The Billion-Dollar Blackhole of Social Media
Will anyone miss GeoCities, the antiquated homepage service Yahoo bought for $3.5 billion in 1999, and then left to rot? Venture capitalist Fred Wilson will — he hasn't seen that kind of payday in ages.
Long before Web 2.0, long before MySpace, Twitter, Tumblr, and the like, entrepreneurs were trying to exploit the human urge to communicate. Amazon.com acquired PlanetAll, an online address book and calendar service, in 1998 for $87 million. That same year, AOL bough ICQ, a rival instant-messaging service, for $407 million. Long before Del.icio.us, there was HotLinks, a Web bookmarks service founded by Jonathan Abrams, who would go on to found, yes, Friendster; it was sold for a pittance. And before Ning, there was online community-builder eGroups, swallowed up by Yahoo. And whatever happened to the original SixDegrees.com? Bought for $125 million in 2000, then shuttered the next year amidst the bust.
Did any of those acquisitions benefit the acquirer? In some cases investors made out. But the brands and services are forgotten, neglected by their owners and abandoned by fickle Internet users.
The point is that the ideas of the Web 2.0 craze aren't new. They've merely been rehashed with slicker technology. The only thing that has really changed is the emergence of a new wave of investors with short memories, willing to take a gamble on companies with the appearance of fast growth and popularity.
Wilson is the exception: Someone who ought to know better, but hasn't learned his lesson. Or learned the wrong one. GeoCities was a fluke, driven by the crazed equity markets of the late 1990s, and the madness caused by six dueling portals all eager to establish themselves as the leading Internet destination, and willing to pay anything for pageviews. What does it mean that Yahoo was willing to pay $3.5 billion for GeoCities, but not $3 billion a few years later for Google?
Yahoo is now closing GeoCities, which prompted Wilson to reminisce about his old venture capital firm Flatiron Partners' hundredfold return:
I learned a lot from that deal. I learned that the Internet is all about people expressing themselves on pages they own and control. I learned that a business deal made over dinner and a handshake can turn into hundreds of millions of dollars, I learned that good partners are worth every penny of returns you give up to get them, and I learned that selling too soon is not too painful as long as you don't sell too much. And most of all I learned that you can make 100 times your investment every once in a while. And when you do, it's something special.
GeoCities, which offered people a crude kind of Web presence at a time when most people found building websites too technically intimidating, certainly offers lessons. But perhaps not the ones Wilson has in mind.
Websites which allow us to idle away time with our friends will always attract a large share of our online attention. The lesson of GeoCities is that they're only lucrative as long as there's a greater fool around.