MySpace's New Rivals Are Winning Friends
Young People Flock To Second-Tier Sites Amid Shifting Tastes

Wall Street Journal
September 29, 2006
By Vauhini Vara
MySpace.com and Facebook.com are known as the dominant social-networking Web sites. Not to Brenda Nowlan.

Ms. Nowlan, a 14-year-old in Souris, Prince Edward Island, Canada, sometimes exchanges notes with her pals on MySpace and keeps a Web log, or blog, on LiveJournal.com. But she spends the most time -- two or three hours a day -- on another site called Piczo.com. She uses Piczo to keep track of her close friends and post her personal photos; the latest batch shows her recent attempt to learn to skateboard. She says 30 of her friends also use Piczo.

"Facebook?" Ms. Nowlan says. "I've never heard of it."

Piczo Inc., based in San Francisco, is one of a raft of second-tier social-networking sites that have cropped up in recent years. Social-networking sites are the Web hangouts where users, typically young people, create Web pages with their own profiles, send notes to friends and post their musings. Though none have had the success of News Corp.'s MySpace, which attracted 79.6 million unique visitors in August, some of the sites have drawn millions of users.

Among the new social-networking sites is one called XuQa.com, run by San Francisco start-up business iVentster Inc., which lets users play games against their online friends and offers awards to the top scorers. Hi5.com, operated by San Francisco company Hi5 Networks Inc., comes with a built-in music player. Piczo, meanwhile, is similar to MySpace and Facebook Inc. In that it lets its mostly teenage users create personal Web pages filled with photos, video and lists of their online friends.

Piczo lets users create multiple Web pages that connect to each other, while MySpace and Facebook give each user just one page. Unlike MySpace and Facebook, it leaves out a search tool to help people find each other to better insulate the site's users from online predators and other uninvited visitors. Users tend to exchange links with their real-life friends and acquaintances, making the site more private.

Last month, Piczo attracted 10.2 million unique visitors, compared with Facebook's 15.5 million visitors, according to comScore World Metrix, a Web-tracking division of comScore Networks Inc. Piczo is also the No. 1 social-networking site in Canada, according to Chief Executive Jeremy Verba. The site's success has puzzled even its own founder, former software developer Jim Conning. "I didn't wake up one day and say, 'I'm going to start a Web site for teenage girls,' " the 40-year-old says.

The rise of these social-networking sites is another sign of the shifting tastes on the Internet, as niche audiences flock to new alternatives to MySpace and Facebook. That potentially spells trouble for those two incumbents, as fickle online audiences can increasingly divide their time between more sites. Indeed, the social-networking space already has shown itself to be vulnerable to the latest fad. Four years ago, Friendster pioneered social networking but was quickly overtaken by rivals as it suffered from technical problems. The new sites -- and their investors -- could benefit if young people similarly get tired of MySpace and Facebook and start to drift away.

The proliferation of these social-networking sites also comes as deal making in the sector heats up. Big media and Internet companies, anxious to gain more access to the young people who gravitate to social-networking sites, have recently eyed companies like Facebook. The Wall Street Journal Europe last week reported that Facebook is in serious discussions to sell itself to Yahoo for an amount that could approach $1 billion. And last year, Rupert Murdoch's News Corp. bought MySpace for $650 million and quickly turned the site into a lucrative ad and promotional machine.

For now, however, the new sites are taking a modest tack to attracting visitors. Instead of trying to get people to ditch their MySpace and Facebook accounts, they are persuading users to sign up for a third or fourth social-networking site, along with the ones they already use. "People used to pop up and say, 'We're a better MySpace,' " says Ben Bajarin, an analyst at the Campbell, California, research firm Creative Strategies Inc. "Now, all those sites have started to say, 'Well, we can't displace MySpace -- but we're complementary to MySpace."

Of course MySpace and Facebook still could get big enough to overwhelm all the little start-up sites nipping at their heels. Last year, Jessie Lee, an 18-year-old in New York, was addicted to Sconex.com, a site for high-school students owned by New York media company Alloy Inc. Less often, Ms. Lee also used MySpace and Facebook. When she started college this year, Ms. Lee ditched Sconex to spend more time on Facebook, which she thinks is a more-mature site. "Sconex is for high-school kids," she says.

That fickle attitude hasn't stopped Piczo's Mr. Conning, who now is trying to translate his site's success into a long-term business. The start-up business, which employs 30 people, raised $7 million in two rounds of venture-capital funding in the past year from Sierra Ventures and Catamount Ventures. In May, Piczo tapped Mr. Verba, a well-connected former executive from Time Warner Inc.'s AOL unit, to join as chief executive.

Like many social-networking sites, Piczo relies on advertisements on the site for revenue. Mr. Verba says the company hopes to branch into other areas like selling music, cellphone services like ringtones, and even Piczo-branded merchandise. The company is currently unprofitable, but Mr. Verba hopes to be profitable by the end of 2007. While he doesn't rule out selling Piczo at some point, he says he plans to run the company independently for now, since it has enough funding to last awhile. He declines to say if the company has been approached with any acquisition offers.

Mr. Conning, who grew up in Berkeley, California,, quit his day job at Charles Schwab Corp. in 2002 and used his savings to start a Web site called Funtigo. That site let people share photos with each other for free, then asked them to pay to upgrade to a premium version to keep using the service. The site bombed, shutting down in February 2004.

Around that time several dozen Funtigo users -- many who happened to be teenage girls -- sent Mr. Conning plaintive emails asking him to let them keep using the service for free. Mr. Conning gathered those notes in one folder and decided to experiment. He created a new Web page at funtigo.com/switch, which led to a free site he had built called Piczo. The new site borrowed a few ideas from social networking, at the time a nascent trend. Then he wrote back to about 100 of the teenagers who had emailed him earlier, telling them they could keep using the service if they switched to Piczo.

It was Piczo's first and only marketing push. The original batch of users quickly spread the word to friends, and friends of friends.

One of those users is Melissa Moore. A 17-year-old in Truro, Nova Scotia, Canada, Ms. Moore says "everyone at school" uses Piczo. Ms. Moore has posted close to 8,000 of her photos on the site. She has 15 friends on the site but gets a few hundred requests a day from people who want her to add them to her list of friends. She logs onto Piczo daily to change the way her pages look, say, by adjusting the background color or adding more pictures.

"I like Piczo the way it is," Ms. Moore says. "I don't want it to be too Myspacey."