BUSINESS BLOGS
BUSINESS BLOGS
category: business
01 Dec 2006

I just got an email from Plaxo. I do not know if I had not gotten one in a while (yeah, right) or if I have grown immune to them.

Plaxo has grown to 15 million people in its network, which means that it must be sending out some 1,500 gazillion emails per day (actual estimates below). For those who have no email, just moved from Ethiopia (0.2% penetration rate there), are blind and/or just got their first Internet connection:

Plaxo is the creator of the “smart address book” service that helps millions of people around the world stay organized, up-to-date, and in touch with their friends, family, colleagues, and customers. Founded in 2001, Plaxo is a privately held company, funded by leading investment and technology firms – Sequoia Capital, Globespan Capital Platforms, Harbinger Venture Management, DAG Ventures and Cisco Systems – and by individual investors Ram Shriram and Tim Koogle. More information on the company is available at www.plaxo.com.

When you sign up for Plaxo, they “allegedly” spam your entire address book with your contact information and effectively, a Plaxo advertisement (over and over and over and over again). It’s viral all right but you sort of wish that the company get some kind of viral disease back (or is it venereal?).

WEB’S AXIS OF EVIL?

Plaxo was one of those companies that you disliked, then hated, but ultimately learned to accept as part of email management and contact book maintenance live with. The problem was that despite their pretense, the fact was that the only party that was being helped was Plaxo itself: I have never used Plaxo to update my information, ever. And anytime I get an email from Plaxo on behalf of someone I know, I ignore it. It gives me the creeps. I am probably not alone. I started writing this email when I got an email from Plaxo on behalf of someone changing jobs. See my reaction in this post: not good. Coincidentally, a friend of mine is changing jobs and he emails his entire address book. As a result, I am joining him for drinks and making note of his new contact info. The latter method is not optimal, sure, but it doesn’t piss me off either.

I always thought LinkedIn was fake and not authentic for its ambitions. But Plaxo is just wrong. The difference is that Plaxo’s idea is a great one, but they got just greedy and have made something with so much potential so hated. They’re both backed by some of the top backers in the game, but hey, we backed Saddam Hussein back in the day, so I am not sure what that says.

PLAXO INTOLERANT

No matter what the context, Plaxo shoots itself in the foot. I’ll clarify.

The day my former employer IGN put my belongings in a box and burned it in front of me, I got a number of the people (from IGN) who ensured that I would vanish from the company send me Plaxo requests for my personal contact information, since my work email and phone would no longer be operational shortly thereafter (did they think that a Plaxo request would make the removal of the knife easier?).

Whatever the case, Plaxo was not the best way to go about in such a scenario. In other words, even if I wanted to exchange contact info, I did not trust Plaxo. So while the thought was nice the approach was not.

A simple “hey Ash, let’s keep in touch” would have been a much better route to take. For the record, I am not calling anyone out with that statement, I am saying that “even when it makes sense to update your information for someone,” Plaxo is not the way to go. The software’s idea is great. The execution of the company was bad. And you will see how and why it has hurt investors, in my humble opinion. Then again, it might make them millions. We’re not talking strictly dollars and cents here, we’re talking common sense.

In the other, more usual scenario where you simply change contact info and want your entire address book to know (over and over and over again), then the principle is sound but the practice has led many - like myself - to simply ignore it. What happens then is that Plaxo does the exact opposite of what it is intended to do: it creates a barrier to keep contacts up-to-date. As far as I know, that is failure, not success.

It’s a shame that marquee investors like Sequoia and company do not see the inherent flaw of the method to the madness when they choose to invest.

THE “SMART MONEY”

I raise the point of investors, because one must expect those same VCs to want to get their money back in an exit strategy.

Co-founded by viral marketing wunderkind Sean Parker (co-founder of Napster), Minh Nguyen, and two Stanford engineering students, Todd Masonis and Cameron Ring, the company has grown rapidly but has twice as many denigrators as it does subscribers. Of note, Sean Parker was pushed out by his VCs, yet another reason why entrepreneurs should avoid VCs as long as they can or have no choice to (ie. Mark Zuckerberg type of contract in the former scenario, running out of money in the latter).

For a company with so much promise and strong viral component, the simple fact is that Plaxo is a mere shadow of what it could have been.

How many people use email? People use email more than they search. Do the math. Plaxo should be huge.
How many people should use something like Plaxo? Hundreds of millions. Yet only 15M do? It’s a damn shame and anyone who boasts about those numbers is kidding themselves.

DEAL OR NO DEAL?

Furthermore, it’s not all organic or viral growth either. Plaxo has had at least one major business development deal:

On July 7, 2005, Plaxo announced it had struck a deal with America Online to integrate its contact management service with its AOL and AOL Instant Messenger products. Having signed a business development deal with AOL in my former position and company myself, I can tell you that the impact thereof is significant, which means that without AOL then Plaxo’s lack of real traction for such a great idea shows how much the arrogance of the players involved has tarred its potential.

If you doubt me, consider this press release in October 2006 where Plaxo boasts about that its network grew 50% in six months. So in April, 2006 it was 10 million? Considering it takes months to integrate and launch a new deal with AOL, assume Plaxo was actually on AOL IM sometime in Q4 2005… meaning that AOL doubled Plaxo’s size.

More on AOL in a second…

GOBBLE…

While the company has grown to 15 million members, it has not exactly sat idle with corporate development: it acquired HipCal in May 2006. HipCal is an online calendar, to-list, and address book developed by fraternity brothers Garret Heaton, Pete Curley, Chris Rivers, Tawheed Kader and Glenn Dixon when they were undergraduates at Rensselaer Polytechnic Institute (RPI) in 2005 and were having difficulty finding their funnels, knowing which girl they had to take out that night and whose turn it was to clean the… we’re just kidding of course.

SHOW ME THE MONEY

One major problem, critics say, is that Plaxo can make money from a free service that collects personal contact and network information. That’s not the end of the world if it was clear how they made money. When Google runs ads in Gmail for example, I do not care and encourage because it tends to help with whatever it is that the email is addressing.

Plaxo? No freaking clue.

Does it make money? eerily, we don’t know and can’t even tell from their own website!

Transparency baby, all the way.

Anyway, since the company has all of these investors, it’s fair to assume that the company will have to one day undertake some kind of exit strategy. IPO? Forget about it. Risk factors would eat up all of the paper in the world. Use of proceeds? Piss off more people, perhaps. How about kill a great idea?

And I doubt their sales are that high to merit an IPO, anyway (of course, I think that $50M is the new $100M, but that’s another post). Of course, Lord knows what evil brews in their HQ and sales are rising, so maybe they’re printing money.

… OR BE GOBBLED

Let’s look at acquisitions.

Seeing Sequoia as their investor, I naturally think Google. For our conspiracy theory linking Sequoia, Google and YouTube, click here.

But Google’s motto of Don’t Be Evil would become a mockery if they bought Plaxo… then again, Google, who last year launched Gmail and is trying desperately to gather as much information on people would love to have all of that information that sits on Plaxo’s servers.

To a company like Google, 15M subscribers might not seem much - but having all of that intelligence on 15M very savvy online users is valuable…

ANALYZE THIS!

How much revenue can Plaxo make?

Slap some text ads in there and you can make quite a bit of money.

Of course, you cannot exactly send out as many emails as Plaxo does and pretent not to be evil (or a nuisance). So the value goes down quite a bit. In other words, at the very core of Plaxo is nuisance!

Anyway, note that if you are a company like Yahoo! and Google (and have your own text ads database) you can retain 100% of the revenue. A company like IAC, AOL that does not have its own ad clients would get 50% of that (or as high as 80% since depending on volume, GOOG or YHOO could take as low as 20%).

I am not saying that Plaxo could make that kind of revenue, the numbers could be huge. I have 2,000 contacts and have restarted my contact list about 4 times (don’t ask). I also see the 1% of members sending out emails on a given day being very low…

If Google totally sells out, I can see them buying Plaxo. But they can easily integrate something similar into Gmail without spam attack factor. Truth is, in Google’s version of the future, they have free search, free email, free productivity suite of applications (spreadsheets, word processors), a blogging platform, a calendar, etc… put all of those pieces together and a contact management tool is not that hard to create. Since we throw out 4 suggestions to Google a week, we’ll leave it at that. But writing this, I realize Google can have a - dare I say - Plaxo killer if it chose to. The mere fact that Google is trying to “not be evil” and Plaxy personifies it, they have a better shot at not acquiring it in this instance, but rather build it in-house.

The same logic applies to Yahoo!, really. Yahoo!’s former CEO Tim Koogle is an investor in Plaxo.

AOL Time Warner is going free and offering free email even to those who do not subscribe to Plaxo. AOL could technically acquire Plaxo, rebrand it to AOL and use the core software and avoid the spamming. It would give it a cool email edge in terms of functional tools that others like Gmail, Hotmail and Yahoo! don’t have. But, then again, the instant you spam someone with “You’ve Got Mail,” you’re back to square one. The major difference is that AOL knows it does not need to monetize the Plaxo application, whereas an independent Plaxo will, and the level of privacy violating practices is limitless. In fact, AOL probably has some kind of option (if they did not put that in the 2005 deal, I would be surprised).

Other suitors include wireless companies who are a natural fit with contact information. But guess what? Plaxo is one step ahead of us! Just this past month, Plaxo signed a deal with Verizon. Just imagine the incessant MSM spam. A major selling point I am sure.

The pain of entering phone numbers into your cell phone may soon become a thing of the past thanks to a new application being offered by Plaxo. The service will allow users of the address book network to have their information for contacts automatically updated.

Plaxo Mobile Plus will be initially offered through Verizon Wireless on 30 BREW-capable phones. The service will be expanded to additional models and two additional carriers, Alltel and US Cellular, over the coming weeks, the company said.

In addition, Plaxo Mobile Plus also will act as a way to backup contacts in cases of data or phone loss. In addition, users will be able to use interactive map features and pictures of contacts through the service. Users will be able to select which contacts they would like to synchronize.

Sounds great, but I will pick the headache of entering phone numbers in a cell phone over incessant spam any day. Hence the problem: had Plaxo not screwed its image (I guess like the folks over at Gator or Philip Morris, Plaxo will rebrand itself soon), it would scale much faster.

The problem is: buying a company like Plaxo engenders a lot of headaches.

BOTTOM LINE

The underlying conclusion, really, is that every company that thinks of acquiring Plaxo should realize the inherent risks of the acquisition, not just integration risk: product/brand risk.

Of course, the world we operate in is a funny place. The only way to pull it off would be to rebrand Plaxo cause no parent in their right mind would brag about owning Plaxo. You can include ads if you wish, but then don’t send out emails as if your life depended on it.

Like others who pretend to be the smartest in the room, Plaxo’s intellectual greed and arrogance has probably made it unsellable and untouchable - but not in a good way.