A 58-year-old former cleaning lady and factory worker known only as Liisa must
rank as one of the world’s most surprising technology entrepreneurs.
Publicity-shy Liisa, thought to live near Turku in southern Finland, spent her
working life in a series of low-paid jobs after her father blocked her plans
to go to art school. But when she retired, she turned her attention to her
love of fashion, and bought her first computer to start making simple
drawings.
As she progressed to more sophisticated software, she realised what she was
creating bore a strong resemblance to the paper dolls that she had made as a
child — little figures that could be dressed with innumerable brightly
coloured dresses, blouses, hats and shoes. In the digital version, the
clothes could be picked up from the rail with the click of a mouse.
Liisa decided to put some of her drawings on the internet at Geocities, and
young girls started to stumble across them and play with them. Before long,
Liisa was being bombarded with requests for more models and designs. Simply
by word of mouth, her Paper Doll Heaven website took off.
Despite her unusual background — “in theory, it was a clear case of ‘don’t
ever touch’,” said one investor — Liisa has been able to secure funding from
some of the smartest technology investors in the business.
Earlier this year, Index Ventures, which scored a huge success from backing
internettelephony sensation Skype, invested in the renamed Stardoll. The
investment round was topped up to $4m (£2.1m) by angel investors, including
Klaus Hommels, another early Skype investor.
Two weeks ago Stardoll received another $6m, mostly from Sequoia Capital, the
Californian venture-capital firm that had big hits with Yahoo and Google.
Danny Rimer, general partner at Index, said Liisa “had no idea that she had
created a phenomenon. There’s no space (on the internet) for girls to hang
out and talk about music and fashion. Stardoll is a community for girls who
want to play with dolls. It is the largest aggregation of girls aged 7-18.
They’re coming three times a week, and they’re spending an hour a visit.
That’s pretty unbelievable. That’s the reason we invested.”
To older eyes, there is much about Stardoll that is unbelievable. Its range of
more than 300 digital dolls even includes Camilla Parker Bowles, as well as
more obvious models such as Madonna, Angelina Jolie and Keira Knightley. New
additions include Teri Hatcher, Billie Piper and Ronaldinho.
Since its relaunch in April, Stardoll has attracted 1m new members. Mattias
Miksche, chief executive, said: “We are growing so incredibly fast by word
of mouth and viral marketing. Nobody had done anything online for girls
between 10 and 17. We have an enormous opportunity to capture a large global
audience. I think the sky’s the limit, to be honest.”
STARDOLL is only one example of the dozens of “social networking” firms
sweeping across the internet. Led by MySpace, Facebook (in America) and Bebo
(in the UK and Ireland), their astonishing rate of growth both fascinates
and terrifies “old media” companies.
Along with Google, they form the vanguard of the second wave of dotcom firms
dubbed Web 2.0 — businesses delivering services over the internet and
predominantly funded by advertising.
Tens of millions of teenagers and students are spending hours creating their
profile, or web page, on networking sites — listing their favourite bands,
movies and heart-throbs, their hopes and ambitions. They can link to their
friends’ pages, add music and video, share photographs, write a blog and
send e-mails.
Fostered by the broadband revolution, this is creating new ways of
communicating and interacting that many young people clearly find
compelling. It also bites big chunks out of the time they have to watch
television or read newspapers.
MySpace is only three years old this month, and yet it already has more than
90m users, generating billions of page impressions every month. That
represents a huge audience for online advertising.
In May, according to Nielsen/Net Ratings, MySpace was the world’s fourth
most-visited website, overtaking MSN and closing fast on Google, Ebay and
Yahoo.
Michael Birch, the British founder of rival Bebo, predicts MySpace will become
the most popular destination on the internet within a year. Some critics
scoffed when News Corporation, the parent company of The Sunday Times, paid
$580m for MySpace last year.
“I thought it was the deal of the century,” said Birch. “Now people are
clearly seeing what’s happening. (Some people have suggested that) MySpace
is probably worth $6 billion.”
In Britain, the potential power of MySpace was quickly recognised by the music
industry. The site is routinely given a lot of the credit for the success
last year of the Arctic Monkeys — although the story has been rubbished by
the band as well as by others in the know.
Regardless, a profile on MySpace has become de rigueur for any up-and-coming
artist. Lily Allen, whose song Smile was the highest entry in the single
charts last week, is the latest to be given a leg-up by MySpace.
Bebo is more closely associated with schools and colleges than with music, but
its growth has been similarly astonishing. Only a year old, Bebo already has
25m registered users, and is generating 3.1 billion page views a month —
half as many as MySpace when it was acquired, Birch noted.
Bebo has become the most popular networking site in Ireland and New Zealand,
and claims to be running neck and neck with MySpace in the UK. In America,
traffic is doubling month on month, though still a long way behind MySpace.
Birch, who moved to California four years ago, is a veteran of other dotcom
start-ups, including Ringo.com, an early networking site that he sold when
its growth threatened to overwhelm his ability to fund it.
Lessons learnt, Birch, 35, and Xochi, his wife and co-founder, have ensured
that Bebo will not face a similar cash crunch, by achieving early
profitability. But, in addition, Bebo recently took $15m of investment from
Benchmark Capital, the firm that made its name and fortune from investing in
Ebay. The deal is thought to have valued Bebo at about $100m.
Benchmark had previously backed Friendster, an early networking success in
America that lost its way and was overtaken by MySpace and Facebook.
FRIENDSTER’s stumble, and the speed with which Bebo has emerged seemingly from
nowhere, suggests there are few sure-fire bets in this area. If it takes
only a year for Bebo to catch MySpace, at least in the UK, what’s to stop
some new sensation displacing them both? There are certainly plenty of
pretenders — too many, surely, for them all to succeed. It takes too much
effort to establish a detailed profile on multiple sites — one advantage
enjoyed by the established players.
There’s Faceparty, a personal ads and dating site. There’s Xuqa.com, a
college-focused site that seems to specialise in pictures of drunken and
snogging students (girls kissing girls seem particularly popular).
Then there are the more specialist offerings. Last.fm, a London-based outfit
that recently received funding from Index, has attracted 2m music fans who —
thanks to a clever piece of software — are telling the firm what they are
listening to. That enables Last.fm to recommend other music they might like,
and introduce them to others with similar tastes.
It also provides a showcase for new music. The 22-person firm has signed up
10,000 record companies, and has assembled a database of 45m songs from
around the world — far in excess of the number on Apple’s iTunes.
Another approach is location-based websites. Plazes, Platial, 43places,
Wayfaring and Flagr all look to be seeking to harness the power of their
communities to give better information about places you might visit. For
example, if you want the name of a good Chinese restaurant in San Francisco,
you could look to one of these sites for a personal recommendation.
In addition, the internet old-guard, in the form of Yahoo and Microsoft’s MSN,
are working hard to add networking functionality to their portals.
Ian Lobley, a senior partner at 3i, said: “There’s a huge amount of money
going into this area. While we believe in social networks as an important
social trend, we’re trying to be cautious about following the investment
herd.”
Lobley observed that many, if not all, the business models are unproven and in
a state of flux. Although advertising revenues are growing rapidly, the
numbers are so far modest — certainly compared with some of the valuations
that are being touted.
For example, MySpace is thought to be on course to produce revenues this year
of $200m — a relatively modest sum for a market leader.
Again, Flickr, the photo-sharing site, was a Web 2.0 sensation but it sold out
to Yahoo for only about $30m. Lobley said: “If they’ve only had one round of
investment, then (venture capitalists) can make money from that. But it’s
not a Skype, it’s not a CSR.”
CSR, or Cambridge Silicon Radio, is the bluetooth wireless technology
specialist that was a spectacular success for 3i. Skype was bought by Ebay
for an initial $2.6 billion.
Lobley said: “MySpace was a breakthrough deal, but there have not been that
many businesses that have broken through to high-valuation expectations.”
Rimer at Index said networking is not enough. “Friendster has been an
education. If you own a demographic, that’s powerful. It’s not good enough
just to provide a hangout. You’ve got to make it contextually interesting.”
That’s one reason for his enthusiasm for Last.fm — “the largest community of
music lovers in the world”.
Hommels, who used to work for Bertelsmann, the German media giant, has just
joined the London office of Benchmark. He thinks old-media firms are facing
a daunting challenge. “The industry of social networks is amazing,” he said.
“It’s very difficult for traditional media to offer something comparable.
“Very practically, my kids have a certain amount of time that they are
allowed to spend on media — it used to be the television. Now they sacrifice
television time to swap it for computer time.”
Spend a little time on the networking sites, and it is easy to conclude that
something profound is going on. The ease with which the under-25s are
adapting to their new lives online is striking evidence of a
digital-generation gap. In Silicon Valley and elsewhere in technology
circles, there is the whiff of euphoria once more.
With so much money chasing so many new companies with strange names and doing
stranger things, Web 2.0 is beginning to resemble the first dotcom boom.
There will be winners, as there were before. But investors must be careful
to ensure that the current fashion does not turn out to be a brief, but
ultimately worthless fad.
Fighting the cyberspace perils
FOR the leading online networking sites such as MySpace and Bebo, attracting
new users is easy. Protecting them from cyber-bullying and the attentions of
sexual predators may prove more of a challenge.
Last month’s conviction of a 21-year-old media student who used an online
chatrooom to ‘groom’ underage girls for sex received widespread publicity in
Britain.
However, just like the networking sites themselves, the risks associated with
them are much less well understood than in America, where they are longer
established. MySpace has recently had to endure endless stories along the
lines of ‘Danger lurks in teen web hangout’.
The comedy show Saturday Night Live even featured a sketch of an adult
education class on MySpace, with a dozen 40-something men looking for tips
on how to pick up teenage girls.
In Britain, the head of Tunbridge Wells Girls’ Grammar School turned to the
police after finding that more than 700 pupils were using Bebo, with some of
them posting pictures that she felt verged on ‘soft pornography’, making
pupils a target for paedophiles.
The companies’ stock response is that, as in any community of millions of
people, there will always be a few with bad intentions, and they take the
threat very seriously. Bebo, for example, has recently appointed Rachel
O’Connell, an acknowledged expert, to be its chief safety officer.
However, Bebo founder Michael Birch said: ‘The media attention is completely
disproportionate to the level of danger — and that’s not to belittle it. The
bigger issue is cyber-bullying — kids being mean to kids.’
Birch was alarmed to hear that my nine-year-old daughter had signed up to Bebo
— along, seemingly, with several friends. Bebo insists on a minimum age of
13, but Birch said it could do little to stop children lying about their
age.
In truth, the firms do not always help themselves. Reading an introductory
message after signing up to MySpace, I was served up an ad that read: ‘Get
Laid Tonight — Hot Girls of All Types.’ This was a teaser for mate1.com, an
‘intimate dating’ firm.
