The Next $1.65 Billion Start-Up?
Google's (NASDAQ:GOOG) $1.65 billion purchase this week of YouTube, a popular video-sharing website started by three 20-something buddies, has reignited worries that Web 2.0 is looking dangerously like the pre-bust days of the dot-com era. Like many social networking sites, YouTube boasts impressive online traffic -- showing more than 100 million videos a day -- but has yet to convert those virtual numbers into real cash on its own.
Geoff Cook was a 26-year-old Harvard graduate with a successful social networking site of his own when, during a family dinner in New Jersey last year, his 17-year-old brother and 16-year-old sister brought up the idea of putting high school yearbooks online. With $250,000 in startup funds, the three siblings launched myYearbook.com, a site where teenagers can post personal profiles, and trade jokes and photos, among other forms of online socializing -- basically, what Facebook does for the college crowd. Today, the site has more than 1.4 million members and is growing by up to 6,000 new members a day. According to MediaMetrix, that's a faster growth rate than MySpace, the Web 2.0 behemoth which was bought by News Corporation (NYSE:NWS) in July 2005 for $580 million.
On Monday, as news of the Google-YouTube deal unfolded, Inc.com staff reporter Angus Loten sat down with Cook, to get his take on the future of social networking, billion-dollar valuations, and how to make big money online.
What does Web 2.0 mean to you?
I don't pay to much attention to the jargon. A programmer once asked if we should use the term Web 2.0 on the site, and I said anything but that. In a year from now, Web 2.0 will be outdated, replaced by Web 3.0 or something else. For me, social networking is part of the whole reality-TV phenomenon. People are always wondering how they fit in. For us, social networking means the whole high-school experience is now online as much as it is offline. Imagine, you're a high school student and you're interested in a girl in your homeroom class. With myYearbook, you can check her profile on the site and use it to start up a conversation. That's what social networking is all about.
Are we in the middle of another dot-com bubble?
I don't think it's a bubble at all. I actually think things are pretty realistic. It's not the same feeding frenzy for sites that it was five years ago. If it was, Facebook would already be sold, and it isn't. You have to understand what a phenomenon social networking really is and just how much traffic these sites are getting. That's a big difference from the dot-com era, when there were these ridiculous valuations for sites that generated little or no value. Things are a lot more realistic now. You look at a site like Facebook and you have to believe it really is worth about $1 billion. It reaches so many people and you can monetize that.
What's the best business model for social networking sites? User fees or advertising?
Americans are already accustomed to getting all this for free. I don't think you could change it now. Advertising is the only way to go. The reason we went after high-school students is because there's a lot of companies that want to reach customers at a young age. Right now, we're looking at big established brands. For one, there's more money in it. But also, building those relationships with advertisers early on will be beneficial in the long run.
What's the bare minimum you need to start a Web 2.0 site?
I started my first site with $600. All you need is a hosting space and a merchant account (to accept credit cards). Servers are pretty expensive, though. Right now, myYearbook runs off 20 servers. And you also need really good programmers and a system admin staff, because you're going to get hackers -- it's the nature of user-generated sites to attract people who want to get in a find out how everything works.