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Making Plaxo a Paying Proposition

Early on, a lot came easy to Plaxo. The Mountain View (Calif.) startup was founded in 2001, a time when skepticism about consumer Internet businesses and fuzzy business models was at its peak. Nonetheless, the company that helps users manage and update their address books over its servers was able to sew up a tidy $20 million from big-name backers such as Michael Moritz of Sequoia Capital and Google (GOOG) fame, along with individual investments from the likes of early Yahoo (YHOO) CEO Tim Koogle.

But winning over the skeptics has been harder. True, Plaxo's user base has grown steadily, to 5.5 million today, and devotees love how it has simplified staying in touch. But profits have been elusive, and critics have endlessly questioned how the tight-lipped, privately held company would ever make money.

SECURITY FEARS. Then, blogosphere critics started asking what Plaxo would do with all that valuable contact data and how safe it was. Moreover, users were increasingly annoyed by the dozens of e-mails they were getting every month from Plaxo members asking to update their information.

Now, with a new president and CEO, Ben Golub, Plaxo is trying to move beyond such challenges. Golub came to the company from VeriSign (VRSN) -- whose focus is making Internet transactions safe. Employing strict privacy policies, he hopes to put the security fears to rest.

As for profits, Plaxo is launching two new premium services: an address book customers can access from any mobile phone and a service designed for power users to clean up information on contacts that may have switched jobs or moved.

BusinessWeek Online reporter Sarah Lacy recently spoke to Golub about taking over as chief exec and about Plaxo's plans. Edited excerpts of their conversation follow:

Q: What attracted you to the job?

A: Plaxo is solving a really basic problem of how do we help people connect and stay connected, given a world in which most of the forces are making that more difficult to do. I mean you look at your business card. You've got probably six or seven contact points on there. You probably have other ones not on there, like your home number, your home e-mail, and your mobile number.

The 100 to 300 people you care about from a professional and personal perspective are in the same situation, so either you invest a lot of effort to stay connected or you lose touch. Plaxo came in at a very basic level to make sure networks are up to date, so once I'm a member and someone else is a member, we'll never lose touch with each other.

Q: What challenges does the company face now?

A: I think they got all the foundations really right, so I'm somewhat lucky coming in as a CEO. The culture is right, there's a good product, a good board, and good backing. It needs to scale. Obviously, Plaxo needs to get to the point where it's not just growing its members, but it's getting a good revenue stream in.

Everyone sees a great vision for what the company can be when it's 40 million interconnected members, but to get from where we are today, which is 5.5 million members, there's obviously a lot we need to do to add value, generate revenue, and become profitable.

Q: How do you see Plaxo competing with all the other companies trying to do the same thing?

A: There's a broad set of companies like LinkedIn and Friendster that people often compare us to, but I don't think that's a good comparison. They're all about increasing the size of your network by helping you connect with someone three or four degrees away. That's useful for certain type of things. I've used it for recruiting. Plaxo solves a far more fundamental thing that no one else is solving successfully these days, which is, "How do I deepen my connections with people I deal with everyday?"

Q: Where does Plaxo stand with revenue?

A: We have some decent revenue coming in now. We have one premium service, which is premium support. We find for a lot of our power users, it's a good offering. This week, we're releasing some new products for about $29.95 a year. That includes getting Plaxo on your mobile phone, on a simple mobile phone. A lot of phones can't handle more than a few contacts, and why worry about keeping your phone's address book up to date?

Another thing useful for top 20% of the subscriber base is an address-book cleaner. You probably have multiple contacts for one person. This will go through and do sophisticated analysis and help you to have right single contact for them. We have a lot of demand for that product.

Q: Anything else?

A: Yes, we introduced birthday reminders a few months ago. The mean number of contacts is 340, and a third of those will put in their birthdate when they enter information. So for the 100 or so people in your address book with birthdays, we send you a reminder seven days before, letting you know it's their birthday. We say, "Would you like to send them a card, flowers, candy?" and of course, we make money if you chose to do any of those things.

We know your address; we know the recipient's address, so it's just a few clicks. We found 11% of people we send these notes to actually send something. We get about 40 notes a day from people saying, "You wouldn't believe the hot water you just kept me out of."

Q: Probably all men!

A: Yes. Actually, our membership is 50-50, but 70% of people using this are men. Also, we know when people's titles change so you could send congratulations. We know when people's addresses change so you can send a housewarming gift. This should get us enough revenue this year to get cash-flow breakeven. Our costs are very low.

Q: What about the whole privacy issue? That's something people have gotten touchy about with Plaxo in the past. How will all this information be used?

A: Given the concern people have about spyware and how important people's contact information is, people naturally have had questions. Plaxo has done a number of things that were really important to me before I came over. We have one of the strictest privacy policies in place on the Internet that affects not only Plaxo but anyone who wants to acquire Plaxo.

The only data we have is what people give us voluntarily. We don't sell data. We don't share data. And we don't spam people.

Q: But some people do view it as spam when they get all these messages asking for their information. What about that perception problem?

A: The spam perception is a different problem. And clearly, lots of people out there are receiving lots of update requests from people who are Plaxo members, and they're getting annoyed.

You remember when cell phones first came out, people thought it was appropriate to talk on them in theaters and restaurants. When people first got e-mail, they thought everyone in the world would want to see their latest collection of lawyer jokes. With Plaxo, we're seeing something a little similar. We're taking steps to teach people Plaxo manners.

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