How They Started (15 page)

Reid decided that advertising, while not part of the original business plan, would become the site’s third revenue stream, as it had built up a demographic base that appealed strongly to advertisers. The self-selecting nature of LinkedIn’s membership (it targeted successful and ambitious professionals) would provide an opportunity for certain brands to reach their target audience in an efficient way. Just a year later LinkedIn turned a profit, the majority of the income coming from its premium services, such as job listings.

LinkedIn became one of the few companies that thrived in the recession that hit during the late 2000s, benefiting from the increased number of people on the hunt for jobs. In March 2008, the site saw its traffic double to just under seven million users, up from 3.3 million a year earlier. Furthermore, the site continued to develop features to increase the value of its services for users.

In September 2008, LinkedIn struck a partnership with financial news channel CNBC, enabling users to share and discuss news with their professional contacts. Community-generated content such as surveys and polls from LinkedIn are broadcast on CNBC, and in return the broadcaster provides the site with its programming, articles and blogs. The networking site sealed similar partnerships with other media owners, including
The New York Times
. Then in 2008, original investor Sequoia Capital, together with Greylock Partners and other venture capital firms, acquired a 5 percent stake in the company for $53 million, giving the company a valuation of nearly $1 billion, a remarkable achievement for a business that was just 5 years old.

Some say that the best business ideas
come from trying to solve a problem that you understand. That’s certainly a view shared by Gary Kremen, founder and ex-CEO of Match.com, the world’s first major dating site and one that set the standard for much of the Web as it developed.

“I actually started Match.com trying to find love for myself,” Gary admits. “I had this idea that if I could put all the women in the world on a database, and I could sort it, then I’d just marry number one.”

It is not every day, of course, that a yearning for companionship gives rise to a multi-billion dollar global industry, but Gary is not an everyday person. Already a successful digital entrepreneur before he started Match.com, Gary’s tale is one of sharp business acumen combined with an understanding of what makes people tick.

Gary was born in Skokie, Illinois, in 1963 to two teachers. From an early age it was clear that he had a formidable intellect. As a child he spent hours looking through his telescope and was one of the first among his peers to purchase a home computer (when he was just 12 years old). However, early disciplinary problems at school held him back. He describes himself as a “behaviorally challenged student” and was frequently in trouble for minor vandalism and computer hacking.

Despite not having the best grades, Gary used his entrepreneurial instinct to “pitch” his qualities to Northwestern University, a strategy that worked. Graduating with a combined major in business and computer science in 1985, Gary worked as an engineer at the Aerospace Corporation for two years. It was while working here that he was first introduced to ARPANET, the Department of Defense’s early precursor to the World Wide Web. Although it was a secure job, it was dull, and Gary’s mind soon drifted to grander things. After taking night classes in accounting, he decided the time was right to go to Silicon Valley to earn his millions in the technology industry, and he turned down a prestigious scholarship at the University of Chicago to seek an MBA in California at Stanford Graduate School of Business.

At Stanford, Gary was part of a gifted generation of digital entrepreneurs, with classmates going on to become driving forces in household-name companies such as Microsoft and Sun Microsystems. After graduating, he found a job in a biotechnology company—nothing too exciting, but the company’s CEO allowed him to sit in on board meetings, something Gary says gave him the confidence to start his own venture.

When the time came for Gary to start his own business, there was one area in which he boasted almost unparalleled expertise—the online world. “I was a nerd, okay!” says Gary. “I was online as early as 1985. How many people can say that?”

This proficiency, combined with the skills he learned while completing his degrees, gave him an advantage over the many would-be digital entrepreneurs in Silicon Valley in the early 1990s.

Gary’s first venture was Full Source Software, co-founded in 1991 with partner Ben Dubin. Full Source would download software from Usenet (an early Internet community that preceded today’s commercial Internet), putting it onto physical media for sale in bulk to large companies. The company was a moderate success, eventually making up to $2,000 a day, but it gave Gary an early glimpse of the enormous commercial potential the World Wide Web had to offer.

In 1989, Gary co-founded his second venture, Los Altos Technologies (LAT), a company that cleaned sensitive data off hard drives for the military and other businesses. (The company was sold to an employee in late 1992 and is still going strong.) While working at LAT, Gary noticed something important: large purchasers were beginning to use systems like IBM’s Lotus Notes, enabling administrative staff to send electronic purchase orders without the help of IT staff. It may sound insignificant now, but Gary saw what it meant: an increasing number of women were using these tools to go online for the first time.

“It was the first time I noticed women using the Internet,” Gary explains. He was an avid user of what were known as “900 number” services: telephone-based dating agencies that enabled people to meet potential partners in exchange for a fee. He realized that the crux of these services’ success was their network of users, and he saw similar potential in the small but growing presence of women online. “It got me thinking, ‘I wonder if I could do what they do—and charge access to these women?’” he says.

“I was a nerd, okay!” says Gary. “I was online as early as 1985. How many people can say that?”

The relatively tiny female population online at the time (around 10 percent of users) did little to faze Gary—in fact, it encouraged him. “Because there were so few women, I realized that this was the key,” he says. “If you control the few women, you can charge a lot of money to the men.”

Gary saw the huge revenues that print media made from classified advertising—and from dating ads in particular. At the time, papers such as the
Los Angeles Times
and
Chicago Tribune
made 10 percent of their total earnings from personal dating services and 40 percent overall from classifieds. But he also saw that the industry was slow to react to change and had some key flaws, such as slow turnaround time, lack of anonymity and potential for embarrassment. These were all problems that could potentially be solved by a secure, anonymous and instant online classifieds business. Out of these insights came the idea that would change Gary’s life and set him on the path to becoming one of Silicon Valley’s best-known entrepreneurs.

In 1993 Gary set out to realize his vision and founded Electric Classifieds, Inc. (ECI), under which Match.com was developed. The original name of the company was a reflection of the wider vision Gary had for the business: ECI was to be a billion-dollar online classifieds empire with dating being a headline-grabbing way of getting people to look at the Internet in a new way.

Gary took out a $2,500 advance on his credit card to pay for the domain name Match.com, as well as a host of others, including Autos.com, Housing.com, Jobs.com, and (famously) Sex.com. The bill racked up higher as he bought a $10,000 SUN workstation to host the site and hired Kevin Kunzelmann as his first employee, finding him on Usenet. Early on, Gary was also assisted by experienced software engineer Peng Tsin Ong, who helped with the construction of the site, provided 10 percent of the initial startup funding and acted as Gary’s brainstorming partner. Gary also hired Scott Fraize, a software developer.

ECI started operating out of a small room located in the San Francisco neighborhood known as the “Panhandle.” Gary recalls it as a “horrible” place: “I was the starving entrepreneur, living on two meals a day,” he recalls. “But it was really exciting having this small team working out of a little room, watching the business grow so fast—now it’s a cliché, but back then it was so powerful.”

At this point, Match.com was barely more than a proof of concept; the site would not be built until 1994. Users would send a picture and personal details to ECI’s email address, which would then send profiles of other local users in reply (in exchange for a fee). Despite this rather clunky system, the enormous potential of online dating was soon becoming apparent, with the company seeing explosive growth almost from launch.

“It was insanely fast,” Gary recalls. “We were growing 2–3 percent a day just from new sign-ups and traffic was growing even faster than that.” What made this growth even more impressive was that initially there was no money set aside for advertising, with the nascent service relying on word of mouth.

“I was the starving entrepreneur, living on two meals a day,” he recalls. “But it was really exciting having this small team working out of a little room, watching the business grow so fast—now it’s a cliché but back then it was so powerful.”

It wasn’t long before this growth attracted the attention of angel investors such as serial Silicon Valley entrepreneur Ron Posner, and just a few months after launch Electric Classifieds had raised $200,000 in funding, giving the project a much-needed cash injection after Gary maxed out his credit card.

Although online personals were an attractive concept for consumers and investors alike, the problem remained of marketing the business to the wider world, and early on, ECI made a bold decision: to focus the marketing entirely on women who were already online. In the mid-1990s, as the Internet was growing in popularity, women made up a large proportion of chat room users, through the likes of AOL and Compuserve.

“I had the vision that one well-connected woman could get 50 other women—who could get 5,000 guys,” Gary explains. The company began to target the small proportion of women who were already online, advertising on female-focused chat sites such as Compuserve’s Women’s Wire. The marketing emphasized the safety and anonymity of the Match.com model; online security was still a concern for many women and ECI promised a risk-free service where phone numbers and home addresses were not needed. Initially, Match.com was a free service, but ECI began charging users a monthly fee shortly before the site was finished.