Entree New

American Demographics, Dec 1, 2003 by Martha Visser

Byline: MARTHA VISSER

Justin Phelps, an executive at a computer game company in Silicon Valley, wasn't looking for a new job when a friend in France forwarded him a message posted on a Web site last August. It was for a position as a chief technology officer with Blue-Stream Communications, a telecommunications company based in the British Virgin Islands, with offices in Grenada.

Phelps, 28, sent an e-mail to Blue-Stream and several teleconferences with the company's managers followed. Then, in early November, he received an offer letter to start at the end of December. What made his job search remarkable is that Phelps never met the people who hired him. Instead of using contacts from a fraternity or an alumni association, his introduction to Blue-Stream's executives was through Tribe.net, an exclusive Internet social club based in San Francisco.

"I feel pretty fantastic making a competitive American salary in a beautiful Caribbean country," says Phelps, who now lives in Grenada. "I hope to use Tribe a lot more in business relationships."

Phelps is part of a rapidly growing movement among computer users to join invitation-only Web sites in order to make business contacts, find dates, meet people with the same hobbies or interests, or just chat. Besides Tribe.net, other social networking sites include Ryze.com, Friendster.com, LinkedIn.com, Meetup.com and Emode.com. Unlike mass job sites, like Hotjobs.com or Monster.com, or cyber dating services, such as Nerve.com or Match.com, users of these new Internet social networks have to be invited by a member. Picture them anxiously waiting behind velvet ropes to receive their invitations.

USERS QUICKLY ADOPT SERVICES

Within the past year, more than 3 million users have joined these social networking sites. In contrast to the vaunted dot-com company blueprints of the mid- to late 1990s, these new ventures appear to be gaining both validation and momentum from the ground up as businesses formed around consumer demand versus Wall Street greed.

Tribe Networks Inc. began in March 2003, when its founders invited 100 people they knew to join their online club. It now has 35,000 members, who log on to the site for business and social networking. Or, they can join one of the site's more than 5,000 "tribes" catering to members' different interests. One executive at IBM Corp. created separate tribes for his church, his son's little league team, his children's school's parent group and his tech geek friends. All members were referrals. "We haven't done any marketing," says Mark Pincus, Tribe.net's 37-year-old founder, who admits the site's name was influenced by Ethan Watters' book, Urban Tribes: A Generation Redefines Friendship, Family and Commitment, (Bloomsbury USA, 2003).

These sites have become such a rage among Internet users that Danah Boyd, a doctoral candidate in the School of Information Management and Systems at the University of California at Berkeley, spent a year online investigating them. While researching her 2002 masters thesis at Massachusetts Institute of Technology's Media Lab, Boyd found that early users of these invite-only social sites were college-educated, had what they considered hipster attitudes and were between the ages of 25 and 35. She also found that slightly more of the users were men.

As popular as social networking sites may be among the visitors they attract, the big question still is, can anyone manage to profit from the concept? So far, none of them are in the black, although Ryze.com, which charges membership fees, is breaking even. Friendster.com, LinkedIn.com and Tribe.net are still in their beta phase, the secondary, test phase of a startup when developers see who uses the site and how they use it. During this stage, the sites are free to users.

What makes these ventures different from previous Internet startups is that the founders have learned lessons from the dot-com debacle of the late '90s. This time around, many are investing their own money and running frugal operations. Tribe.net's 13 employees, for instance, receive meager salaries, but they are investors in the company. Pincus, who started two successful Internet companies before the bubble burst says, "I've spent less money starting Tribe.net than I did on my first two. We negotiate special rent deals; we haven't spent anything on furniture. This isn't a throwback to 1995. This isn't a champagne cork-popping dot-com."

REVENUE MODELS IN QUESTION

While it's still not clear how these sites will generate revenue in the future, they are already attracting interest from investors. Andrew Anker, a venture partner in August Capital of Menlo Park, Calif., thinks the sites have tremendous marketing potential. August Capital was an early investor in Emode, investing $7 million in the fledgling company in March 2000. Among the top social sites, Emode - also based in Menlo Park - is the only one that currently accepts ads. "The interesting thing about these businesses is that you have your customer doing the marketing for you," says Anker, 38, who estimates that marketing consumes 70 percent to 80 percent of a business' budget. "When I join, say, Friendster, I'm encouraged to go invite my friends, so that I have a bigger network. If I send e-mail to my 10 best friends saying, 'Hey, join my network,' all of a sudden, I've become a de facto marketing agent for Friendster."