Digging Vapor(m)illionaires

Kevin Rose is worth $60 million (Read), his little start-up, Digg is worth more than Google (Read), and he is the new Web 2.0 poster boy. Everyone is talking about this story, mostly because of a misleading cover headline in this week’s Business Week. “Valley Boys: How this kid made $60 million in 18 months,” has even Rafat, normally very mild mannered upset, enough to write: “it sounds like a parody of a parody.”

However, as Rafat says, we should separate Digg, the company, from Digg, the headline. As a company, Digg’s story exemplifies some of the big trends that have reshaped Silicon Valley. (Business 2.0 has kept you upto speed on these trends for past three years.) Rise of the Instant-Companies and The New Road To Riches, identified that cheap hardware, cheap bandwidth, open source software and special idea = low cost way of starting a company. Digg did exactly that.

In the fall of 2004, Rose withdrew $1,000 — nearly one-tenth of his life savings — and paid a freelance coder $12 an hour to mock up a Web page. He got a deal on server space over the Web for $99 a month.

Digg, had initially shunned venture capital investment, boot strapped before taking a few millions from VCs. Okay not exactly the path 37Signals took, but fairly close. Digg has $3 million in revenues and is going to break even soon – in two years with about 15 employees. That can’t be a bad thing.

What’s terrible: the the vapormillionaire concept, for I fear, this is going to the attention of the Khaki-Blueshirt crowd, who will book a ticket on JetBlue, and head out West. Or as they say, there goes the neighborhood … again!