We were invited to participate in the Israel Web Tour, organized by the California Israel Chamber of Commerce and the Consulate General of Israel’s Economic Mission in San Francisco. This is the 2nd day of the tour, and there hasn't been a dull moment since it begun :)

One the day's highlights was a panel moderated by Michael Arrington, "The Impact of the New Web – Culture, Entertainments & Commerce".

In a room with a few hundred people, Mike asked – how many of the participants live in Silicon Valley? About half the people in the room raised their hands. Then Mike asked – and how many of you were born in Silicon Valley? Only one person raised his hand. I am not sure what the conclusion from this is, as you could draw several different conclusions. But this is clearly interesting.

Mike proceeded to introduce the panel participants – Keith Rabois of LinkedIn, David Tennenhause of Amazon, and Daniel Cohen of the Gemini Israel Funds – as representatives of "the old way of doing things".

Clearly in a provocative mood, Mike posed the first question –

Are we at the end of the beginning of the beginning of the end?

One of the interesting comments on this was from David Tennenhause: He's seeing a good, healthy supply of good people with good ideas. The problem he does see though is with the nature of the exits – because more and more companies get acquired, there are les and less independent companies and hence less companies who are able to acquire the younger ones.

Surprisingly enough, the YouTube topic came up. Mike noted that he didn't think much of YouTube when he first saw them. With no real technology, no funding, high costs and legal copyright issues, how did they end up succeeding? Keith came up with an interesting observation, that the network effect created by the fact that content creators send links to the content they create to their friends was underestimated in YouTube case.

Daniel Cohen noted that he would not invest in any company that bases its strategy on the Amazon S3 storage services, since in his opinion it takes the economics away. This is interesting, it goes against my instinct and what I would recommend to people debating this decision. I'd love to see his math.

Discussing business models and their importance, Keith shared his early PayPal days experience, reminding everyone that initially, PayPal was about beaming "currency" from one palm pda to another. Apparently, at one point they look at the implementation and figured that since they were using unique email addresses as the identifiers in any case, why not allow direct email to email as well. And then, some 50 or so eBay users stumbled upon this capability and added it to their eBay listing. Keith described an executive meeting in which this was discussed, and in which 2 of the executives said "What? Why would they do that? We should block them!". 24 hours later, they understood that they've found their business model.

Check out the Israel Web Tour blog, and more pictures from the event.