IPO Pulled

In a good example of how a broad general solution can overwhelm a narrow, focused (and not so great ) one, United Online has pulled its planned IPO of, a site I signed up for years ago, used a few times, and haven’t really visited in years (until this morning to do a quick review).

It ways, in many ways, one of the original social networks. “A friend of mine told me” that one of its top uses was re-igniting old flames and crushes.

Strategically, in my opinion, suffers from a simple problem: it’s naturally engulfed.

I’m normally a big believer in strategic focus and the ability to sustain differentiation by doing one thing (e.g., connecting classmates) better than anyone else. But some things just seem obviously engulfed, and this strikes me as one of them. Just as Facebook status updates seem destined to engulf Twitter’s tweets, so does the educational background part of Facebook or LinkedIn seem an easy bet to envelop Classmates.

Just how many social networks do you want to join and why can’t you use a few big ones for some very broad purposes? Network effects have always suggested to me there will be a few big social networks, rather than a plethora of independent little ones, even if they can communicate via APIs like OpenSocial.

I’m not the only one who feels this way:

A recent report from Cowen & Co. analyst Jim Friedland spells out exactly why United Online couldn’t cash in with Classmates. One line sums up his thesis: “We expect the subscriber base to peak in the first half of 2008, followed by a steady decline to zero by 2012.” Much of the report hones in on the fact that Classmates is no Facebook.

The biggest difference is that Facebook is free and offers far more robust features. Other factors weighing on Classmates: Classmates has little value for young users, since there’s no need for them to re-connect; they’re already connected through other sites. Meanwhile, Facebook is making major inroads into Classmates’ adult demographic. User engagement is 95 percent lower than on Facebook, suggesting that users see little value in the service they’re paying for.

TechCrunch writes about the IPO pulling here.

Coincidentally, this happens the same week that social network AdultFriendFinder (a swinger’s network that definitely wants to be separate from Facebook and LinkedIn) was sold for $500M. I love the story of AdultFriendFinder because it captures yet another example of emergent strategy. Real examples of emergent strategies include:

  • Vicks made a cough syrup that kept putting people to sleep. Solution: market it as a night-time cold remedy, NyQuil.
  • Pfizer worked on a drug for angina and hypertension that kept inducing erections. Solution: market the side effect as Viagra. (See here if you don’t believe it.)
  • Honda came to the US in the 1960s hoping to sell big motorcycles, like Harleys. During the weekends, their execs rode minibikes in the Southern California hills and everybody wanted one. Solution: change the strategy and market minibikes.

In AdultFriendFinder’s case, they started out trying to make a normal dating site, called FriendFinder, but noticed that certain members kept posting pictures of themselves in various states of undress. What to do?

They went with the emergent strategy, addressed the market need, and created AdultFriendFinder. I suspect the original FriendFinder (which still exists) is worth no more than $50M having been overwhelmed by Match, Yahoo!Personals and 100 other variously undifferentiated dating sites.

(Yes, the photos, which portray my class at Irvington High School in 1980 and in 2005 are real. I pulled them off Classmates this morning. Thanks Grace!)

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