Startups: My Dot-Com Boom

Social sites are hot, hot, hot

David Cook and his sister Catherine are in a seriously enviable spot. A venture capital firm, a tech startup, and a small public company have all made offers for, the social networking site the siblings started last April. Cook says one suitor is offering big bucks -- into eight figures -- while another promises creative control. The third contender has an office near the Cooks' Skillman (N.J.) home, which is a big plus. After all, says 17-year-old David, "We are in high school."

Call it Bubble 2.0. Cook and his 16-year-old sister, among others, are on the verge of striking it rich with community Web sites. The Cooks' rivals include Jay Gould, 26, who sold two video-sharing sites in December, and Greg Tseng and Johann Schleier-Smith, both 26, who got $7 million in venture capital from Mayfield Fund of Menlo Park, Calif., that same month for teen portal

The sites all offer variations on the networking theme: Users create the content, writing profiles, blogging, messaging, flirting, sharing files, and making lists of everyone from secret admirers to bullies. The sites say they'll make money by selling ads, but only a few have done so.

Yet they've been all the rage since News Corp. CEO Rupert Murdoch plunked down $580 million in July to buy, the social networking leader that drew 28.7 million users in December. Because the visitors to most of these sites are under 25, investors and media companies see the sites as a direct route to a coveted but elusive demographic group.

The Cooks got their first investment, of $250,000, from their 27-year-old brother, Geoff, who'd founded and sold his own Web business. They outsourced the design to programmers in India and launched the site on rented servers.'s traffic jumped twelvefold in November, vaulting it onto the Movers and Shakers list maintained by site rankers That triggered the buyout offers.

Gould's business had a similar trajectory. In fall of 2004 he started, followed by, where users can search the sites' databases of videos and attach them to everything from e-mails to MySpace profiles. Gould outsourced the site design and set up shop in his grandfather's Bayville (N.J.) basement. In December the combined sites attracted 3.3 million unique views, according to comScore Media Metrix. Gould sold the sites to New York City-based Bolt Media that month in a mostly equity deal that makes him a partner in the company.

Instead of a quick buyout, Tseng and Schleier-Smith wanted venture capital for their 35-person company, "We want to build...a Teen Yahoo or the next MTV," says Tseng. They launched the site in San Francisco in mid-2004, using about $1 million in savings. Traffic hit 1.6 million unique page views in December -- the same month the duo got their $7 million investment.

Those thinking of starting similar sites better move fast. Buyers may soon find the sites aren't as sticky as they appear. "This is an evasive audience," says Jupiter Research analyst Nate Elliott. "If [marketers] think they're going to reach them on a long-term basis, they're mistaken." Meanwhile, the Cooks will choose a suitor in March. And if doesn't last, there's always college.

By Jessi Hempel

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