I can certainly understand why you would want to incorporate in California as it has the single largest local economy in the US, however you may want to take a look at: http://www.forbes.com/lists/2006/9/06beststates_The-Best-Sta....

Really though, if you are an online company what you need are big pipes and good brains. Physical location is not as important.

Forbes recently ranked all the states for their business friendliness and California didn't do to terribly well (36th). Virginia was the best followed by Texas and North Carolina. We are seriously considering incorporating in NC since they are so business friendly. Raleigh was ranked 2nd (nationally) in being the best city to start a company too. Furthermore it is the home of the research triangle so there's a lot of brains floating around there.

Best of luck.