The epic rise and fall of MySpace, a wave of inflated web IPOs, over-zealous banks. These are wild times to be in the Internet business. Having made and lost $100 million launching the world’s first “social network,” it all seems achingly familiar.
The year was 1994. A dial-up modem was the de facto symbol of modernity. MySpace co-founder Tom Anderson was a vocalist in a rock band. His soon-to-be nemesis Mark Zuckerberg was 10.
I was a 20-year-old Cornell undergrad fresh off the boat from Switzerland. Thanks to a primitive browser called Mosaic, and the realisation that people would crave interaction online as much as they did on terra firma, I co-founded theglobe.com, a new “virtual community.” Theglobe.com’s vision was to turn rudimentary chat rooms and homepages into a coherent network of ideas, articles, and personal logs. What made our network special was its social component. Sound familiar? A year later we had a million users.
It all happened fast from there. First Netscape went public, followed by Yahoo! Suddenly people took notice of the Internet. Michael Egan, billionaire founder of Alamo Rent-A-Car, offered us $20 million for half of our company on $1 million revenue at a valuation of $40 million. On November 13th, 1998, shortly after my 24th birthday, we found ourselves on Wall Street, taking our company public with the stock running up 1000% — a market record. Our company was suddenly worth a whopping $1 Billion.
Like MySpace at the height of its popularity, theglobe.com was the toast of Wall Street. With a record IPO, and nearly 20 million monthly users –10% of the web universe at the time — we felt unstoppable. But we weren’t the only party on the block. Left, right and centre, dotcoms were going public, pulling in tremendous capital, only to throw it out again in the pursuit of growth. “IPO Mania” had arrived. In no small part because of Bear Stearns’ underpricing shenanigans — sound familiar? — our IPO had only raised $30m, rather than the $300m of market demand. Six months later, we raised another $140m. A string of acquisitions brought revenue to $40m. Unfortunately, none of this made much of a difference. Infrastructure costs remained too high, employee salaries kept skyrocketing, and the online advertising industry was still too minuscule. Then the dotcom bubble burst, and thus here I sit, a footnote in the history of the Internet revolution.
I’m now 37 years old, and the Internet is a fact of life. I run a series of angel funds to incubate fellow entrepreneurs. But I can’t stop thinking about the collapse of MySpace. It turns out the cliche about learning from history or being forced to repeat it is true. With 10 years to reflect on the loss of my own Internet fortune, a few things have become clear to me.
First the obvious. No doubt all the pundits will weigh in for some time on MySpace’s demise. Was their failure the result of chronically poor interface design? Was it MySpace’s technical shortcomings or the lack of a great developer community? Was it their focus on catering to “cool” musicians and filmmakers, and alienating everyone else? Was it the outsourced monetization to Google?
No doubt all these problems played a role in their fall. But none greater than the moment the MySpace founders sold to a public overseer, NewsCorp, which marked the loss of their scrappy entrepreneurial flair and ability to raise and spend capital and innovate as the competitive forces required.
Think about what happened to all the IAC acquisitions. Anyone remember when Evite was making waves? Or AskJeeves? Or CitySearch? Or when market leaders Geocities, Egroups, or Broadcast.com were bought by Yahoo? Exactly. Other pundits have used the fate of MySpace to speculate on whether Facebook is truly unstoppable? Lets hope history doesn’t repeat itself, again, the day they go public, and shareholders become their new overlords.
The more interesting question might be why MySpace had to die. In 1994, people looked blankly at me when I spoke of a virtual community. Many envisioned nerds on computers sitting alone in a dark rooms. I still remember people laughing at the idea of sharing personal photos online, and posting silly comments on people’s “homepages” and spending money on ridiculous “virtual goods.” Today I still get emails from couples thanking me for having invented a platform that allowed them to meet their spouses.
There’s no doubt we had vision and were pioneers who played an important role in shaping the Internet. But theglobe.com eventually had to die, for the same reason MySpace eventually had to die. We were no longer able to truly see beyond the horizon of what we had built and to make the necessary leaps in innovation. It was time to pass the baton and make room for the next paradigm, and the new generation of innovators who could envision it.
Looking to the future, I believe social networks will inevitably evolve into fully immersive, 3D virtual worlds, where you can practically reach out and touch someone. Communities like Second Life, give us a glimpse today at such a future, but they too are just a mere shadow of how things will really look in another 10 years. And no doubt, if you ask people today, they will shudder at the idea of this type of a future, and not be able to see past Facebook, Skype, Zynga, or their iPhone.
But I know from bitter experience that no single social network, or technology, will dominate the market forever, and MySpace is just a link in an ever-evolving human chain. Back in 1999, people couldn’t imagine a search engine more powerful than Yahoo. Or a mobile phone company more cutting edge than Nokia. Nothing is certain, except that continuous innovation is the only way to survive and prosper. Just ask Steve Jobs.
STEPHAN PATERNOT, founder and general partner of the Actarus Funds, was co-founder and co-ceo of theglobe.com. Ernst & Young 1999 Entrepreneur of the Year Award, he’s the author of “A Very Public Offering.” For more info go to actarusfunds.com, averypublicoffering.com, and paternot.com.