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Y Combinator has nailed the start-up incubator model, most likely because of its visionary leader.

Many famous incubators, from Idealab to CMGI, have come and gone over the years, and there are predictable autopsies suggesting the incubator model is flawed (see a list of articles about incubators here). Without doubt, the incubator flavor of the year is Y Combinator. Few of its companies have matured enough to judge its success, but we’re seeing promising ideas emerge. Reddit, for example, was sold to Wired parent, Conde Nast. Its guiding light is leader Paul Graham, who thinks and writes deeply (we’ve linked to him often) about start-ups, and nurtures young founders with the best practices of the day. It provides a cooperative environment, and draws people who want to help. Paul Buchheit, the creator of Google’s Gmail, has since left Google and spends a good deal of his time advising these companies, sometimes making investments.

Writewith is just the latest company to release its product: An editing tool for people wanting to collaborate on platforms such as Wordpress — perfect for us at VentureBeat and others who want a. It provides an easy way for people to draft and edit documents. Writewith lets you alert other users by email or SMS when it is their turn to edit a document. That person clicks on a link in the email and they are taken to the document. There’s also a chat box where writer and editor can correspond in real-time. We’ve tried it a bit, and it works great — there’s a dashboard that lets you see edit history. It lets you set deadlines and there’s an icon that lights up when people are working on the document at the same time. We’ll pound on it here at VentureBeat and provide a full review. (Disclosure: Eric Eldon, co-founder of Writewith, contributed an article for VentureBeat two weeks ago; otherwise there is no relationship.)

The Mercury News has a good description of how Y Combinator works:

Here’s how it works: twice a year, Y Combinator invites “hackers,” or programmers, to fill out an online application, outlining who they are and a business idea. One winning batch of teams is funded in winter and the other in summer. With Y Combinator’s help, each becomes a real company - one that is expected to create its product within three months. The amount of money Y Combinator gives each group - $5,000, plus an additional $5,000 per founder - is a pittance for what it asks in return, which is, on average, a 6 percent stake in their start-up. That money has to really stretch. Beyond their living and working expenses, it must also cover relocation costs, as the winter winners must relocate to the Bay Area and the summer winners to the Boston area.

Here is Y Combinator’s winter Class

Here are some alums.

Update: See our follow-up, which addresses the critical comments below.

The Less-Is-More theme continues:

Ram Shriram, the founding investor in Google who backed Larry Page and Sergey Brin when they were still at Stanford, remembers those frugal days. Page and Brin insisted on taking public transportation when they first visited Europe, refusing to fork out money for cabs.

Few companies will get a YouTube-style buyout offer of $1 Billion plus, so they’ll have to tighten their belts early, he said: “I’d rather see start-ups scrappy and frugal and on a diet of Ramen noodles,” he said on a panel during the Web 2.0 Summit.

Angel investor Paul Graham, who runs the Y-Combinator incubator gives a notable quote in a New York Times story about the how cheaply a new Internet company can get started — and how angels like him have a much easier time with this than elephantine venture capital firms.

“We are like mice, and VC’s are more like elephants. They can only make a few deals, so each one has a whole amount of weight and worry attached to it,” he said

From the article:

As for the target investment of $6,000 for each employee, an explanation on Y Combinator’s Web site makes it clear that Mr. Graham and his colleagues are not looking for computer science entrepreneurs who want to be pampered: “C.S. grad students at M.I.T. currently get $2,000/month to live on, so this represents three months’ living expenses. Though in fact most groups make it last longer.”

Silicon Valley never sleeps. Here’s the latest tech stuff:

Digg subverted — The news site that ranks stories based on how many users submit them, is being subverted by a group called Spike the Vote. It lets its members conspire to submit certain URLs of stories — thereby lifting the odds those stories will get front-page coverage.

MyBlogLog goes live — This is a site we’ve mentioned before, while it was in testing mode. It hasn’t changed its basic model, so we’ll refer to that earlier story for the full background. MyBlogLog has provided a way for bloggers and other sites to get more information about its visitors. One of its offerings is a “recent readers widget,” which shows the photos/avatars of the recent readers on a site. So for example, every time we show up at blog of venture capitalist Fred Wilson, who has implemented the widget (see lower left hand side), we are surprised to we see our own face. It is opt-in, so if you haven’t signed up to MyBlogLog, your photo won’t be there).

Three of the four major music companies make money off of YouTube deal — This is a bizarre. Vivendi’s Universal Music Group, Sony and Bertelsmann’s jointly owned Sony BMG Music Entertainment, and the Warner Music Group — each quietly negotiated small ownership stakes in YouTube as part of video- and music-licensing deals they struck shortly before the sale to Google, the New York Times is reporting. The music companies collectively stand to receive as much as $50 million from these arrangements, sources told the Times.

Moreover, the music companies rushed to complete the deal ahead of the YouTube deal, in part so that they could benefit in the jump in YouTube’s value, the Times said.

Sounds a bit like extortion, in other words: Wink, nudge, you let us make $50 million, and we’ll let you acquire YouTube and leave you alone legally — for the time being.”

Sneak preview of the Sling Media for Mac — Here.

The $1,200/year online calendar — Trumba has some guts. The Seattle start-up (which we mentioned here), backed by profit-focused firms Kleiner Perkins Caufield & Byers, August Capital and Oak Investment Partners, is lifting its price to $99 a month from $39.95 — even though a host of free competing calendar offerings exist on the market. We don’t get this one. (Via Jeff Nolan).

Paul Graham always makes you think — The essayist has written “The 18 Mistakes that Kill Start-ups” and it’s great reading.

Friendster says it has a new patent — Liz Gannes at Gigaom says social networking company Friendster called her up to chat about the new patent it has , which Friendster says covers uploading a photo and associating it with someone you are connected to on an online social network. Friendster says it should extend to “videos, audio, comments,” and any other content type, supported in public or private forums, within a social network. But we don’t see any reference to video or audio in the patent text, so we’re not sure what they’re talking about. We’ve contacted Friendster to check.

SF’s WiFi project derailed, or seriously delayed, by crazy nut jobs — Or so says David Freeberg. Sounds like Google’s Chris Sacca was right when he blew up in frustration about this earlier.

Google Optimizer — If you are an advertiser on Google, this new tool lets you experiment with different headlines, copy, and images that people see when they click on an ad link and come to your site. This experimentation, Google says, will let you find out which combination results in the most conversions.

Washington is in sad state of ignorance — On Tuesday, we referred to comments made by the AeA’s Bill Archey, a lobbyist for high-tech, bemoaning the ignorance most members of Congress show on technology issues. Eric Schmidt, chief exec of Google, made a similar point Tuesday: Those in the know about technology must spend more time reaching out to governments and helping them understand the Internet’s role in society, he said: “The average person in government is not of the age of people who are using all this stuff,” ZDNet quoted Schmidt saying. “There is a generational gap, and it’s very, very real.”

Kongregate lets game developers make money directly — This is a San Francisco start-up that lets game developers upload their Flash-based games, and gives them a cut in any revenue made from users. It is in a closed testing phase, but is eager for feedback. Founder Jim Greer told us yesterday the company is raising a seed round of capital.

Here’s a roundup of relevant Silicon Valley action, after the long weekend:

Yahoo employee sets up Flickr on his phone, and “captures” thief — Yahoo Web designer Ben Clemens, of Berkeley, said his phone was stolen, but that a program he’d installed made the phone automatically take pictures and upload them to Flickr. And so the phone took photos of the thief, and their Chihuahua. Here is an example (see photo). This is a pretty amazing story, indeed some people believe it must be concocted. Here is the full story. Clemens says he is too simple of a guy to have made up such an outrageous story — even if it does give favorable publicity to Flickr, which is owned by his company Yahoo.

Sequoia’s latest company called “loopt,” but sounds familiar — In Paul Graham’s interview with Techcrunch, we find that his firm’s next company to launch, called loopt, is a “mobile presence” service also funded by Sequoia. Looking for more info, we found the following: Based in Palo Alto, California, loopt is a Sequoia Capital and New Enterprise Associates-backed startup “building a revolutionary service to change the way people use mobile phones to keep in touch with close friends. Using new location-based technologies, loopt lets you know where friends in your private network are by automatically updating maps on your mobile handset and the web.” You know, this sounds very much like that start-up once called Radiate, but which switched its name to Flipt. Now loopt. Third time lucky?

MySpace offers music store to sell MP3s on MySpace; more sophisticated than it appears — MySpace will use Snocap, a start-up founded by Napster’s Shawn Fanning to deliver a competing service to eMusic, an online music store that also offers MP3s. eMusic already has the second largest market share for downloads, behind iTunes.

NewsCorp, MySpace’s parent, may also make an investment into Snocap, acccording to a story in the NYT. The MP3 format allows for the music to be played on the Apple iPod, though the format doesn’t offer any copy protection. It’s therefore unlikely the major labels will want to participate in this system any time soon. The MySpace plan lets artists sell their music at any price they want. MySpace will charge a band or label a fixed fee of around 45 cents, which it will share with Snocap, according to Snocap’s chief executive, Rusty Rueff, in an interview with the NYT. The iTunes store, by contrast, keeps about 35 cents from each purchase, apparently from a willingness to sacrifice some profit in exchange for increased demand for the iPod.

Snocap’s back-end, though, is more sophisticated than most media coverage so far would have you believe, or at least that’s we’re led to believe from a briefing with Gary Little, a venture capitalist at Morgenthaler Ventures, a few days ago. Gary is an investor in Snocap, and he said the company has developed a sophisticated video and audio fingerprinting technology that can identify songs on the Internet. It has also created a registry for digital content and the copyright that governs it. No other service does this, Gary told us. An artist on MySpace can then register at Snocap and define the rules by which their music can be bought — for example setting a track at 19 cents, or an album at $2. He said the format is simply pasted — in the form of HTML — at the MySpace store. The music can be sold directly from a member’s profile page.

Meanwhile, check out reports that Apple will start selling full-length movie downloads on iTunes by mid-September, apparently for $14.99 for new releases and $9.99 for older movies. That could hurt Walmart, which is reportedly paying more for the DVDs it sells. And iTunes users could burn a DVD, thus undercutting Walmart pretty badly. However, looks like Apple has so far only signed up Disney.

The “cheap” Barbarians — Noteworthy story in Forbes about all these start-ups that are offering chips and software at ridiculously low prices, and thus threatening to sack the walled fortresses of Sun, Microsoft, and BEA. It focuses on Bill Coleman, former chief executive of BEA, who is always refreshingly vocal. He recently called Network Appliances’ Warmenhoven to task for calling the stock-options investigation a “witch hunt.”

Video company YouTube is poaching Yahoo employees — YouTube has just hired Yahoo Treasurer Gideon Yu to join the startup as its first chief financial officer, according to the WSJ. Earlier this year, YouTube hired Tony Nethercutt from Yahoo to build its ad sales team.

Mywavez count down — The secretive Menlo Park company, which we mentioned here, is now launching in three weeks, according to its site.

Video site Guba will pay you 25 cents for every new account that is created via your embedded video — (Ok, this news is a bit stale, but merits a mention as it wasn’t covered at SiliconBeat/VetureBeat during our two-day switchover). The offering by Guba may seem like a scam, but it is one more example of the scrappy style needed for survival in this competitive area. Basically, if someone goes to your site, sees a video, and then is inspired to register for a Guba account, you get 25 cents.

Google’s badly named Google Image Labeler made us scratch our head this weekend. The clunky title is one more reminder that Google remains vulnerable despite its invincible image — something that start-up expert Paul Graham also points out in a recent interview.

One advantage that big companies have is leverage. Google, with its many millions of users, is now attempting an end-run around other Web 2.0 photo search sites, by launching a game (Image Labeler) that might end up getting a good portion of Google photos “tagged.” In this game, Google pairs you with another random user, and asks you both to label a photo it shows you both. If you both select the same word to label it, it is a good sign that the label is accurate. You get points, and you move on to the next round. Now, Google isn’t using the conventional word “tag” for this project, perhaps a sign that it fears being sued for using the term (popularized by competing photo site, Flickr, now owned by Yahoo).

But what a name. Google has had a problem building an interactive “community” around its features, and this name reflects that weakness. It may come as no surprise, then, that the game is licensed from outside of Google — specifically, from Luis von Ahn, the inventor of the “ESP Game,” which the Google game is modeled after. Ahn says the game could tag all of Google’s photos within a couple of months. So this game may work.

So where are Google’s blind-spots, if it can simply license technology from outside to do the sorts of things it can’t do internally?

Paul Graham, who leads Y Combinator, a incubator that invests in start-ups, had a noteworthy answer in an interview with Techcrunch a couple of days ago.

He said one of his companies, calendar start-up Kiko, failed in going up against Google, because Google Calendar is the kind of application that Google hackers use at work. Another application that they use is GMail. But other, social networking companies, such as Orkut aren’t used by Google’s internal folks, and so they tend to not to do well.

So a startup could compete with Google if they had an idea so wild that it would freak out the internal [Google] gatekeepers, no matter what area it was in.

And the more wild and freaky, the better, which is why Graham says he is funding an “insane” idea to be pursued by the same Kiko team.