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Until recently, Nick Douglas did most of his blogging from a linoleum-floored dorm room at Grove City College, a small Christian campus in rural Pennsylvania. Most mornings, he fired up his ancient Compaq Evo laptop, wedged a scrap of paper into the earphone socket so that his headset would work, and keyed snarky, insidery comments on Blogebrity.com, the Web log he wrote together with other bloggers. The site tracked luminaries such as Nick Denton, founder of the burgeoning blog empire Gawker Media.

Douglas was so good at the art of the tarty skewer that he caught the attention of none other than Denton, who has become a kingmaker to aspiring Walter Winchells who have gone on to mid-six-figure book contracts (Wonkette's Ana Marie Cox) and exposure on shows such as Access Hollywood (Gawker's Jesse Oxfeld). Denton needed a writer for his new Silicon Valley gossip blog, valleywag.com, a talk-of-the-town tell-all of tech entrepreneurs' brushes with the seven deadly sins. Denton looked at a few insiders for the job, but became convinced that he wanted an outsider who had plenty of courage and no relationships to ruin over a bit of chatter.

So on the weekend after Thanksgiving, Denton flew Douglas out to San Francisco for an interview. The 21-year-old Douglas had never been to the Bay Area. He didn't know much about venture capital and had not a single friend who worked for Google. Perfect. Denton hired him.

Less than six months later, Douglas and Valleywag have become minor celebrities themselves, read by everyone from the PR handlers of tech superstars to East Coast cognoscenti trying to be Valley hip. The blog's rise speaks to Denton's skill at anointing nobodies and transforming them into Web-lebrities-and to the blogosphere's inverted gravity, in which sarcastic 21-year-olds can amass a scary amount of power. It also speaks to renewed fascination with all things Valley, given the riches arising out of the Web's new boom.

Valleywag strings together a mélange of rumor, a bit of breaking news, and bawdy stories deemed too distasteful for mainstream media, giving the business world's high and mighty the tabloid treatment. When someone snaps photos of tech executives half-naked, in costume, looking hammered, or displaying obscene gestures in cameraphone shots, the images show up on Valleywag. (No wonder PR people check the site religiously.) When an underling at a big media company allegedly slips up at a conference, revealing that it has made a new-media purchase, Douglas pumps his Instant Messenger buddy list for speculation on what the new buy could have been. Add to that contests such as the Gorgeous Girls of Google and Valley Hotties, in which the sexiest men of tech are pitted against one another in a hot-or-not vote. (Ben Trott, founder of blog toolmaker Six Apart, beat Craigslist CEO Jim Buckmaster by a small margin.)

For scoops, Douglas courts sources such as Netscape founder Marc Andreessen and Craig Newmark of Craigslist. If anything on the site seems false, it probably is. Douglas says he's not a journalist: “A normal newspaper is too respectable to post the trash I write.”

Even so, some marketers are still interested in buying ads on the site. Text links cost $100 for seven days. Denton won't discuss revenues from other forms of advertisement, except to say they're on par with other Gawker Media blogs. After a quick post-launch spike, to 100,000 viewers a day, Valleywag has remained steady at about a 30,000-person-a-day audience.

Among Valley insiders, the mention of Douglas' name can elicit a chorus of groans. Many technology executives won't admit to reading him. But many do take a peek, if for no other reason than to make sure they aren't mentioned. “He doesn't get the Valley,” gripes one former venture capitalist. “Why are you giving him any attention?” growls another.

Yet in a nod to the growing power that the blog wields, neither one wishes to be named, for fear of a public smearing. “Generally speaking, it's best to avoid being written about on Valleywag if at all possible,” writes Techcrunch blogger Michael Arrington in a March 3 post. Arrington, whose well-read blog covers startups, says Valleywag has so far been “a source of fascination and outright fear.” Initially, he tried to ignore it, he says, but after Valleywag began writing about him (“benefit-of-the-doubt giver to all startups”), he has changed course, writing: “I'm going to suck up to Nick Douglas in a big way.”

Valleywag is a stew of rumor, breaking news, and bawdy tales

Other confessed readers include Andrew Anker, founder of Wired and now executive vice-president of Six Apart, and Max Levchin, founder of PayPal Levchin advertises for his photo-sharing startup, Slide.com, on Valleywag, in a deal for an undisclosed sum, and he admits to checking the blog, especially when he and his best friend, Hotornot.com founder James Hong, were both nominated for the hotties contest. Both lost, but says Levchin, “even the fact that I'm talking about it and laughing about it indicates I pay attention.”

Douglas receives two or three solid tips a day. But he never checks their veracity, just citing the source. When he's wrong, he is quick to write: “I was dead wrong.” As for the rest? Douglas improvises. It's challenging to find real scoops amid the endless rumors he posts. He wrote, for example, that a certain executive at a prominent media and technology company was going to get sacked. So far, not true. But among the 'he said, she said,' he hits on some juicy nuggets: Ridiculing the mistakes of mainstream reporters. Covering insider romances. Posting unflattering videos. Publicizing under- covered stock sales. And chronicling the biggest bashes.

Valley insiders shrug it off, saying Douglas is a master of the obvious. That's precisely why Denton says he didn't hire an insider. Nobody was writing the stuff, he says, that everybody knows, but nobody talks about. Matt Marshall, who covers technology for the San Jose Mercury News and writes the respected tech blog SiliconBeat, says Douglas fills a niche that has fallen to the wayside. He says that as traditional media are cutting budgets, gossip, which is so central to understanding a culture, is being overlooked.

Douglas has a yearlong contract with Gawker to post a dozen times a day, five days a week. For this, he gets enough cash to pay the $550-a-month rent for his basement room in the house he shares with 13 other people and cover expenses. Thus, the brilliance of Denton's business model: Pay them (very little) and work them (all the time).

Now that the initial hype is spent, boss Denton is waiting to see how Valleywag's traffic builds. Signs are positive. Douglas advertised on the site last week for a second Valleywag writer. The beat? Coverage of Silicon Valley and its 're-inflated bubble insanity.'

By Jessi Hempel, with Sarah Lacy in San Mateo, Calif.

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