The Social

Facebook chief operating officer Sheryl Sandberg has something to smile about at the Web 2.0 Summit (onstage with conference organizer John Battelle).

(Credit: James Martin/CNET)

SAN FRANCISCO--That was quick.

The hardcore optimism was back, and so were the open-bar parties, at the annual Web 2.0 Summit event this week--where a ticket price of over $4,000 for the three-day O'Reilly Media and TechWeb event hadn't fazed the sold-out crowd. Just about every big player on the Web had a high-profile executive speaking (well, except for Yahoo, because CEO Carol Bartz cancelled her Wednesday keynote, citing the flu), and the mood was clear: Economic recovery is on its way, and we're going to be ready.

Are we really past last year's financial crisis, or are we just sick of hearing about it? Or perhaps, with the Web 2.0 Summit's focus on the biggest of the big, did the industry come across as healthier than it actually is?

Sure, in a talk on Thursday morning, economist Austan Goolsbee cautioned conference attendees that the country is "still in a fairly deep recession." But gone were the do-gooderism and dreamy futurist thinking of last year's Web 2.0 Summit, where speakers like former Vice President Al Gore and cyclist-activist Lance Armstrong addressed an audience shell-shocked both by the economy's downward spiral and the once-unthinkable election of Barack Obama, something that left the liberal-leaning Valley set simultaneously thrilled and overwhelmed. The Web 2.0 Summit this year was not about vague possibilities of the future, or solemn acceptance of difficult times, but about everything good happening right now.

Dramatic unveilings ruled the show. On Wednesday a parade of announcements took over the conference stage--Facebook and Twitter partner with Microsoft's Bing! MySpace launches a music video portal! Google has a social search project!--and on Thursday, Google co-founder Sergey Brin strolled into the conference venue for an unexpected talk. AOL CEO Tim Armstrong seemed to want to hop on the big-surprise bandwagon, too, assuring that the company has been readying "a fairly substantial shift in our technology" but declined to say much more.

It didn't stop there. Morgan Stanley analyst Mary Meeker, a Web 2.0 Summit regular--not to mention someone who took a lot of heat for overhyping tech stocks during the dot-com boom--gave a presentation about the health of the industry where she painted the tech industry as a bright spot in the still-faltering economy and talked up the huge potential for growth in the mobile space. Tom Hale, chief product officer at "Second Life" manufacturer Linden Lab, essentially laughed in the face of critics by pulling out the numbers: the virtual world, which many in the mainstream press have long since written off as a haven for bizarro-world subcultures, expects to chalk up $500 million in user-to-user transactions this year and its membership recently reached 1 billion hours collectively spent "in-world."

"The Linden dollar has been very stable compared to the U.S. dollar, which is very unstable," Hale joked.

The good-times-are-coming-back attitude extended to the after hours, too. A Microsoft party celebrated two of Redmond's latest hatchlings: the Bing search engine and the Windows 7 operating system. A MySpace-hosted concert hailed the social site's music-centric revamp with a performance by Weezer; the downtown Regency Ballroom flooded with young hipsters who quite likely didn't know how to tie their shoes when the band released its debut album in 1994. And an official Web 2.0 after-party on behalf of venture firm Canaan Partners, which has backed the likes of DoubleClick and Match.com, appeared to be celebrating the fact that in the tech industry it's OK for adults to throw back glasses of champagne and play with orange Silly Putty and glow sticks. (Both of those, as well as copious amounts of alcohol, were distributed at the soiree.)

But it's not over yet. Two of the big companies with executives in the Summit lineup, MySpace and AOL, have yet to prove that their much-talked-about reinventions will actually be successful. Audience members whispered to one another that Twitter's "fail whale" error message was rearing its head on occasion during the conference, a sign that the mega-hyped poster child of the real-time Web still has a few kinks to iron out.

The Web 2.0 Summit is by nature a tableau of bigwigs: CEOs, politicians, big-think inventor types. And the whiz-bang announcements emerging from it came from the likes of Microsoft, News Corp., and Google--and they were, for the most part, deals rather than legitimate technological innovations. With a few exceptions--red-hot geo start-up Foursquare, well-connected dictionary project Wordnik--there was very little at the Web 2.0 Summit that came from legitimately new companies and ideas. There wasn't much of a presence at the conference, whether in the audience or on stage, for the small- and medium-sized businesses that are responsible for so much of Silicon Valley's spirit, the ones who keep the tech industry a whole lot more interesting than boardroom suits.

It's worth noting that small companies aren't sitting on $22 billion in cash or have Steve Ballmer's phone number on speed-dial. And some of them might have a very different song to sing with regard to the health of the industry. Venture dollars are still closely guarded, and ad-supported business models don't look anywhere near as sunny as they did in 2006.

Where were the start-up guys? Playing poker, apparently.

(Credit: Julie Blaustein)

Where were the small players? Probably at their offices conducting business as usual. A handful chose to indulge in a $150-a-head event on Monday night that featured a dinner, networking mixer, and poker tournament at one Valley investment banker's Tudor mansion in nearby Los Altos Hills, organized by the SF New Tech Meetup group. The crowd, a mix of small-time start-up guys, a few perennial scenesters, and a handful of legitimate dot-com era veterans, largely wasn't planning to attend Web 2.0 Summit later in the week. It's not all that relevant to start-ups anymore, some commented over the pre-poker dinner.

Others expressed outright scorn at the idea of ponying up four grand for a conference. "Never underestimate how much money is squandered simply because there was someone borderline sociopathic managing it," remarked one who asked not to be identified.

Vocal opposition to the big-ticket conference circuit isn't anywhere near universal, of course. This year, with the impressive speaker roster and barrage of announcements, it seemed like an especially productive affair, and talk of economic recovery kept things buoyant. But after everything the industry's been through in the past year, sometimes talk can just seem like, well, talk. You fork over a few G's, you watch a bunch of billionaires chatter about innovation, you exchange some business cards or LinkedIn contact requests over lunch, and sometimes you get so caught up in it all that you aren't even really sure what you paid for.

"I'm completely exhausted," said a consultant who'd flown in from the U.K. for the whirlwind event, a few yards away from the open bar at the Web 2.0 Summit closing cocktail reception on Thursday afternoon. Gesturing to the glass of wine in his hand, he added, "I'm just trying to get the last of my money's worth."

MOUNTAIN VIEW, Calif.--Among the tech industry's up-and-coming, ad-supported business models appear to be out of fashion. Or at least that appears to be the trend among the companies that just graduated from the annual Boulder, Colo.-based incubator program TechStars. Representatives from some of those start-ups convened for an "Investor Day" at a Microsoft-owned auditorium here on Wednesday morning.

Founded by venture capitalists David Cohen and Brad Feld three years ago, TechStars accepts a total of 20 participants in both Boulder and Boston for a summer of development, seminars with industry veterans, and a small amount of seed funding. Thirteen of those 20 companies were advanced enough to earn spots at Wednesday's Investor Day, in which they offered short presentations to more than 100 members of the venture capital community who are actively interested in making early-stage investments.

And not a single one was offering a strictly advertising-supported business model, something that would've been pretty unthinkable not so long ago.

"(These companies) are the future of the entrepreneurial ecosystem as it evolves," Feld said to the audience midway through the morning. "We think these are all very fundable companies. In fact, most of the companies that you're seeing today are either well down the path of closing financing, or have closed financing, but for many of them there's still room."

Unlike the TechCrunch50 start-up pitch event earlier this month, none of these companies were actually launching out of a total stealth mode. Some had already experienced a sort of PR blitz--travelogue site Everlater generated some buzz when people were using it to map their plans for airline JetBlue's "All You Can Jet" promotion, and unofficial Twitter app store OneForty experienced the usual tech-blog mayhem earlier this week when it launched in private alpha and set off a flurry among the early-adopter crowd as people scrambled for invites.

But like TechCrunch50's array of start-ups, most of the TechStars lineup had productivity on the brain. Gaming and entertainment companies were limited to TakeComics, which aims to bring an iTunes-inspired business model to the digitization of comic books, and AccelGolf, a decidedly hardcore set of mobile and Web-based applications for avid golfers.

Business-focused applications were far more commonplace. Retel Technologies has built security-camera software enhanced with data and analytics, NextBigSound tabulates bands and musicians' popularity on social-media and music sites to roll up into a product sold to industry professionals; SendGrid offers e-mail marketing services to businesses at a variety of price points; and HaveMyShift, built by a former Starbucks barista, offers an exchange for hourly employees at major chain stores to swap and pick up shifts.

The companies were a mixed bag, and so were the entrepreneurs behind them: many fell into the young-entrepreneur stereotype of puppy-faced young men who could use a haircut along with that seed funding, but others strayed from the norm. OneForty's Laura Fitton is already a respected Twitter consultant; Raj Aggarwal, CEO of mobile data start-up Localytics, is an Apple veteran who had helped construct the original business model for the iPhone; and the founders of mobile contact management company Sensobi professed to earlier entrepreneurial experience in the chocolate industry.

Of the entire lineup, Everlater--founded by two childhood friends who had quit their Wall Street jobs to found the company--offered the closest thing to the typical ad-supported consumer model that was so ubiquitous in Web 2.0's heyday a few years ago, and even still, the founders plan to sell customized scrapbook and postcard products as well as offer branded packages to travel companies hoping to get their name out there.

A few other TechStars presenters said they hoped to use a free, ad-supported model as an entry point for the subscription services where they plan to make more significant money: video-based language learning system LangoLab, for example, hopes to strike deals with online video hubs like Hulu and then charge for access to lessons based around that "premium" content, and open-source forum software Vanilla charges for the hosted version of its product.

Granted, these business models still have their pratfalls: namely, the fact that they actually have to find individuals or companies who are willing to pay, something that often requires the formation of a solid marketing or sales department before profits can start to roll in. That was why many of them said they were looking to close early-stage funding rounds soon.

But those solicitations for funding were not lofty. Almost all of the TechStars presentations provided a target amount that they were seeking for their angel or Series A rounds (a few had closed rounds already), and the vast majority were south of $1 million--far south, in some cases.

Outside the TechCrunch 50 conference in San Francisco earlier this week.

(Credit: Josh Lowensohn / CNET)

SAN FRANCISCO--At some point during it became evident that the Web 2.0 floodgates are no longer open.

Maybe it was when conference co-organizer Jason Calacanis asked one of the panels of judges what they'd thought of a round of pitches from just-launched social-networking start-ups like inbox aggregator Threadsy and photo-sharing iPhone app Clixtr. Sean Parker, the Napster co-founder and former Facebook exec who will be portrayed as a "Silicon Valley bad boy" in the film adaptation of ," leaned his elbows on the onstage table, slouched, and declared, "I'm a little bit bored with social media."

Maybe it was when the TechCrunch50 conference winners were finally announced and the grand prize went not to a slick and shiny app filled with Ajax interfaces and social-media mashups, but to RedBeacon, a mundane-looking local services start-up that aims to offer an alternative to Craigslist and the Yellow Pages if you're looking for somebody to paint your house or cater a party.

Or maybe it was when several Facebook execs took the stage to announce, among other things, that the social network--the subject of perpetual hand-wringing over how it would possibly make money--achieved a cash-flow positive status for the first time in the second quarter of this year, earlier than its 2010 goal.

Web 2.0 has grown up, after three years of investment, start-ups, and media hype, and it couldn't have been more evident at TechCrunch50, a two-day parade of start-up launches that sometimes feels less like a conference and more like a fraternity reunion. By this point just about everybody knows just about everybody else; the launch demos were just as likely to come from established industry players as from hopeful young newcomers.

Not so long ago, the Web start-up landscape was dotted with dozens of small companies with a legitimate shot at getting huge. As recently as last year, it wouldn't have been entirely ludicrous for an ambitious entrepreneur to take the stage at TechCrunch50 and announce that he or she was hoping to build a new start-up into the next Facebook. But the big guys have gotten bigger, and everything in comparison appears to be niche, peripheral tools.

Innovation on the Web these days comes in the form of fine-tuned features and tweaks, not big and lofty new schemes. TechCrunch50's lineup showed that while there are very promising ideas out there, the new stuff is about improving existing concepts, not creating something off-the-wall new. ToyBots, a new Web-connected toy company, takes the kiddie Webkinz craze from a few years ago and infuses it with the thinking behind "hackable" household gadget Chumby. Winner RedBeacon, as well as used-car marketplace Mota and job-hunt site LocalBacon, all pitched themselves as better options than traversing the Craigslist jungle. iMo and Spawn Player are both add-ons for gamers, the former an iPhone controller app and the latter a Slingbox-like place-shifter.

And when something popped up at TechCrunch50 that was pretty darn original, it was met with some restraint. There was plenty of excitement over AnyClip, a new database site that indexes and deep-tags short clips from movies, but the judges rightfully expressed concerns over the difficulty of wrangling with copyrights and content owners.

It's a far cry from the days when, even in the post-Napster era, into music- and video-sharing start-ups that weren't prepared to deal with the intricacies of big media. And likewise, VC dollars were once flooding into start-ups that hoped to be the biggest social network in the world. The economy put a damper on this, for sure, but so did the increasing dominance of the likes of Google, Facebook, and to a lesser extent Twitter and Digg. The big news in venture capital on the Web these days is Twitter's alleged billion-dollar valuation and , not in a huge rush of investors heading for the next big thing on the Web--which is exciting nonetheless, because it wasn't all that long ago that these companies were just as small as those presenting onstage at TechCrunch50.

For now, if we want genuine, holy-crap excitement in the tech industry, perhaps we should be looking at hardware, green tech, edgy mobile innovations like augmented reality, or perhaps even enterprise technology. TechCrunch50 seemed to have the right idea by --but the judges, whose backgrounds were in Web and software investments, admitted that this wasn't their area of expertise.

There were blunt words for some of the companies at TechCrunch50, especially community-based sites that require a critical mass of users to stay afloat; judges seemed skeptical that the social-media fever of the past few years can still pack enough of a punch. "Why would I leave Twitter for this?" asked Robert Scoble of one start-up--the same Robert Scoble who, in fact, , which had impressive technology but little mainstream appeal .

The next big game-changer in social media might be out there already, and we haven't even seen it coming yet. But watching more than four dozen start-up pitches in a row made it pretty clear that most of the biggest splashes of Web 2.0 have come and gone: we simply don't need another news aggregator, another discovery engine, another question-and-answer service, another blogging platform, or heaven forbid, another social network. This is good. It's a sign of industry maturation.

And it's certainly not a bad thing that Silicon Valley's elite finally seem to be catching on to that.

Was there an unexpected rush of Facebook employees looking to cash out their stock? Yes, says BusinessWeek's Sarah Lacy, who said that the $100 million buyback orchestrated by investor Digital Sky Technologies has been oversubscribed. Which means that a fair number of employees have been looking to cash out some stock even though it may be worth far more down the road when (and if) Facebook goes public. It's the sort of thing that would've left pre-IPO Googlers feeling awfully sheepish.

But what's more surprising, Lacy found, is that the high demand for Facebook cash-outs seems to run contrary to Silicon Valley's characteristic idealism.

"What has happened to the start-up work ethic in Silicon Valley?" she asked. "Time was, the region was teeming with believers--be it believers in a company or believers in the sometimes naive, lottery-ticket hope that options would make them billionaires. People who work at the most highly valued startup in Silicon Valley and rush to sell for a smaller valuation--just as an IPO is starting to look likely--aren't believers. They are mercenaries."

Not at all, I would argue.

Imagine, for a moment or two, that you are a character whom we will call Joe Facebook. You are a software engineer, so it's pretty safe to say that you're a dude (apologies to all the women in computer science out there). You're in your mid-20s, and you've been working for Zuckerberg & co. for a few years now, ever since you graduated from Harvard or Stanford or some other big-name institution with a hefty price tag. You grew up in a small town in the Northeast or Midwest, which is why instead of living in Facebook's hometown of Palo Alto, you've opted to get a taste of the cosmopolitan by living in San Francisco and making the commute in this sweet little Prius you bought last year. Your girlfriend, who's been remarkably tolerant of all those late nights of coding, said something recently about how it's a buyer's market and she's getting sick of her roommates. Maybe you'd like to pay off some of those student loans and stop living like a bike messenger.

This, of course, is a stereotype. But employees cashing out some of their stock after working long hours and living in one of the most expensive cities in the country shouldn't be that shocking.

Facebook's salaries, people in the industry tell me, tend to be a little bit lower than those at many of their Valley counterparts. That's understandable: it's one of the hottest companies to work for, and could have a huge IPO down the line, which would mean that a lower salary now would ideally pay off big-time later. But some of those early employees were probably expecting Facebook to have gone public by now. In this kind of economic climate, there's going to be some hand-wringing.

Facebook's revenues are projected to be about $500 million this year with its current, advertising-based model. But it's just barely started to alpha-test its new "credits" payment system, a potential cash cow that was once rumored to be debuting a year ago.

The Web 2.0 bubble didn't pop suddenly like its late-'90s counterpart. Rather, it's still deflating. This week, it was made official that MySpace had acquired iLike, a social music start-up that had $17 million in venture funding pumped into it during the digital media VC heyday. But revenues didn't roll in as promised, and iLike's final sale price was reportedly just $20 million--news that called into question the profitability of an entire (big) niche of Web start-ups, ad-supported streaming music. Facebook is obviously far beyond that stage, but these reality checks can make a massive, Google-style IPO seem even further away.

Then there are services like Sharespost, an exchange for private stock trades. The fact that these sites are drumming up interest is testament to the current uneasiness of many dot-com employees, especially young ones trying to establish some stability, and more particularly those who might not be privy to the big-picture plans getting painted in the executive boardroom. Given the dreary market for M&As and IPOs right now, their supposed personal wealth might as well be in Monopoly money.

And working at a tech start-up, with its casual dress code, oddball hours (think college-style all-nighters fueled by Red Bull and pizza), and young workforce, can seem like a limbo of adolescence--even if the old dot-com stereotypes of Foosball tables and free beer are kept to a minimum. As short-sighted and greedy as it may seem, swapping in some of that Facebook stock now (not anywhere near all of it, mind you) is an upward move for the quarter-life-crisis crowd. It's a down-payment on that cute Victorian in Noe Valley, the last of those student loans, the extra cash to start building up an investment portfolio while stock prices are low. It's growing up, Silicon Valley-style. Even in the bright and happy Candyland of innovation (literally), cash is still king.

Mercenaries? Hardly. More like average 20-somethings.

SEBASTOPOL, Calif.--By day, Silicon Valley's young elite were scribbling frenetically on whiteboards in the conference rooms at O'Reilly Media's corporate complex here, with executives and engineers from normally competing companies working together to tackle problems from open-standard implementation to social-network privacy. But in the evening, their dark sides emerged.

The occasion was Social Web FooCamp held here last weekend, a relatively new offshoot of the annual invite-only "unconference" that Tim O'Reilly started throwing in 2003. And the after-hours activity was Werewolf, a strategy game that has been a craze among the Web 2.0 crowd for several years running now. For some of the unconference's more hard-core players, rounds of Werewolf lasted well past 3 a.m.

The lawn of tents at Social Web FooCamp last weekend, home to many a game of 'Werewolf.'

(Credit: Caroline McCarthy/CNET News)

Nobody quite agrees on how this trend began. Some say it caught hold among the Bay Area set when some British software developers introduced it to them at the Future of Web Apps conference in London in 2007, and others point to gaming experts like Jane McGonigal of AvantGame, who have studied Werewolf tactics for much longer. Either way, some in the tech industry see it as just too insidery.

"I'm not really into it," said one engineer from the Santa Monica, Calif.-based MySpace, shrugging as he walked past the glass-walled conference room in which two games of Werewolf were going on simultaneously. "It's a Valley thing. We don't really play it in L.A."

Indeed, jumping on the Werewolf bandwagon--a club that counts Digg founder Kevin Rose, Facebook evangelist Dave Morin, and ubiquitous wine guru Gary Vaynerchuk as devoted members--seems to be as complex as getting immersed in the fandom of a TV show like "Heroes" or "Lost." Similar to a game known as Mafia, the game pits a circle of players against one another as the uninformed villagers attempt to discover which among them have been secretly selected as killer werewolves who pick off the villagers one by one in a night phase when all villagers' eyes are closed. In the day phase, the entire group votes to kill a player whom they suspect to be a werewolf.

The anti-team-builder
The catch is that the villagers, who constitute a majority of the players, have no idea who else is a villager and who is a werewolf, and the individual werewolves will do whatever they can to conceal their intentions. If the usual quasi-leisure activity at a corporate retreat is a team-building game, then Werewolf is an anti-team-builder. An expert player must be skilled in deception and misinformation, in the tactics of persuasion, and in not falling prey to others' arguments.

"It's kind of like poker without cards," said Kevin Slavin, managing director of the New York game development firm Area/Code. "It relies on asymmetric information, it relies on some people having different types of information than others, people having information that only they know, and mentally it's about kind of the interplay between information and social dynamics."

But there are plenty of strategy games out there. Why, specifically, is it this one that's captured the imaginations of the geek set?

"It's very elegant...(which) means it generates a lot of interesting behavior with very simple rules, or very few rules," said Area/Code creative director Frank Lantz, who added that a digital version of Werewolf has turned into a huge craze on a popular message board for poker enthusiasts. "That's one thing that appeals to the technology crowd, (which) is attuned to this quality of emergent behavior and elegant systems, that unfolds into all kinds of complicated behavior from a very simple set of rules."

"I certainly came into it first, pretty much, because of the Ruby on Rails conference and that kind of tech group," said James Cox, the developer who has most recently been in the news for having sold the @cnnbrk Twitter account to CNN. "People who come to Ruby as a language, (are) people who find those kinds of games and puzzles interesting."

And it does get complex. "If the villagers are allowed to keep a pencil and paper, they always win. If they are allowed to get up and switch seats, like, if every round you get up and you move, then the villagers also always win," said Max Ventilla, the ex-Googler who just launched social search start-up Aardvark, and who was one of Social Web FooCamp's avid Werewolf players.

"The way that the werewolves win is that one, they know what's going on so they have more information, and two, they are able to convince the townspeople who don't have info to basically forget about everything they've heard," Ventilla explained. "When you vote with your gut you're extremely swayed by the person sitting next to you. Each werewolf is trying to convince the villager to their right or left that the two of them are in it against everybody else."

So the setup of Werewolf--the simple structure leading to complex interactions, the puzzle-solving nature of it--has major geek appeal. But for young entrepreneurs, it also exercises a valuable skill set. It can take the same mastery of persuasion to convince the person sitting next to you that you aren't a werewolf that it does to talk a boardroom of venture capitalists into that crucial Series A investment round.

This Flickr user's first exposure to the Werewolf game. Among the photo's tags is FooCamp06.

(Credit: Flicker member Buster McLeod)

"If you think about what the fundamental skills in play in something like Werewolf are, they have to do with persuasion and communication. For entrepreneurs in particular, this is kind of a lot of the currency of their everyday lives," Slavin said. "Bringing the types of interactions that are most typical in those scenarios...and turning them into something useless, something that only has social currency instead of live-or-die consequences for the company, is (fun) in the same way that it's fun to bankrupt your friends in Monopoly, not in real life."

"Those are incredibly important lessons for an entrepreneur," Ventilla said. "You're constantly reminded of just how much you need to do until you're really top-notch at those things."

As clubby and insidery as Werewolf may seem, the FooCamp players last weekend were actively seeking new recruits. In fact, James Cox said, they can make it much more exciting. "(Newbies are) really unpredictable, so they can really change the way the game works," Cox said. "You can't pick who they are and what they do...when you play with the same people for a long time, you get to know them really well and can predict werewolves."

But from the sidelines, the casual onlooker might wonder if the popularity of Werewolf is actually a glimpse at a thread of treachery running through Silicon Valley's hyper-competitive culture, particularly at an event like FooCamp where cooperation and idea-swapping rule the daylight hours.

"When ethical considerations are put on hold, you see how people perform in that sense...it's tempting to assign meaning to that," Area/Code's Kevin Slavin said. "I have seen some people lie so convincingly that it's tempting to assign meaning to that with regards to their actual character, and I think that it would be a classic mistake, and it may be in fact the very fact that this has no consequences that allows them to lie so persuasively."

"If it actually lined up one to one in terms of how one played Werewolf and how their interactions played out in the real world," Slavin continued, "we'd end up with some very scary conclusions."

As Facebook hits its fifth birthday on Wednesday, it's nearly impossible to find a recent news story that doesn't refer to its growth with terms like "lightning-fast," "exponential," "skyrocketing," or some other expression that would be quite at home in a space-age comic book from the 1950s.

That might be true now. And with an executive lineup sourced from Bay Area elite (including a handful of former Google leaders), high-profile conferences and parties, not to mention developer "hackathons" all over the world, it has all the makings of a landmark Silicon Valley craze. But don't let that fool you: Facebook owes its early growth, and hence the foundations for its wildfire expansion of late, to its roots in a more buttoned-up tradition of the East Coast elite. The site's conservative, calculated debut and blueblood allure were what sowed the seeds for Valley success.

Facebook's origins at Harvard University, created over many dorm room all-nighters on the part of founder Mark Zuckerberg and his friends, are tech press canon by now. They have surfaced in dozens of magazine and newspaper articles, the occasional courtroom spat, and now apparently a book penned by Bringing Down The House author Ben Mezrich. What's not talked about as often is that when Facebook, then called TheFacebook, made its quiet debut early in February 2004, it was just another entrant in a pack.

That was the same academic year that some colleges and universities launched online "facebooks" of their own as supplements to the paper directories that were then a staple in dorm rooms across the country. Plus, entrepreneurially minded students at a number of colleges, including several at Harvard in addition to Zuckerberg, were trying to best their alma maters by doing the same thing.

"When Facebook launched, the first week at Harvard was incredible because the adoption was through the roof," said Sam Lessin, founder of start-up Dropio, who was a classmate of Zuckerberg at the time, "and this was in the context of a lot of stuff other people had been doing online, including quote-unquote social-networking sites. The beauty of the product was that it was super simple and super easy to use."

In keeping with its roots at one of the world's most selective universities, Facebook's initial allure was not that everyone had a profile, but that not everyone could have a profile.

When Zuckerberg and his team first launched the site, it was restricted to their fellow students at Harvard University. Then it began to roll out to the rest of the Ivy League and other prestigious universities: Stanford, Yale, and Columbia were the first three, in March 2004. A valid e-mail address from a participating school was required to sign up.

From a technical standpoint, this was smart because it allowed Facebook to manage its growth, avoiding overloaded servers and skyrocketing bandwidth bills. On the PR side, however, exclusivity fueled Facebook's early buzz. MySpace, at the top of the social-networking heap at the time, was the massive nightclub where you might spot celebrities from afar. Facebook was the quiet cocktail lounge a few blocks away that required a password, but where you could be sure to see all your closest friends.

"There was a cachet to it. Everyone wanted in, and wanted to see what it was and how it worked," Lessin said. When the site launched at a new school, he added, "you'd have this incredible initial bump of people who had heard about it and seen clippings or articles about it, and were excited to jump on board."

With the exception of a short-lived file-sharing side project called Wirehog, Facebook's team kept the site a purely networking-focused tool at the start. Although you've been able to "poke" your friends from day 1, the original Facebook had none of its current media- and information-sharing features; initially, you couldn't even add friends from other participating schools, just your own.

But Facebook grew, both in accessibility and in flashiness. Members could start registering with e-mail addresses from corporations rather than just universities. It launched a photo album application that now hosts more than 10 billion pictures.

The "news feed" feature launched in September 2006, shortly before Facebook announced that it would let anyone join the site, setting off a brief wave of privacy-conscious member panic before becoming one of the site's defining functions.

Then there was the developer platform, which hit the scene in May 2007 with the first of Facebook's now-ubiquitous "hackathons." Even after relocating from Boston to Palo Alto, Calif., and in spite of a billion-dollar buyout offer from Yahoo, Facebook hadn't enjoyed much real "tech cred." The platform changed that.

Creating a Facebook application soared to the top of Web companies' priority lists, and even though Facebook's traffic had started to take off when open registration launched the previous fall, this was when it really escalated.

With Facebook now five years old and reaching more than 150 million members worldwide, it comes into question whether it has abandoned those austere New England roots and that strategy of calculated growth in favor of Silicon Valley's get-big-now attitude.

The Facebook Connect product lets third-party sites use Facebook's log-in credentials for the first time, something that's put it back at the forefront of the developer community. It's also caught on in many countries outside the United States, with a big majority of its new registrants now overseas. That brings both technological implications--server power outside the States can be especially expensive--as well as political ones.

And no regular reader of tech blogs can avoid the constant coverage of Facebook's ongoing search for a solid revenue model, the ultimate Valley narrative of struggle and all-too-frequent failure. But in a post on the company blog late on Tuesday, founder Zuckerberg hailed Facebook's iterative nature and go-forth attitude, something that has become increasingly prominent since its westward journey into the Valley's upper echelon.

"Building and moving quickly for five years hasn't been easy, and we aren't finished," Zuckerberg wrote. "The challenge motivates us to keep innovating and pushing technical boundaries to produce better ways to share information."

What Zuckerberg and his hundreds of employees ought to keep in mind is that even though Facebook's willingness to change and evolve has been key to its success, so has its awareness that change should be steady and pragmatic. When Facebook moved too fast, as with the launches of the News Feed and the Beacon advertising program, members freaked out.

"They've built this incredible, incredible product that's just incredibly successful and valuable and useful, but really, its roots were just super simple and super local," Lessin reflected on Facebook's early days. "Because they were able to do that, and grow in a very controlled way, by the time they really wanted to turn things on, they were able to."

It's like they always say: never forget where you came from.

Facebook has simply gotten too big for downtown Palo Alto, Calif., where it has been headquartered since founder Mark Zuckerberg uprooted the company from dorm rooms at Harvard. With over 600 employees now on its payroll, Facebook will be moving to a bigger facility at the Stanford Research Park outside town--a former Hewlett-Packard building.

"This new space is the next step in our growth and positions us well to continue looking for a long term campus solution while also allowing employees to work together as much as possible," a statement from Facebook read. The company plans to complete the move in the first quarter of 2009. They will, however, probably keep the downtown headquarters around, both for space and nostalgia's sake.

"Palo Alto has been a great home for many start-ups and we are confident that with our move, other companies will occupy and thrive in the vacated spaces," the statement read. "We will likely continue to have space in downtown Palo Alto as well. We have loved our time in downtown Palo Alto and consider it part of the DNA here at Facebook. Many of our employees live in the area and will continue to be a part of the downtown community."

Facebook has, however, gotten rid of a housing subsidy offered to employees who opt to live in Palo Alto.

Facebook might be hiring former Google employees left and right, but if current rumors are true, don't expect them to start instituting a free-food policy like Mountain View's any time soon.

Gossip blog Valleywag has reported for the past few days that Facebook is doing away with a $600 monthly housing subsidy offered to employees who opted to rent living space within proximity the company headquarters in Palo Alto, Calif. The latest rumor says that new hires are losing their housing subsidy, and that existing employees will only keep it until they move to new houses or re-sign their current leases.

A source close to Facebook (who is not a current employee) confirmed that yes, the housing subsidy existed in the first place and wasn't some mythical, Skull & Bones-esque benefit, but was unable to confirm whether the perk was getting the ax. Facebook declined to comment.

Valleywag has created a movie-worthy sort of narrative for Facebook: under the management of new chief operating officer Sheryl Sandberg and communications czar Elliot Schrage, both ex-Googlers, the company has reportedly been chipping away at cushy perks and a dorm-caliber corporate culture. Facebook's New York branch famously canceled its participation in a well-publicized beer-pong tournament against InterActiveCorp's CollegeHumor earlier this month, reportedly at the behest of PR-conscious upper management.

But unlike beer-pong, housing subsidies are something that actually make sense, especially for a company located in an expensive enclave like Silicon Valley as it tries to attract young employees who might not have a whole lot of savings in the bank (as well as student loans potentially breathing down their necks). It's also a "green"-friendly image booster, encouraging Facebookers to cut down on travel times (and hence, emissions) by giving them incentive to live close to the office.

So, if Facebook's housing subsidies were indeed axed, a number of factors could be at hand. On the less scandalous end of things, they could simply have been unpopular for one reason or another, or inefficient, especially as Facebook hires more and more employees. Or (and I'm really speculating here) some flagrant abuse of the privilege might have caused the company to cut them entirely--think about those stories that occasionally pop up in the news about rent-controlled tenants who illegally sublet their apartments at market value and then pocket the profit.

On the other hand, there's also the chance that Facebook is legitimately cutting costs as it attempts to deal with escalating hardware costs and tepid ad revenues--that's an industry-wide problem in social media, not restricted to this one company. Earlier this month, BusinessWeek reported that Facebook had borrowed $100 million to cover infrastructure expenses, and market research firm eMarketer recently lowered its projections for ad spending on social networks like Facebook.

So, by no means is it a concrete sign that Facebook's in financial trouble. But if housing subsidies have indeed been cut at the social network, it could be a sign that operations are in need of some streamlining. Paying for housing might work for a small start-up with healthy investment backing, but for a company that eventually hopes to file for an IPO and hit 1,000 employees by the end of the year--and which doesn't have Google's advertising muscle fueling profits--the situation could be very different.

Yeah, yeah, we know. Tech's natural home is the Bay Area. New York is for everything else. But as TechCrunch editor Michael Arrington and Silicon Alley Insider founder Henry Blodget blog their way into a full-on catfight over which one has the authority to predict the future of the dot-com industry, we figured it was time to give our readers around the world an understanding of two very different cities' very different tech scenes. From hot babes to tasty food, here's what you need to know about the fundamental differences between the Bay Area and the Boroughs.