Silicon Valley is Motown and the Web is a hit factory

The debate over whether or not Silicon Valley is in a bubble might not be the right question. Instead, we may want to ask whether the fundamental principles of tech investing are shifting, as technology becomes more of a consumer phenomenon. For all the talk of the long tail, the big money is in sites and services that capture a large user base. So how does venture capital and angel investing change to support this model? And should it?

Success in this realm isn’t like success in the old-school Silicon Valley world of building chips or enterprise software. The product still matters, but the audience isn’t the few technically or business-savvy experts at a large company that is evaluating your wares for a multimillion-dollar deal. Today it’s selling to the billion people on Facebook, hoping they will give you a click, a tweet or five minutes of their time to be monetized in the form of ads.

Maybe if you’re good you can build a business actually selling apps, but the name of the game is still driven by hits. The Internet has become a wasteland of lame-duck startups and acqui-hires that couldn’t make it to the next level in popularity. The winners seem to be those who can rise to platform status, and it seems for many segments of the Web, much like in The Highlander, there can only be one. Facebook has won out in social networks while Foursquare is hoping to be the darling of location. Meanwhile the battle plays out for a mobile commerce site, as well as a winner in travel, gifts, gaming (actually there may be more than one here) and so on.

An Inc. magazine profile on the differences between founders of one startup highlights the change that is occurring in tech investing. The article, which details the relationship between the two founders of Turntable.fm, is worth a read. Billy Chasen is the programmer who built the site, while Seth Goldstein is the deal maker. The startup they founded has stopped growing, and the profile explores that and their relationship as they try to tackle their plateau.

Tucked inside the story is a quote that has me wondering if Silicon Valley has moved from developing and promoting real technology to pimping the next hot Web service. And if so, what does that mean for startups and investors?

Goldstein’s latest read is simple: Coders are the new rock stars. Twitter’s Jack Dorsey and Facebook’s Mark Zuckerberg built sites that attract crowds of millions, but they don’t completely understand how they did it—and neither does the money backing them. It’s not as if they do market research. So venture funds now bet on hackers the way record labels bet on rising pop stars, hoping that someday soon, they will make something wild, new, and insanely lucrative.

Hints of this abound. The difficulty in getting a series-B round unless your startup is the Next Big Thing is something I have covered. Then there is the rise of celebrity investors in tech that help push a product. And there’s the influx of brogrammers who code, work out and live a lifestyle that seems incongruous with building a startup, unless you view them as part of the product being sold to investors and consumers.

None of this is to say the traditional tech investment in the Valley has gone by the wayside. There are still hardware-, software- and data-oriented startups that can raise money and aren’t trying to sell to the masses. But they follow a different trajectory for the most part. Sure, a little of the celebrity founder worship sneaks over (witness the love affair with Martin Cassado of Nicira), but for the most part it’s business as usual at slightly higher valuations.

And celebrity or the search for the big hit doesn’t get you through the days when the going gets tough. Or as Union Square Ventures’ Fred Wilson so eruditely puts it: