Facebook founder Mark Zuckerberg was 10 years old when David Bohnett, then a 37-year-old mainframe programmer, hatched an idea: Set up a Web-based “community” where young people could divulge their most intimate feelings. He grouped those musings into different themes, and ushered in advertisers to hawk Volvos and Volkswagens.
This ur-Facebook of 1994 was called GeoCities. And both its rise and fall are a history lesson for Mr. Zuckerberg as his social-networking site, the 16th-most visited on the planet, approaches its own crossroads: Should it sell, launch an initial public offering or take another investment round? (See related story1 for more on this decision.)
GeoCities' tale shows just how necessary continual innovation — and the capital to support it — are for a Web media business. It's a lesson in the perils of being acquired. And yet it shows the value of humility, even in moments of the sweetest triumph. Just how many of the top 20 visited Web sites of August 2003 are still in that ranking? Nine.
GeoCities grew popular before broadband, meaning that it would appear terribly crude to modern eyes. There was no video. It took hours to upload a photograph.
Back then, entries were known as home pages, not profiles. But the basic, expressive elements of today's Facebook and competitor MySpace, owned by News Corp., were all right there.
“It's the same as it is today — people want to feel like they're connected,” says Mr. Bohnett, now a 51-year-old venture capitalist, over the phone from Southampton, N.Y. “Give them a set of tools and they'll do it.”
“I knew right from the beginning that this was going to be big,” he says. “I got an email every time someone would register. There were 10 a second at one point.”
By August 1998, GeoCities was the third most-visited site on the Web, a distinction that propelled it to a successful IPO. It was valued at about $1 billion at the time. Sixteen months later, Yahoo paid an astounding $4.7 billion, calling the new Yahoo-GeoCities combo “one powerful offering.” The site had yet to turn a profit.
Mr. Bohnett and other top executives had scored big. And their creation would soon wither before their eyes.
Life inside Yahoo was smothering for GeoCities, say a number of people familiar with the transition. Developing new technologies for GeoCities' communities slowed to a crawl, as its staff of 30 software developers was cut to a skeleton crew. Yahoo focused instead of building traffic, not necessarily on the programming for improving person-to-person interaction. “Had they done things right with GeoCities, there would be no Facebook, YouTube or MySpace,” says one.
Yahoo didn't immediately respond to a request for comment.
Today GeoCities is still featured on Yahoo's site — tucked obscurely into the lower left-hand corner. GeoCities' home page is a bland advertisement for Web-hosting services. Many of its user pages are “ghost pages,” sites abandoned as if during a volcano eruption.
Yahoo's treatment of GeoCities is particularly relevant for Mr. Zuckerberg, who reportedly rebuffed a $1 billion buyout from former Yahoo CEO Terry Semel. That turned out to be the right move, given that many in Silicon Valley peg Facebook's value at upward of $10 billion. Besides, Mr. Zuckerberg isn't gunning for just wealth. He's gunning for wealth and legacy.
Mr. Bohnett steered clear of commenting on Yahoo's stewardship of GeoCities. But if he could give advice to Mr. Zuckerberg, he'd recommend heavy investment in new technology to “stay true to what the user experience is.” And he stressed the importance of keeping a young audience: “Those kids tend to get older and maintain some connection with an online community. You've got to capture that early adopter, young audience.”
Mr. Zuckerberg is in an especially good place right now. His site has developed a patina of invincibility, which in 2006 enabled him to wrangle an especially good advertising deal with Microsoft. Ever the Net-laggard, Microsoft is now guaranteeing about $75 million in revenue this year, which could become as much as $300 million by 2011 if traffic grows rapidly.
Alas, advertisers have found Facebook users to be a huge audience — that could care less about ads. The percentage of users clicking onto site advertisements on Facebook and MySpace are lower than typical Web sites. That means it's essentially sucking up a subsidy from Microsoft, which wants to get its hooks into Facebook the best it can.
“It's not that easy to monetize social media,” says Eric Hippeau, a managing partner of Softbank Capital that made more than 20 times its investment in GeoCities. He also sits on Yahoo's board. “Once Microsoft's deal with Facebook expires, as does Google's deal with MySpace, they're going to have to sell advertising for themselves and it's going to be a challenge.” So far, he says, “it's not that easy to match the right advertising with the right audience.”
That squares with the experience of Thomas R. Evans, GeoCities' former chief executive. “When you're as successful as GeoCities, everyone tells you how wonderful you are. It causes you to miss opportunities.” Now the CEO of Web site Bankrate.com, he added that, “People at the time were dismissive of old media experience. But it turned out looking exactly like the old media business. You have to execute and provide both the consumer and the advertiser with significant value.”
At some point, the questions about Facebook the business will eclipse the praise of Facebook the social phenomenon. And once that point hits, Mr. Zuckerberg will be less able to dictate the terms of how fresh capital is put to use.
If Mr. Zuckerberg's primary goal is creative freedom — a freedom to build something special — the history of GeoCities suggests that he should take a big investment now, even a highly dilutive one. Preferably this would be a private infusion, allowing him to experiment outside the glare of the stock market and maintaining independence. With it, he could lock in a big valuation, build out infrastructure, and make some quality hires and acquisitions as necessary.
MySpace owner Rupert Murdoch, had it right when he summed up the state of 125-year-old Dow Jones & Co., publisher of The Wall Street Journal, which he is now buying. “The first road to freedom,” he said of Dow Jones, “is viability.”