things went from bad to worse, with traffic dropping in August from 137 million page views to a dismal 38 million in November, down 72.3%.

The new home for the Netscape social voting experiment Propeller performed reasonably, but failed to capture most of Netscape’s previous social voting audience. With 13 million pages views (according to comScore) in November 07, Propeller has managed to pick up less than 10% of Netscape’s August audience.

The big winner once again in the social voting space was Digg. Starting at 11 million page views in November 2006, Digg saw a 318% increase in traffic to 46 million 12 months later. Reddit fared well increasing from 2 million page views in February 2007 (the first month it was big enough to be recorded by comScore) to 9 million in November, although October was a highpoint with 16 million page views.

Traffic on AOL’s Netscape portal has plummeted since the site dumped its social news voting model and reverted to a new portal, at least according to Alexa.

Unfortunately the comScore figures for Netscape aren’t yet available for September so we can’t confirm the traffic crash, but despite Alexa’s argued issues the crash in traffic as shown by Alexa is unlikely to be an Alexa only quirk.

Tony Hung, who first picked up on the traffic crash notes that “[the traffic crash] validates Jason Calacanis — and indeed all the hard work Netscape folks have done over the past year or so to cultivate a community in Digg’s shadow — that so many of the people at Netscape were genuine fans *of* social news.” He’s right.

If Alexa is to be believed, Netscape’s traffic is now at its lowest level ever and ranks at a miserly 2,200th, a far cry from the days where Netscape was in the top 10 destinations online or even in the Top 600 during its time as a Digg clone. Some one at AOL may have some explaining to do given that the decision destroyed the traffic (and value) of Netscape by over 50%.

In a statement, Tom Drapeau said that AOL was “working hard behind the scenes to ensure a smooth transition before we officially launch at this new destination,” which given the site isn’t live yet is code for we eventually found a spare domain to rid ourselves of our Digg clone.

It might be too early to Deadpool the Netscape Social news experiment yet, but without the type-in traffic and brand recognition of the Netscape name, the whole idea will struggle to survive; after all the Netscape name, and previously Jason Calacanis’ evangelism was really all the site had going for it. I’ve heard some unconfirmed reports that since the initial announcement the site has been bleeding staff and contributors as well; I give it 12 months max, or AOL flogging Propeller off during this time for a fairly low sum.

In a statement, Tom Drapeau spun the decision as being AOL listening to its customers and as part of their “desire to better serve our community.” On the decision itself, Drapeau stated:

We received some feedback that people really do associate the Netscape brand with providing mainstream news that is editorially controlled. In fact, we specifically heard that our users do have a desire for a social news experience, but simply didn’t expect to find it on Netscape.com.

The new (old) Netscape home page is not live quite yet, but can be viewed at netscape.aol.com. All traffic to Netscape.com will shortly be redirected to this site.

Drapeau claims that the social news service will go on at a new site, but failed to name the site or when it would be launched; certainly not a good sign for the current Netscape editorial team.

We hear that wow.com, a domain previously owned by Compuserve and acquired by AOL, is a potential landing place for the Netscape service. AOL may have different plans for wow.com, however, and the Netscape portal may land somewhere else. Either way, look for a link or module from the old service to remain on the netscape.com domain after the changeover.

We also expect to hear about material layoffs at AOL in the next six weeks, possibly as much as 15% of the 16,000 strong workforce. Next week the senior execs are supposed to be notified of the exact size of the cuts and whether they are targeted to specific business groups or across the board cuts.

It’s unclear as to why the site might be scrapped or changed. Netscape.com and netscape.aol.com are controlled by different groups with AOL. At the very least a turf war of some kind is playing a part. And since Netscape’s primary champion, Jason Calacanis, left the company late last year to start a new company, it may leave the social news property without enough clout to protect itself.

See this announcement on Netscape.com that some of the traditional portal/news features are being incorporated into the site. One source says this is a testing of the waters to gather data for a final decision:

Just launched this week, there is a new AOL.com site available for the Netscape Community. Over the past year, there has been a lot of feedback regarding some of the features of the previous Netscape.com site that have gone away, and this site hopes to being some of that functionality back. Check it out!

Update: An AOL spokesperson carefully comments below.

Community has been a core element of both AOL and Netscape since their inception and will continue to be. As the text on the site explains, we wanted to give a more traditional portal alternative to the Netscape users who requested it. You can rest assured that social news will continue to be an important part of what we do.

The message doesn’t address the issue head on. In fact it is sort of content-free. Saying “community has been a core element of both AOL and Netscape since their inception” followed by “you can rest assured that social news will continue to be an important part of what we do.” This is very different from saying that they are not closing netscape.com as we know it. Clarification is requested. See this comment as well from Tom Drapeau, who runs the current Netscape site. He’s also clearly annoyed by this post.

Update2: long Netscape blog post on the subject, still no denial but they are seriously annoyed with this post. Note to AOL: I can’t help it if people inside AOL/netscape are chattering about this to me. And all these vague responses tell me clearly that a real debate is going on internally about the fate of netscape.com. It’s actually a good thing that people are chatting about you. Look at some of the leaks at Google and Yahoo and all the stuff that gets out about them. This means that AOL may be starting to become relevant again to the early adopters. Silver lining and all that.

Incredibly awesome magazine PC World has come out with a Top 50 Best Tech Products of All Time list and boy is it full of nostalgia. Classics include 3dfx Voodoo3 at #16, the Motorola StarTAC at #8, Tetris at #10, and Napster at #4. The most recent item on the list is Blizzard’s World of Warcraft at #27, followed by the Canon EOS Digital Rebel at #44.

So who took the #1 spot? Was it Mac OS X? Perhaps the Nintendo Game Boy? Far from both, it’s actually Netscape Navigator. Yeah, that’s right. The 1994-browser you used back in school to visit LexisNexis reigns king over all gadgets and software. True, Netscape was the first mainstream browser to do it all, but the #1 spot on the 50 Best Tech Products of All Time? Psh. Way to blow it PC World.

50 Best Tech Products Of All Time [PC World]

Tangible evidence of Digg’s importance: the raw number of clones and Digg gaming schemes out there. We’ve seen rigging, vote buying, profile sales, and accusations of thug rule. The dozens of clones include a not-bad SourceForge project called Pligg, which lets users “build their own Digg”.

But Digg’s ubiquity and influence doesn’t mean it’s perfect. A number of startups are tackling the same problem as Digg – sharing of good content via link submission and some form of voting. One of them, stumbleupon, actually has more registered users than Digg. For the most part, though, these sites won’t be able to do much damage to Digg’s steady growth. But many of them are worth looking at, and they all have individual features that could, if incorporated into Digg, make it a better overall service.

*Personalized refers to recommendations uniquely tailored for each user

BlinkList
BlinkList takes a distributed approach to the Digg model. It lets anyone get their own link blog where they can add their favorites. BlinkList then looks across the whole network and ranks the site based on how many other users added the link.

ClipMarks
Instead of full URLs, Clipmarks lets users share just the best parts of webpages. Using their plugin, you can bundle together your favorite selections of content from a webpage. This includes text as well as pictures and video. Submissions are then “popped” by other members of the community, with the most popular at the top. Using the plugin, you can also submit your clips to your blog. Currently, the site’s two pane page layout gives me the feeling of looking at the net through a steamship porthole.

CoRank
CoRank confronts the mob mentality on Digg. Digg promotes stories to the front page based on the votes of the whole community, resulting in a lot of noise for users with interests different from the crowd. CoRank lets you look at all submitted links or filter out the noise by subscribing links from just the users you choose. Only the highest rated stories from your subscribed sources make your front page.

Netscape
Netscape has also taken on Digg’s mob mentality, mixing in their own team of anchors to submit stories and cut out spam. The anchor’s stories are featured on the front page along with the current top 25 stories. They also got into a little hot water with their recruitment practices. Netscape has managed a greater variety of content in it’s front page, pulling 2 stories from each of the top 10 most popular channels and 1 story from each of the next 5 most popular channels.

Newsvine
Instead of a submission free-for-all, Newsvine implemented it’s own form of quality control by only allowing users to vote on content from the Associated Press and other user’s personal articles. Users are given a live feed of all the latest AP stories, voting on articles and writing their own on their personal column page. Newsvine shares 90% of all revenue generated by advertisements on your column page with the user. Users can also personalize their feed

OpenServing
OpenServing is a product of Wikia, and the opensource version of BlinkList works for fun or profit. The concept is the same, a personal page of links, democratically ranked by your friends, but it also lets you post your own ads on the site.

Reddit
Reddit made headlines when Conde Nast acquired them. The site is a favorite of mine and is still up and running, with some key differences from Digg. Reddit rankings are based on an absolute vote (+1 for hot, -1 for cold), meaning a story can dance up and down Reddit’s top page instead of being buried out of existence by a few power users. To see what’s on top now, there’s also a “hot” list. This type of voting system also means the front page can be stagnant, to the chagrin of some users, but it has also avoided Digg’s payola scandals. Another bigger differentiator for Reddit is their recommended article page, which suggests links based on your voting pattern.

Spotback
Spotback is an automated alternative to Digg, that aims to use personalization to improve the signal to noise ratio of the stories you see. You train Spotback by clicking and voting on the stories it digs up. Voting positively on a story causes Spotback to reveal the next most relevant story. One of the best parts about Spotback is that it doesn’t even require a registration to get up and running.

Spotplex
Spotplex is another automated link site that automatically submits stories from blogs carrying its badge. Stories are then ranked on the Spotplex homepage based in part on how many views the article generates (the algorithm is still being tweaked). The site’s automation and closely controlled blogroll seems has avoided the types of rigging Digg was subjected to, but it lacks the community of commentors that make these social media sites addictive.

StumbleUpon
StumbleUpon provides a different user experience while discovering and digging up links. You use a tooblar (FF & IE) to tag, submit, and vote for links. While the site does rank links the main experience is by taking a random walk around the internet. It keys in on Diggs greatest strength, an easily accessible constant stream of interesting links. StumbleUpon is definitely catching on, they recently surpassed 2 million users.

Like Netvibes, Pageflakes, GoogleIG, MyYahoo, Live.com and many, many others (who am I missing?), users will have the ability to choose from “just under 100 modules” of customized content, and add RSS modules for favorite feeds.

Netscape’s user base is not exactly cutting edge, and AOL is clearly taking good ideas from new startups and seeing if their users will consume them. Netscape became a Digg clone in mid-2006, and now my.netscape is to jump on the Ajax homepage bandwagon. It’s nothing to criticize them for, but it’s nothing to get excited about, either. The long, slow decline of this once great company continues.

See ReadWriteWeb for more, which asks “Can Netscape’s user base handle yet another web 2.0 overhaul?”

I spoke with Jason Calacanis, who runs the Netscape property, earlier this evening about the tests (Jason wrote about the upcoming changes here). He said that Netscape is seeing heavy usage in the technology and politics categories, but the remaining 31 channels, ranging from Books to Women, are seeing less user news submissions and participation. Since the Netscape home page reflects the most popular stories from all categories at any given time, it is currently very heavily weighted towards tech and politics stories. This focus creates a self propogating system that continues to promote what is already popular.

The new layouts, described in a Netscape blog post, will instead show top stories from a variety of topical channels. The hope is that, once more varied stories hit the Netscape home page, these channels will become more popular.

The most interesting part of the story, however, are the comments users have left to the blog post linked above. When the author wrote “What do you think?” at the end of the post, users took it as an open door to say what they felt about Netscape in general. There seems to be a lot of frustration to vent, with commenters stating things like “It’s getting to the point where I’m just about ready to close my Netscape acct. altogether,” “I hate the new Netscape!,” and “The new Netscape is a big disappointment.” Of the 15 comments posted as of the time I am writing this, only four seem to be on the topic requested by the post author, none were strongly pro-Netscape and 9 were basically asking for the old Netscape portal back.

Welcome to the world of user generated content, Netscape users.

As social news works itself out, advertisers seek to get into places like MySpace and YouTube and the line between amateur and pro continues to blur – there’s a number of things unfolding that could change media in the same way as bloggers at the Democratic National Convention went down in history as a key turning point for that medium. When Yahoo! bought Flickr they said that one of the system’s biggest appeals was that users built the community for free. According to Calacanis’s logic, that’s not be the direction things are moving in these days. There’s a lot of evidence to support that opinion; these sites are being made viable by the work of rewarded top users combined with high quality, very unorthodox corporate advertising.

To put the recent debates about Digg (our coverage) and Netscape (our coverage) in context, here’s an overview of some of the key events unfolding right now that are blurring the line between amateur users and professional content producers.

Here’s some bullet points for this meme:

• some top Digg users feel unappreciated
• Netscape’s hiring top contributors is helping grow page views fast according to Calacanis
• a top YouTube user turns out to be a professionally produced work
• YouTube users are going pro and pros are succeeding in YouTube
• MySpace isn’t a training ground anymore – it’s a sales platform
• the Revver video community has stars of its own and they’re getting paid
• people hate Paris Hilton.

Details below.

YouTube is the most interesting site right now concerning these questions. Last week one of YouTube’s most watched video makers, Lonelygirl15, was revealed to be the work of the powerful Beverly Hills talent agency Creative Artists Agency – not a stereotype affirming, sheltered 16 year old girl making and posting videos behind her parents’ backs. The controversy has been huge; was Lonelygirl15 a legitimate work of pre-commercial art or a manipulative attack on the authenticity of community media sharing? Danah Boyd has some of the best blog coverage of the event and says that the New York Magazine has the best mainstream coverage so far.

The community response has ranged from Bravesgirl15‘s attempts to emerge as a leader in condemning the company behind Lonelygirl to long time site leader Renneto recording what appears to me to be a piece of faux indignation smartly following the lead and ethos of Lonelygirl. Still others have posted a mock press conference with a purple monkey puppet that resembles Lonelygirl’s and countless other less interesting replies. This is the discussion driving YouTube right now and it’s important to the future of all of these kinds of sites.

While the headline smashing YouTube/Paris Hilton deal has been an unqualified flop and provoked a substantial backlash on the site, Smirnoff’s Tea Partay music video is at least very compelling if not a success. Site favorite Brookers has signed a deal with NBC after making less than 30 videos, many of which were her lip syncing to commercially copyrighted songs.

Arguments that copyrighted video pilfered from off site was the only thing sustaining YouTube seem less solid than ever, but so do arguments that commercial activity on the site is impossible to pull off.

MySpace has become the new companion home page for YouTube stars, a major advertising platform via the Google deal that will go into effect later this year and a path direct to market for musicians. While the Arctic Monkeys rode MySpace success to big record sales off-line earlier this year, these new developments indicate that social media sites have the potential to be more than just training grounds for mainstream success.

Not content to concede viral video to YouTube, competitor Revver has stars of its own and a revenue sharing program based on still image ads at the end of each video. Ad based revenue sharing is unlikely to be sufficient incentive for the vast majority of any system’s users, but that may not be the case for a site’s biggest stars. Those stars may be incentivized to use a particular service and pull in a large audience of viewers who are also long tail content producers themselves; they could in aggregate monetize well for the site. Ze Frank has shown on Revver that news video blogs don’t have to be performed by boring, pretty girls in order to build a large audience. Even Steven Colbert has been accused of lifting several jokes from Frank. Ask A Ninja, another project now on Revver, is working on a commercial movie with Viacom’s Atom Films and selling merchandise on their site.

Of all of these examples, the Lonelygirl15 controversy is probably the most timely and interesting, but I think all this sheds light on some of the recent Digg/Netscape debates. As my friend Alex Williams puts it, viral media sites are the new Star Search and recognition of top users, be it through financial compensation and/or status, could be a key driver in making these sites viable. And conversely, commercial activity is possible in these communities but the format it can take is still up for debate: Paris Hilton no, Tea Partay yes, but for short campaigns and Lonelygirl15 maybe – I don’t think there’s consensus, or any indication that model could be reproduced well enough to be sustainable. As a proof of concept though, it was fascinating.

Advertising in these spaces well takes a whole lot of skill and we’ll see far more people fail than succeed, but occasional success could help build tolerance for the bulk of attempts instead of a wholesale rejection of commercial engagement with viral media communities. Companies are struggling to find people capable of pulling off advertising in social media spaces. Second Life is a whole other can of worms.

Who’s going to drive these sites and make them commercially sustainable? Top users are going to be an important part of it, and they will want to be rewarded for their work. It’s hard work to do what these people are doing and recognition, if not payment, is proving itself to be very important.