by David Shabelman
[Posted on January 3, 2008 - 5:27 PM]
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DiggIn November rumors circulated that business social networking company LinkedIn Corp. was looking to be acquired for more than $1 billion. Rival Plaxo Inc. now is also reportedly on the block, but its price tag may be closer to a far more modest $100 million.
Billed as a "digital assistant," Plaxo provides a free service that helps people keep online address book information up to date. The Mountain View, Calif.-based firm also offers premium services for $49.95 a year that provide portable data access, automated backup and recovery, and the ability to send e-cards.
A Plaxo spokeswoman declined comment on whether the company is for sale or on the value of a deal, which was reported by The New York Times. Boston investment bank Revolution Partners LLC, which is reportedly advising Plaxo, did not return calls seeking comment.
While LinkedIn has flourished over the last year, building the leading social network targeting professional users, Plaxo has stagnated. According to comScore Media Metrix, as of November the company had 1 million total unique visitors, a 5% increase from the year-ago figure. By comparison, traffic on LinkedIn soared 271% in November, giving it 2.8 million unique visitors, versus 751,000 the previous year.
"The whole business social networking market is pretty hot right now, but there's a lot of competition with LinkedIn, Spock Networks Inc. and Facebook," said Michael Osterman, president of Seattle-based Osterman Research, which focuses on the messaging and collaboration technology industry.
Plaxo was started in 2001 by Napster Inc. co-founder Sean Parker and entrepreneurs Todd Masonis, Cameron Ring and Minh Nguyen. Masonis and Ring are still with the company, but Parker left the firm in 2004 to became the founding president of Facebook.
Plaxo's woes trace partly to a backlash from users who complained of receiving spam e-mail from other users of the network. People with Plaxo accounts would get bombarded with e-mails from new users asking them to update their contact information. The company eventually rectified the issue and issued an apology, but the damage was done.
Brad Bowers, founder of San Francisco Internet advisory firm BlackInc Ventures LLC, said that another problem for Plaxo is that many people are satisfied with the way they update contact information "and don't see a compelling enough reason" to use the company's service. By contrast, he said LinkedIn "has successfully reached a tipping point with business users" by enabling easy professional networking through members' existing business contacts.
Michael Gartenberg, an analyst with JupiterResearch LLC, said Plaxo has done a good job repositioning itself "from a company that spammed your inbox into an über-social network where you can manage your relationships."
Possible suitors for Plaxo could include larger Web portals interested in integrating it into their offerings or continuing to run it as a standalone operation.
In August, the company unveiled its next-generation social network, Pulse, which aggregates feeds from other Web sites to better connect family, friends and business contacts.
Osterman puts Redmond, Wash.-based Microsoft Corp. on a "shortlist" of potential acquirers. He also cited AOL LLC of Dulles, Va., which has a partnership with Plaxo to provide up-to-date contact information for its AOL and instant messaging members.
Plaxo has raised more than $20 million in venture capital. Among its VC investors are Sequoia Capital of Menlo Park, Calif., Globespan Capital Partners of Boston, Harbinger Venture Management of Santa Clara, Calif., and Sherpalo Ventures, also of Meno Park. The company has also raised money from Cisco Systems Inc. of San Jose, Calif., and former Yahoo! Inc. CEO Tim Koogle.
I am an ex-employee of Plaxo and still close to the company (advisory board), so clearly I have some bias. This story first appeared in the NY Times last week and has gotten all it's facts wrong.
First, the company is enjoying a boom time with the release of Plaxo Pulse. The activity, growth, and revenue of the company are healthy and vibrant. If they were to be acquired, it would be for a much larger number than the speculation in the NY Times article. Take a look at valuations in the social networking space (Facebook, LinkedIn, etc.) and compare to Plaxo's user base, activity, growth, and innovation to get a better idea of the current value of this business.