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Classmates.com Gets Detention for IPO Attempt

By blog_editor on Dec. 12 2007

Classmates.com announced today that they are pulling out of their intended IPO, agreeing to pay a $4MM+ fee for filing and then backing out. Classmates.com was a social networking (1.0) success a few short years ago. Through cheap remnant advertising it blindly blasted its brand around the Internet for years, much like the dancing alien mortgage ads, and managed to build up nearly 20MM members. The ads were not targeted because as long as you met two basic requirements, you were their target audience: Interested in speaking with past schoolmates and you didn't use Friendster, MySpace, or Facebook. Now that audience is much harder to find, and the interest in buying stock in Classmates.com just isn't there.

If Classmates.com ever had a window of opportunity, they missed it. But the lesson here isn't about the timing of an IPO, it is about being a smart, agile business in today's rapidly changing digital landscape. In simplistic terms, here are a few things they should have done differently.

Mistake #1: They stayed a subscription based service in a free content market.

Mistake #2: Their branding and marketing hasn't changed much since 1995, and it shows.

Mistake #3: Not enough reason to stay on the site. This made it difficult to fix mistake
#1 and switch to an ad supported business model. See time spent graph below.

Interestingly enough, I looked through several graphs on Compete and noticed a spike in July in just about every category except time spent, which dropped significantly. This must have been due to a last minute increase in marketing of the site to manipulate stats just before the intended IPO which led to new users that just checked it out, and then left quickly. In any case, Classmates fell victim to becoming stale in an unforgiving environment. Perhaps that will explain why an analyst from Cohen and Co. had this to say about Classmates: "We expect the Classmates.com subscriber base to peak in the first half of 2008, followed by a steady decline to zero by 2012."

Post by Eric Klotz
Director of Creative Development