The Selling of Theglobe.com

Baldwin Louie — Mon, 05 Jul 1999 15:00:00 -0700

The theme of The Montel Williams Show last March was "Money Is Making My World Go Around." Four young entrepreneurs sat in a row under hot lights to tell the stories of how they made a pile of money. Making up the panel were "Kenny" from Chicago, founder of Little Miss Muffin muffin company; "Anita," who designed cheap, trendy handbags under the moniker Trash Bags; and Todd Krizelman and Stephan Paternot, both 25, who had built a Web site called Theglobe.com, which they described as an "online community."

Krizelman and Paternot seemed to be from a different world than the others. For one thing, they were so, so much richer - at least on paper. Kenny's muffins pulls in $4 million a year; Anita's handbags, $1 million.

Krizelman and Paternot didn't discuss revenues, just net worth: The company was valued at close to $1 billion on Nasdaq, with each founder worth around $30 million. And while the muffins made their way on a tray around the audience and the handbags sat on a table onstage, Krizelman and Paternot had nothing tangible to show the audience, which only added to the dreamlike quality of their success.

Back at the office, partners Paternot and Krizelman face each other behind their tidy desks, looking rather relaxed, talking about the Montel experience. "We're used to going to CNN, where it's crisp and clean," says Paternot.

"CEOs, suits, you're on, you're off," adds Krizelman.

"On Montel, Todd and I were like, 'Oh my God, we're in a different universe,'" says Paternot.

The Montel Williams Show seems a strange place to peddle a Web site; Net CEOs aren't frequent guests on the talk-show circuit. But its audience has just the type of person Theglobe.com thinks it needs to attract - someone who has yet to go online and fall prey to a competing online community.

Theglobe.com needs members, wherever it can get them - and quick. The site has not kept up with the Internet's growth. According to Media Metrix, Theglobe.com reached only 3.8 percent of the Net's audience in January 1999 and 3.7 percent in March. Its acquisition of Attitude Network, parent company of game portal Happy Puppy, accounts for a boost in traffic to 5.2 percent in April. The most instantly successful IPO in history, the company's stock has tanked since its debut. While its biggest competitors have all been snatched up by industry heavyweights (Xoom.com by NBC, GeoCities by Yahoo (YHOO), Tripod by Lycos (LCOS)), Theglobe.com is still going it alone.

So Theglobe.com's marketers have come up with a strategy that's unusual for the Web: media appearances, as many as possible, everywhere - and not just on the CNN circuit. This approach requires coming up with a story that's fun and sexy enough to find a home on TV shows, in magazines, in newspapers.

At 25 years old, Todd Krizelman and Steph Paternot, co-CEOs, embody the popular myth of kids who got rich messing around with the Internet in a garage. The bonus is that unlike other Net geeks, they have good skin, well-cut hair and a fashionably downtown style. Col. Tom Parker, marketer of Elvis, said that he knew he'd hit the jackpot when he found a white boy who could sing black; Theglobe.com has white geeks who can wear black.

Even though there are rumbles that most of the company's day-to-day dealmaking is done by more seasoned execs (over 60 percent of the company is owned by former Alamo Rent-A-Car chairman Michael Egan and his investment company Dancing Bear), the front men, the titular bosses or, at least, the spokespeople of Theglobe.com are Krizelman and Paternot, two young Internet millionaires.

The end result is name recognition, which is what Theglobe.com needs, especially because it's not clear exactly what the public should recognize. The brand may be strong, but the product is awfully confusing.

Building a community site is not easy. Most sites have been based on vaguely humanitarian concerns, which don't translate easily into profitable businesses. The first community sites were not Web sites at all, but Telnet-based bulletin boards. The West Coast had the Well in Sausalito, Calif., which launched in 1985 and was recently acquired by the online magazine Salon.com; New York had Echo, which began in 1990. Although both attracted an impressive roster of the digital elite, neither enjoyed mass appeal. Theglobe.com was part of the second wave of community sites, which began in 1995, when the Web became a consumer mass medium and chat replaced bulletin boards.

One of the first companies to use the term "Web community" was GeoCities, which launched in April 1995. It consisted initially of feeds from two Webcams stationed over famous Hollywood intersections along with a list of links to entertainment-related Web sites. At that time called Beverly Hills Internet, GeoCities quickly started a program to help members build homepages and encouraged the formation of "geocities." The cultures of these digital cities were supposedly inspired by the physical-world locations of the cams. (An early description of the product from a company press release read, "At the core of BHI's philosophy is the fact that 'location' on the Internet becomes easier to understand and relate to when it is rich with content and closely identified with an actual idea or location.")

The same year, Tripod launched with 12 people in a little office in founder Bo Peabody's college town of Williamstown, Mass. An exploration of Peabody's college musings on the effects of media on people and cultures (he hatched the idea for the company in 1992 with his economics professor), Tripod offered, besides free homepages, chats with political and pop culture figures, news, weather, travel and health information.

Both GeoCities and Tripod amassed significant traffic from their free homepage-building services. Both extended their revenues by starting "affiliate" programs, in which their members could link to online retailers from homepages, so both member site and community site could reap profits from sales. Investors bought in, and Goldman Sachs underwrote GeoCities' public offering in August 1998. Both Tripod and GeoCities were acquired by portals - Tripod by Lycos in February 1998, then GeoCities by Yahoo in January 1999.

Both companies now focus on improving their homepage-building tools for use by Yahoo's and Lycos' huge audiences, because successful homepage-building programs mean traffic, higher ad rates and more revenue from affiliates.

Theglobe.com was born in 1995. At first called Web Genesis, it began as a class project in Cornell's computer-science lab, with an initial investment from the founders' families. The student staff worked long hours and consumed many pizzas. The idea at first was vague - to simply aggregate an audience through whatever means possible and sell ads on top of it. The first version of Theglobe.com contained chat, bulletin boards, discussion forums, classifieds and personal ads. It featured text and photos of members - in other words, homepages.

The company seriously entered the competitive landscape when Michael Egan, former Alamo Rent-A-Car chairman, called the president of Cornell, his alma mater, looking for leads on investing in an Internet company. He had past experience making boys' dreams come true. With his help, Nantucket Nectars went from a juice bar in Nantucket harbor started by two Brown grads to a full-blown beverage company, now partly owned by Ocean Spray. After a four-hour lunch with Krizelman and Paternot, Egan offered to buy 50 percent of the company for a dizzying $20 million dollars.

Theglobe.com, which had relocated from Ithaca, N.Y., to the big city, staffed up, almost launched an IPO, pulled it during an Internet stock downswing, and finally went public. Its share price rose from $9 to $97 a share in the first day of trading and caused market makers to wonder what the hell happened. Many individual investors were shocked that they paid close to $90 for what they were expecting to buy for $9.

Over four days, the stock went down to about $28. Theglobe.com's stock never again rose above $40, and last week hovered around $17. But Krizelman and Paternot have still made a paper fortune on a company with just $3 million in revenue and a loss of $6 million in the most recent quarter.

The object of all this investor frenzy is a curious site that offers a mix of chat, bulletin boards, polls, repackaged news feeds, stock quotes, an online art gallery, a love-advice column and a shopping channel that sells apparel and housewares like wine racks and vacuum cleaners. And Theglobe.com's recent acquisition of Attitude Network gives it links to online gaming sites.

There's also homepage-building, although Theglobe.com's homepage-building tools are notoriously skimpy. This, even though homepage-building remains the single biggest revenue source for Theglobe.com's competition. Krizelman and Paternot downplay homepage-building, claiming that equating it with community misses the point, which is ...

"Theglobe.com is content, commerce and community," attempts one marketing exec.

"The ambience of Theglobe.com is the ambience of NY," tries another. "It has this buzz because it seems to offer a wide variety of things, and everybody wants to live there at least for a year."

"I would describe Theglobe.com as the most interesting person at a party - the one who tends to attract a lot of people," offers a third. "Easy, quick, warm, nice, energetic."

That's where Krizelman and Paternot come in. In lieu of a concrete definition of its product, Theglobe.com has chosen to market its founders. Krizelman and Paternot's publicist, Andrea Smith, formerly with MTV, likes to package the Todd-and-Steph story as, "The American Dream Come True, With a Cybertwist."

"I saw a picture of them at my interview, and said, 'OK, they're marketable,'" remembers Smith. She joined the company two days before Theglobe.com's staggering IPO and immediately placed calls hawking the "American Dream" pitch. It worked. A story of Theglobe.com's IPO, complete with its barely legal founders clinking champagne on the Nasdaq floor, aired on CNBC's Business Unusual. CNN aired a piece that hit hard on the college-startup angle, complete with snapshots of the two CEOs from their younger, softer days. (In one, Paternot sports a ponytail, now long gone.) Two New York local news shows ran pieces on Theglobe.com's IPO - in one, the founders endured a pinch from the show's host to make sure they weren't dreaming.

Next came print. Smith encloses two different headshots of Krizelman and Paternot with every pitch. Both look even younger than their 25 years. With Wall Street lingo coming out of the mouths of these babes, it's easy to see their precocious allure. And don't forget the "cybertwist."

"The press knows the Net is a hot-button topic, and they know they have to cover it, but they don't know how to make it visually interesting," says Smith. Krizelman and Paternot's boy-wonderism hits a sweet spot that combines the sexiness of the Internet and its promise of riches with the sexiness of youth.

"In the beginning, it was like, 'You have to do press,'" says Paternot. "We have advantages that older CEOs wouldn't have access to. You need to come up with any advantage you can."

There are a couple of rough spots in the official story, however. One is the implied Horatio Alger angle. Krizelman grew up in the heart of Silicon Valley in Menlo Park. Mom worked at Visa, dad at Acuson. Summers were spent hot-air ballooning in New Mexico; fall meant the private Crystal Springs Uplands School in Hillsborough, Calif. Paternot comes from a famously affluent European bloodline. His great-grandfather founded Nestle; his grandfather continued as CEO; his father was recently named businessman of the year in Switzerland after heading up a temp firm called Adia. Paternot was schooled privately in Europe and speaks fluent French.

There's another problem. On a typical day of interviews at Theglobe.com, it's not uncommon to hear Krizelman and Paternot being compared to Richard Branson (their idol), Lee Iacocca or Donald Trump. Krizelman and Paternot don't resemble these guys. They don't even seem to measure up to Steve Jobs, who had, in the words of one seasoned PR exec, "all the intensity of center court at Wimbledon" for both his employees and those on the outside. Although all-company "huddles," in which employees are given a chance to "see Todd and Steph's personality" are on the monthly agenda, such huddles have yet to materialize with any regularity.

When asked, Paternot couldn't locate the link to "cool user homepages" off the front page of Theglobe.com. And when CTO Vance Hartley, who helped start the company back in Ithaca, is asked whether he is still "close to Todd and Steph," he pauses reflectively. "Todd and Steph don't necessarily deal with things day to day, but they certainly have a huge attachment to the product," he says. "I think everybody crosses paths with them from time to time."

Theglobe.com's competitors view the coverage with chagrin. "While these guys have been in Jane, they haven't been in Forbes or Fortune," notes Tripod CEO Bo Peabody. "They've gone after this image that lacks authenticity, and I think it's rather unfortunate for them and the industry." "It's a legitimate desire to want to reach a mainstream audience," counters Lisa Simpson, president of Sony Online Entertainment, whose site Media Metrix puts in the same general category of "news, info and entertainment" as the community sites. "And the way you do that is through the mainstream press."

Krizelman and paternot appear to be, as the marketers would say, right "on trend." They have been featured in the pages of Gen-X magazines Black Book and Bikini, as well as more mainstream magazines like Jane and Interview. In the British Harper's and Queen, Krizelman and Paternot were included in a column called "Hot Properties" that profiles eligible bachelors. Smith says the two CEOs were good-natured about being labeled "hot properties," although Paternot has a "serious girlfriend." Neither did the two mind posing for Interview in matching black Armani T-shirts. Smith hopes to sell Teen People on a "role models" story featuring them both.

"We like to play it up," jokes Paternot. However, his shyness is evident beneath his aloof exterior. He describes "doing press" as a "slow, painful process" much less preferable to simply making commercials. "The press likes movie stars. They like great personality. So Todd and I have had to play up the young, hip CEOs."

Theglobe.com gets press, but the audience numbers haven't reflected the hype. Krizelman and Paternot keep their chins up.

"You hear about a movie star, and they seem to come out of nowhere," says Krizelman. "But then you realize they've been in 30 movies before." But Krizelman and Paternot probably won't have to play their public roles forever, or even for another year. Theglobe.com's current plummeting valuation will soon put it in somebody's price range, and, like its competitors, it will be acquired for its 2.1 million unique visitors. Maybe the new owner can help its audience figure out what they came for. When that happens, the young CEOs can be relieved of the burden of the crown, escape the ire of the digital community and enjoy their status as "hot properties" full-time.

The Industry Standard - The Selling of Theglobe.com - Comments

The Selling of Theglobe.com