Don't be fooled by the lack of pomp surrounding the sale of LiveJournal. Late in the afternoon on Dec. 2, a little-known Russian company named SUP said it was buying LiveJournal, one of the earliest online communities built around blogging. The seller is LiveJournal's first acquirer, blogging startup Six Apart.
On the surface, the LiveJournal sale may come across as just another Web deal for an undisclosed sum, the transfer of a social network that—like Friendster or Google's (GOOG) Orkut—is flourishing abroad but getting trounced in the U.S. by rivals such as Facebook and News Corp.'s (NWS) MySpace.
Of course, the news matters greatly to SUP, which manages international franchises of several U.S.-based Web sites and already runs LiveJournal in Russia. SUP will set up a separate company to run LiveJournal in San Francisco. The implications are also big for some 13 million active, rabid LiveJournal bloggers. The new company will devote more money and attention to modernizing the site, launched in 1999 out of Brad Fitzpatrick's University of Washington dorm room.
Applying Lessons Learned
But the announcement has an important subtext. The focus and financial wherewithal bestowed by the deal could help revitalize Six Apart in a Web 2.0 world where its influence has been diminished by newer, flashier upstarts.
Selling LiveJournal marks the first gutsy move by Six Apart CEO Chris Alden, who replaced Barak Berkowitz in September. Alden's Valley claim to fame was starting Red Herring in the 1990s. The experience taught him some hard lessons about raising too much money and getting big for big's sake.
Had Red Herring not become so dependent on venture money, adding reporters by the week and hiring a big-name management staff, Alden believes the magazine would still be in business and worth half a billion dollars—and that TechCrunch, the site run by Michael Arrington that covers much of the same editorial ground but more profitably, wouldn't exist. (He's probably right.)
Alden will apply those hard-learned lessons to his mission of making big business out of the company begun in October, 2001, by husband-and-wife team Ben and Mena Trott.
At Six Apart, Alden previously ran the group responsible for Movable Type, a blogging tool for developers and businesses, breathing new life into the company's flagship product. He'll need to play a comparable role on a larger scale now.
It's a tall order, considering the question marks surrounding the business relevance of blogging in a consumer Web arena dominated by social networking. Alden is not seduced by the sexier Web 2.0 trend of social networking. In fact, he considers blogging one of the earliest incarnations of the community-is-king ethos that imfuses Web 2.0. But he acknowledges that blogging has fallen prey to the hype cycle—what happens to any trend that gets overhyped, then nudged aside when it doesn't change the world fast enough. Consider what happened to e-commerce around the time of the Internet bust earlier this decade. And Amazon (AMZN) is still going strong and the percentage of holiday shopping moving online is expected to rise yet again this year.
Alden will get some assistance proving his theory, starting with the proceeds of the LiveJournal sale. More important is the resulting streamlined focus. Six Apart had gotten bogged down managing multiple products.
Aside from the professional blog software Movable Type, hosted blogging software TypePad, and free ad-supported blog site Vox, there was LiveJournal, which hosted a different demographic and was built on a different code base and platform that the company never updated. "I think the world of LiveJournal, but we felt like we needed to figure out our focus," Alden says. "It's all about [Six Apart] growing up."
Six Apart isn't a badly run company; it has just become unsexy amid newer Web 2.0 names. That's in part due to a brand affinity problem: People may know and love Movable Type or TypePad, but they may not know those brands are part of Six Apart—the way people love TurboTax but have no carryover feelings for Intuit (INTU).
But Six Apart has a lot that new entrants don't have. Exhibit A: revenue. The bulk of the company's sales come from software and tools purchased for a fee. These products power some 20 million blogs posted by customers as varied as Condé Nast Publications and Procter & Gamble (PG). Six Apart expects these products to keep growing, but it's also hoping ad revenues from free sites such as Vox will spur startup-style growth. (Expect more on this in the coming months, Alden suggests in our interview.)
Of course, these aren't the only potential questions from the announcement. Was it a mistake to buy LiveJournal in the first place? Did Six Apart blow a chance to build what could have become an early Facebook? The biggest question by far is whether Six Apart itself will end up on the block. Before hiving off LiveJournal, Six Apart was an unnatural acquisition candidate with its many diverse businesses. Now a deal could make far more sense for either a media empire or even a software company such as Adobe Systems (ADBE).
Alden's job is to steer through all these what-ifs and prove Six Apart can be big enough to go public one day. Squarely on his shoulders is the promise the company has always had to build the first really sizable business derived from the blogging trend. Competitors including WordPress and Google's Blogger have impressive user bases, but as free tools, revenues and profits are less solid.
Alden has no excuses. Six Apart has a business model. It's roughly breaking even and now it has focus and a pile of new cash in the bank. My take: This is just the preamble. In the next year, we'll either see bigger, bolder moves by Alden or we'll see Six Apart sold to the highest bidder.