2005-04-13
Meetup.com: A Case for Bootstrapping?
Today I received some e-mail from Meetup.com, a web site that helps people coordinate local meetings:
I click through to the news page; Meetup.com is now charging each group $19/mo, but to ease the pain, "Organizers of current groups get a special 2005 rate of $9/month if they pay now." This is a fee increase from $0 (nada, zippo), a wake-up call that there isn't a free lunch, or meeting coordination, on the internet.
I'm not against paying for internet services. Audible.com audiobooks fill my iPod. Flickr handles my photos. Connected.com backs up the critical files on my home PC. But in each of those cases, I'm paying a reasonable price for features that are difficult to replicate. Meetup simply doesn't provide a compelling service at that price for little groups. Some groups will never form, because the fees will kill spontaneous meetups. Some groups will use existing free services, like Evite for RSVPing, Yahoo! groups for messaging, or free alternatives (Meetin.org or Upcoming.org or any number of to-be-created web apps).
So why did Meetup require a fee? One explanation comes from a quick look at their "About" page: over two dozen employees (excluding the cat) and five prominent board members (including Pierre Omidyar, Esther Dyson, Senator Bradley, and a seat for Draper Fisher Jurvetson). There's venture capital invested in Meetup.com, which means they have large target valuations, large investments that guarantee large payrolls, and large pressure to get return on that investment. In short, everything is large, despite the fact that this market space -- meeting coordination -- looks and feels small.
A little searching on the internet yields more information on the history of Meetup, including its role in the Dean for President campaign. An October 2002 article in the Floridian reveals how things were at the beginning:
Scott Heiferman, a 30-year-old self-proclaimed "longtime geek," created the Meetup site with $250,000 from investors and half a dozen people who shut themselves in a New York office for four months this year. Meetup hopes to make a profit by charging the coffee houses, doughnut shops and restaurants where the groups meet. It has started charging six venues in New York $20 a month and plans to also charge for every person who goes to the meetup.
Fortune ran a story in September 2003, mentioning a sign that CEO Scott Heiferman hung over the desks of employees: "Revenue minus expenses equals profits." The article describes the state of finances back then:
The company is keeping monthly expenditures fixed ($100,000) while steadily increasing revenues—charging some 20,000 venues $29 to $200 a month to be listed on the site. With receipts doubling every month, Heiferman expects Meetup.com—which nabbed $1 million in venture capital funding last year—to turn a profit by year's end. (The company won't divulge how much cash it currently has on hand.)
One article on Meetup over at reveries.com sheds some light on what the business model was supposed to be: get money from the meeting places as well as a scaled amount from groups that use the site. Prophetically, Pierre Omidyar said "it is too dangerous" to give too much priority to making money, yet that's what Meetup.com has done with a flat fee. Group Organizers, the few that actually volunteer, will be saddled with raising funds or paying the fee out of their own pockets. That makes sense for big gatherings, but it imposes an unnecessary burden on small meetings, like the writing group in my area. It makes little sense to charge a flat rate for all groups, regardless of size, unless Meeting.com management is actively trying to curtail small infrequent meetings in favor of large organizations. Why alienate the little groups, particularly if you can limit live support to paying groups or institute other schemes that don't drive the little guys away?
In the above reveries.com article, the editor mentioned how Reveries Meetups would be launched, and a quick look (in April 2005) shows 15 groups. The largest has 14 members, no organizer, and no message board activity. Actually, 14 of the 15 groups have no organizer, and the lucky group with the organizer has one member. Now the organizer gets to pay a $19/mo fee as well, or become a fund solicitor. Organizers of small groups will be dropping like flies. For groups that use boards external to Meetup, the response is to be expected.
Should we be surprised that it came to this? No. At the time Heiferman accepted VC funding, his company was still burning cash. With increased investment, there was probably increased expenditures mandating even higher revenue. The business model, at least those favoring large valuations, was always suspect for social networking web sites. The lack of a scaled fee is puzzling, unless the bleed is so large that an immediate cash transfusion is required to save the company. Maybe Meetup.com management will surprise me. Maybe the insignificant members will wash out, and Meetup will become a profitable tool provider to the more well-organized groups. Or maybe this was just bad execution and they'll modify the fee structure.
It's possible, though, that Meetup.com will show that VC money might be worse than bootstrapping your net company, even when the recipient gets a relatively small amount of venture capital. Examples of bootstrapped small teams doing well within their niche include flickr.com (whose VC-less story is a great read), Basecamp, and Senselogic. When you are trying to build a new business in unproven markets (like social networking), is it bad to have a forced build-out, a large staff, and pressure for returns on investment? Uh, probably. There's a good business in organizing meetings. Meetup.com might even be nicely profitable. But it probably isn't profitable to the tune of a venture capitalist's target valuation. We'll see if driving Meetup to that valuation succeeds in driving the company into the dot-com cemetery.
Hi Meetup Member,
We have some important news to share with you about new features and a required monthly Group Fee paid by your Organizers on behalf of your Meetup Groups. I click through to the news page; Meetup.com is now charging each group $19/mo, but to ease the pain, "Organizers of current groups get a special 2005 rate of $9/month if they pay now." This is a fee increase from $0 (nada, zippo), a wake-up call that there isn't a free lunch, or meeting coordination, on the internet.
I'm not against paying for internet services. Audible.com audiobooks fill my iPod. Flickr handles my photos. Connected.com backs up the critical files on my home PC. But in each of those cases, I'm paying a reasonable price for features that are difficult to replicate. Meetup simply doesn't provide a compelling service at that price for little groups. Some groups will never form, because the fees will kill spontaneous meetups. Some groups will use existing free services, like Evite for RSVPing, Yahoo! groups for messaging, or free alternatives (Meetin.org or Upcoming.org or any number of to-be-created web apps).
So why did Meetup require a fee? One explanation comes from a quick look at their "About" page: over two dozen employees (excluding the cat) and five prominent board members (including Pierre Omidyar, Esther Dyson, Senator Bradley, and a seat for Draper Fisher Jurvetson). There's venture capital invested in Meetup.com, which means they have large target valuations, large investments that guarantee large payrolls, and large pressure to get return on that investment. In short, everything is large, despite the fact that this market space -- meeting coordination -- looks and feels small.
A little searching on the internet yields more information on the history of Meetup, including its role in the Dean for President campaign. An October 2002 article in the Floridian reveals how things were at the beginning:
Scott Heiferman, a 30-year-old self-proclaimed "longtime geek," created the Meetup site with $250,000 from investors and half a dozen people who shut themselves in a New York office for four months this year. Meetup hopes to make a profit by charging the coffee houses, doughnut shops and restaurants where the groups meet. It has started charging six venues in New York $20 a month and plans to also charge for every person who goes to the meetup.
Fortune ran a story in September 2003, mentioning a sign that CEO Scott Heiferman hung over the desks of employees: "Revenue minus expenses equals profits." The article describes the state of finances back then:
The company is keeping monthly expenditures fixed ($100,000) while steadily increasing revenues—charging some 20,000 venues $29 to $200 a month to be listed on the site. With receipts doubling every month, Heiferman expects Meetup.com—which nabbed $1 million in venture capital funding last year—to turn a profit by year's end. (The company won't divulge how much cash it currently has on hand.)
One article on Meetup over at reveries.com sheds some light on what the business model was supposed to be: get money from the meeting places as well as a scaled amount from groups that use the site. Prophetically, Pierre Omidyar said "it is too dangerous" to give too much priority to making money, yet that's what Meetup.com has done with a flat fee. Group Organizers, the few that actually volunteer, will be saddled with raising funds or paying the fee out of their own pockets. That makes sense for big gatherings, but it imposes an unnecessary burden on small meetings, like the writing group in my area. It makes little sense to charge a flat rate for all groups, regardless of size, unless Meeting.com management is actively trying to curtail small infrequent meetings in favor of large organizations. Why alienate the little groups, particularly if you can limit live support to paying groups or institute other schemes that don't drive the little guys away?
In the above reveries.com article, the editor mentioned how Reveries Meetups would be launched, and a quick look (in April 2005) shows 15 groups. The largest has 14 members, no organizer, and no message board activity. Actually, 14 of the 15 groups have no organizer, and the lucky group with the organizer has one member. Now the organizer gets to pay a $19/mo fee as well, or become a fund solicitor. Organizers of small groups will be dropping like flies. For groups that use boards external to Meetup, the response is to be expected.
Should we be surprised that it came to this? No. At the time Heiferman accepted VC funding, his company was still burning cash. With increased investment, there was probably increased expenditures mandating even higher revenue. The business model, at least those favoring large valuations, was always suspect for social networking web sites. The lack of a scaled fee is puzzling, unless the bleed is so large that an immediate cash transfusion is required to save the company. Maybe Meetup.com management will surprise me. Maybe the insignificant members will wash out, and Meetup will become a profitable tool provider to the more well-organized groups. Or maybe this was just bad execution and they'll modify the fee structure.
It's possible, though, that Meetup.com will show that VC money might be worse than bootstrapping your net company, even when the recipient gets a relatively small amount of venture capital. Examples of bootstrapped small teams doing well within their niche include flickr.com (whose VC-less story is a great read), Basecamp, and Senselogic. When you are trying to build a new business in unproven markets (like social networking), is it bad to have a forced build-out, a large staff, and pressure for returns on investment? Uh, probably. There's a good business in organizing meetings. Meetup.com might even be nicely profitable. But it probably isn't profitable to the tune of a venture capitalist's target valuation. We'll see if driving Meetup to that valuation succeeds in driving the company into the dot-com cemetery.
