Young Net entrepreneurs
discover how to leverage the Web anew
February 1, 2004
BY MICHAEL KRAUSS
kids in Silicon Valley are coming back smarter. Consider Napster
co-founder Sean Parker’s newest venture, Mountain View,
Calif.-based Plaxo Inc.
helped found Napster, he had more than legal troubles and music
downloads on his mind. He couldn’t keep track of all the
people he met. That led him to establish Plaxo.
a simple idea: software that keeps your computer address book
up-to-date with your friends. When my contact information changes,
the network automatically updates your computer. In time, if all
our contacts use Plaxo, we’d never have to update anyone’s
information; it would be done automatically (including appropriate
vintage dot-com--all cyberconcept and vague profit prospects.
But Plaxo’s entrepreneurs learned from their forebears’
mistakes. Their approach to product design and marketing is pragmatic,
yet they build on the positive aspects of the Internet age.
had this experience at Napster. He was meeting people all the
time,” Plaxo co-founder and Chief Architect Todd Masonis
explains. “His address book was always wrong. People were
always moving. Cell phones are changing. E-mail addresses are
changing. Technology is supposed to make things better, but technology
is making the problem worse.”
hooked up with two young Stanford University engineers, Masonis
and Cameron Ring, to form Plaxo. They started raising money in
mid-2001 and slogged through the downturn. They snagged $2 million
from Sequoia Capital in February 2002 and released a beta version
Sequoia’s $2 million, Plaxo recently raised $8.5 million
from Globespan Capital Partners. And today, Plaxo’s board
is a who’s who of the digital glitterati: Tim Koogle, former
chairman and CEO of Yahoo; Ram Shriram, previously of Netscape,
Amazon and Junglee and a director of Google; Jon Callaghan, managing
director of Globespan Capital Partners; and Michael Moritz, from
seven months after launch, Plaxo has signed up more than 1 million
users across 200 countries with the subscriber base growing at
50% a month.
outset, Parker, Masonis and Ring knew the realities of Metcalfe’s
Law (coined by the founder of Santa Clara, Calif. start-up 3Com
Corp.), which says the value of a user network is equal to the
square of the number of users. The more people you sign up, the
more valuable your network.
difficulty in building Plaxo: Why join if none of your friends
are users? Why become the first subscriber? To combat this, Masonis
offered immediate value to customers.
download our software to get your address book up-to-date in just
a few clicks,” he says. “We send out e-mails to your
contacts--you specify which ones--they respond. Then we put it
in your address book and get it up-to-date.”
Masonis says, is that “there’s value immediately even
if you were the first person to ever use Plaxo.”
start-ups of the late ’90s, Plaxo gives its core product
away, at least for now. Masonis expects that to change as subscribers
increase and new, segment-specific product offerings are introduced.
“We plan to have a version of Plaxo for the user with 3,000
to 5,000 contacts,” he adds. And Plaxo recently launched
a VIP support service for power users at a cost of $19.95 annually.
At the height
of the dot-com boom, start-ups paid $2.2 million for Super Bowl
ads vainly hoping to achieve scale. They thought awareness would
automatically drive sales, as it did for Procter & Gamble.
They forgot P&G succeeded because it had great products.
and Ring focused first on building a great product with emphasis
on the quality and caliber of the user experience, figuring such
a product would build its own awareness and sell itself. After
all, as each new user signs up, they e-mail their contacts for
updates and each contact gets an offer for free Plaxo software.
personal address book is sacred territory,” Masonis says.
“We set out to build a really easy-to-use product. We do
lots of refinements on the user experience to get it as frictionless
as possible.” Masonis’ aim was to make sure no one
was more than three or four clicks away from updating their address
book, and the development team at Plaxo refines and tests their
product in the marketplace in real time.
have some product development hurdles. It couldn’t be a
stand-alone program; Plaxo wasn’t going to replace Outlook,
Outlook Express or Lotus Organizer.
wanted to integrate into whatever you use,” Masonis says.
“Integration is difficult because you can encounter bugs
in Outlook that Plaxo didn’t cause but might tickle. If
we crash your Outlook, you’re going to be upset and think
it’s Plaxo. So it set the (product development) bar even
the spam issue, and consumers’ skittishness about using
any product that might invite more of it into their e-mailboxes.
Plaxo spokeswoman Darcy Hansen notes that “Plaxo does not
send spam or create spam mailing lists” out of users’
e-mail addresses or those of their contacts.
member’s information is the member’s own personal
property, and we do not share this information with anyone else
without the member’s permission,” she says.
that has come up is that new Plaxo members (me included) may choose
to send e-mail requests for address updates to everyone in their
address book, even contacts they vaguely know. One person’s
update request may be another’s spam.
biggest complaint is against receiving e-mail updates from Plaxo
members they do not know,” Hansen says. “This is a
member education issue regarding proper etiquette. Plaxo members
should only request updates from people they truly wish to stay
in contact with.”
think, will comfortably manage the spam question. Too, the issue
will decline in importance as more people join Plaxo because e-mail
requests are not sent to other Plaxo members. The system updates
the address book behind-the-scenes.
Will Parker, Masonis and Ring succeed? Time will tell. One thing
is clear: The kids at the Internet start-ups are learning. Maybe
that’s why the NASDAQ was up more than 50% last year.
Krauss is a partner with Marion Consulting Partners based in Highland
Park, Ill., and can be reached at Michael.Krauss@Marionpartners.com