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Posted 12/9/2003 12:42 AM     Updated 12/9/2003 10:41 AM
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Investors court social-networking sites
SAN FRANCISCO — Ggreg Taylor, a party and nightclub promoter, has countless friends — making him one of San Francisco's best-networked guys.

"When I throw a party, 1,000 people come," he says.

So Taylor, 37, doubted he'd meet anyone new last summer when he joined Friendster, a hot new online dating and friendship site.

He was wrong. Trolling through hundreds of listings two months ago, he met Donald Russi, 43, another single gay man in San Francisco. They've been dating since.

Friendster joins a fast-growing list of social-networking Web sites leveraging new technologies to solve an old problem: connecting for romance or business. The new ventures differ from traditional dating sites such as Match and Yahoo Personals. Users create searchable networks of friends and co-workers. The idea: People have better luck finding dates or business contacts among friends — and their friends' friends.

Such beefed-up search technologies boost traffic on the sites — and hold visitors' attention longer than traditional dating sites, says Nielsen/NetRatings. Friendster users spent nearly two hours on the site in October vs. 35 minutes for Yahoo Personals and 55 minutes for Match, Nielsen says.

Millions flocked to the new ventures in the past year, generating buzz and bucks from venture capital firms and other investors. Friendster just landed $13 million from blue-chip VC firms Benchmark Capital and Kleiner Perkins Caufield & Byers. EBay founder Pierre Omidyar invested "several million dollars" in Meetup in October, a company spokesman says.

But despite soaring popularity, the ventures face potential landmines, say e-commerce experts and investors. Competition is keen as more get launched. Internet giant America Online is about to launch — a personals site using its AOL Instant Messenger service. Established sites such as Match still have three times as much traffic as Friendster, Nielsen says.

What's more, many start-ups have little or no revenue. Some, such as Friendster and LinkedIn, are still developing business plans even as investors beg to give them money. That could lead to big investor losses, as after the dot-com collapse, if revenue doesn't materialize.

"That's my concern on any investment we make," says Bob Kagle, a general partner at Benchmark. It kicked in half the $13 million Friendster investment.

Several factors

The ventures' popularity is driven by a host of factors. VCs are prowling again for investments. Online dating has shed its losers-only image, attracting a new generation of singles. Digital photography's surge makes it easier to post personals. Companies, trying to boost revenue, need new software tools to get sales leads.

Friendster, based in Silicon Valley's Sunnyvale, has generated some of the biggest buzz. It's drawn 4 million members since launching nine months ago — without spending a dime on marketing. That attracted early investors such as former Yahoo CEO Tim Koogle.

Making a match online
Web sites helping people find romance, friends and work are attracting investors.
Site Location
Friendster Sunnyvale, Calif.
March 2003
Tickle San Francisco
Tribe San Francisco
Jan. 2003
LinkedIn Mountain View, Calif.
May 2003
Meetup New York
Source: The companies

Millions using dating sites
Top personals sites by users in October 2003.
Users (in millions)
Yahoo! Personals
MSN Dating & Personals
Netscape Love & Personals
Source: Nielsen/NetRatings

As the buzz spread, more than a dozen VCs circled the company, says founder and CEO Jonathan Abrams.

VCs apparently aren't the only investors interested. Friendster rejected a $30 million buyout offer from Google in October, the San Jose Mercury News reported. Abrams and Google spokesman David Krane would not comment last week. But Abrams acknowledges he's talking to Google, and other companies he wouldn't identify, about possible partnerships.

Friendster doesn't charge users, so far. The company, fine-tuning its business plan, is considering charging for premium services, a revenue-boosting step Yahoo is chasing. For now, Friendster's sole revenue is from advertising. It could boost such revenue by linking user searches to advertisers, as Google does. Clicking on a user's favorite book or movie might generate a link to a retailer, Kagle says.

Social and business

Whatever the revenue source, social-networking start-ups are targeting two major markets:

Dating and friendship. Web sites chasing the sector survived the dot-com crash. They're now among the most popular sites, so could be a big part of the next e-commerce wave.

About 38 million Americans visited Match, Yahoo Personals and other such sites in October, up from 35 million a year ago. That's about 25% of the Internet population, says researcher comScore Networks. Consumers spent $214 million on online personals in the first half of this year, up from $121 million a year ago, comScore says. Besides Friendster, the social-networking sector's other fast-growing ventures include Tribe, Tickle and Meetup.

Site users create profiles that say what they're looking for, such as dates or buddies for hobbies. They post digital photos of themselves. They also list interests, such as politics or reading. That's where unique searching technology comes into play.

On Friendster, users click on one of the interests they list in their profile to display profiles of other users with identical interests. Taylor, for one, is a fan of the annual Burning Man art festival — and so are more than 700 others on Friendster.

Business contacts. Companies have long used customer-management software to track orders. More recently, professionals started using sites such as Monster to find jobs.

Social-networking ventures focused on business, such as Spoke Software, LinkedIn and Ryze, let users create networks of co-workers. Users create profiles that list past and current jobs. They can then search for others with similar backgrounds.

For example, a saleswoman at a big tech manufacturer might discover that a co-worker two floors down is married to the brother of the information-technology chief at a potential customer. The saleswoman could ask her co-worker for an introduction — leading to a possible sale.

Spoke, started last year in Palo Alto, Calif., attracted some of the biggest investor bucks. DCM-Doll Capital Management led a $12 million investment in the firm last month. That's on top of nearly $9 million in VC money it already got.

Ryze was launched in 2001 by Adrian Scott, an early investor in file-sharing site Napster. Ryze users create individual personality profiles for free on the company's site. It makes money by charging $9.95 a month for advanced searches.

Scott Stratten, a marketing consultant in Toronto, joined Ryze in June. He built a network of 470 others interested in marketing. Surfing through that network, he started e-mailing others with similar interests. Over five months, he landed 10 clients, doubling his customer list.

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