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Next, who’s a lawyer that tech startups trust? Scott Edward Walker of Walker Corporate Law. But don’t take my word for it. Check out what Neil Patel, founder of KISSmetrics said about Scott. “Scott is a great lawyer. He is affordable, responds fast, doesn’t charge you for a five-minute phone call, and always gives great advice.” Walker Corporate Law.
Finally, if your friend wanted to create a store online, which platform would you recommend? I recommend Shopify. Shopify stores look beautiful, and they increase sales. So if you know anyone who wants to start a store online, tell them to check out Shopify.com.
Andrew: Hey everyone. I’m Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. How do you build one of the world’s largest social networks? Joining me is Greg Tseng. He is the co-founder of Tagged, a social discovery site with over 100 million members. The company has helped pioneer online social connections, and it’s profitable. But along the way, it’s also been accused of aggressive user acquisition tactics. My goal for this interview is to hear about his background, find out where the idea for Tagged came from, see how they built up, and how they became profitable. Greg, thanks for joining me.
Greg: Sure. Nice to be here.
Andrew: So, I kept saying profitable, profitable, profitable in the intro, how profitable are you? What are your profits for, say, 2010?
Greg: Well, we reported over $32 million dollars in revenue in 2010, and that was our third consecutive year of profitability. So we first hit profitability in 2008, and we’ve been profitable ever since.
Andrew: Can you say what your profits are, or just revenues?
Greg: Just revenues.
Andrew: Can you give me a sense of what the profits are?
Greg: We have been profitable for three years now, and this year will be our fourth consecutive profitable year.
Andrew: Okay. What I’m hearing you say is no, we don’t talk about profits at all, not the specifics of them.
Greg: We don’t give numbers, other than the fact that we are profitable.
Andrew: All right. I don’t want to push. What I’m curious about though is, why do you make such a point of being profitable? I saw the $32 million number, before I even asked you, I saw it on Business Insider, on TechCrunch you said that you were profitable. Why is it important for Tagged to be known as a profitable business?
Greg: We are entering our seventh year now, and I’d say by then, you really should have proved that you can build a profitable business. It’s not so much that we want to be known as a profitable business, it’s that we want to build a profitable business. I definitely come from a very bootstrap point of view, where I’m actually personally uncomfortable being unprofitable. We didn’t raise that much money. In our whole history, we only raised $12 million, and we got profitable four years or so after we started, and I think that’s a very healthy trajectory.
Andrew: Twelve million dollars in funding, $30 plus million in revenue, 100+ million people who are members of the site; let’s find out how you got there. Starting with what you were doing just before Tagged; you were a Harvard student, right?
Greg: Yes. So I’ve been friends with my co-founder, Johann, since seventh grade, and we’ve been to all the same schools. We started doing various internet businesses together at Harvard, so our first-ever business was called FlyingChickens.com. It was a comparison shopping engine for Harvard textbooks. That was launched in ’99, and we’ve been doing various internet startups since then. So Tagged is really just the latest startup that we’re working on together.
Andrew: So FlyingChickens.com was apparently merged with LimeSpot.
Andrew: Does that mean that you were sold to LimeSpot? What exactly happened at the end of the deal?
Greg: So LimeSpot was another business started by other college students, some friends of ours who were at Cornell, and they were building a network of local college portals. We merged the companies. No cash changed hands. It was just a stock-for-stock deal, but then the idea was the idea was to build “CitySearch for colleges.” We expanded to about 100 different colleges, and to be honest, that was our dot com bust.
Andrew: How do you mean? What happened?
Greg: We raised about $100,000, and never became profitable, which is part of where I learned my lessons. Ultimately we left to do other things, and the founders of LimeSpot, today, run a really great business in the enterprise space called Aperature. They started building customer service software for LimeSpot and then they ran with that idea, and now they power that for lots of businesses.
Andrew: You said you guys raised $100 million?
Greg: No. $100,000.
Greg: Did I say $100 million?
Andrew: I could have sworn, but I could be wrong, actually. So I can see how that would be your dot com bubble experience, that you got to raise money, that you got to have big ambitions and grow it out.
Greg: Exactly. And it was while we were still in college, so it doesn’t sound that big. But for a bunch of college kids to raise $100,000, blow it all, have the company go down the tubes, that was definitely a learning experience.
Andrew: So, I remember one of my first setbacks in college with business; at the end of it, I said, “Maybe I’m wrong, thinking I’m going to be an entrepreneur. Maybe I just don’t have it. Maybe I should go get a job.” How did you feel after FlyingChickens.com?
Greg: Flying Chickens itself was a success. We built a site. We launched it to the Harvard campus in the fall of ’99. We spent about $200 on these little door hooks that we put on every single dorm on campus, and then we made $2,000 in affiliate fees. So, we had a 10X return, if you account for our time at zero.
Andrew: Affiliate fees because you were selling books from other sites and you were getting a commission off those sales, right?
Greg: Yeah. When you clicked through to buy the book from Amazon or Barnes and Noble or BigWords or some of the other sites back then, we would get an affiliate commission.
Andrew: Okay. Then after LimeSpot, when that was your bubble bursting, how did you feel at that point?
Greg: So, I felt like it was a really great learning experience. What I’ve heard, and advice that I give to entrepreneurs is if you want to build a company, if you want to start a company, just do it. The best way to learn is to just do it. You don’t read a book, you don’t go to lectures or seminars, obviously you don’t work at a big company to learn how to do a startup, you just do it. You’ll make a ton of mistakes, but, hey, that’s really just learning. One motto that I live by is that good judgment comes from experience. Experience comes from bad judgment.
Andrew: I’m going to ask you about the bad judgment, to find out how you got experience through bad judgment, but something just is grabbing my attention here. You’re wearing a Tagged T-shirt, intentionally displayed for my audience to see it. I always admire when entrepreneurs do that, but I also wonder. My audience is so small compared to your audience. In a second, you’re going to get more new members of Tagged, just naturally, organically, than you would have from people just listening to and watching your interview here on Mixergy. Why does it matter that Tagged is shown to my audience, considering how tiny we are?
Greg: Well, this is just part of our PR and branding. Almost any time I do anything in public, I have a big Tagged logo. If you look at the Wall Street Journal two weeks ago, we were on the front page of the Marketplace section, and there I am with the Tagged logo. And you might not recognize me, but I think a lot of people will recognize the Tagged logo.
Andrew: I see, okay. Are you, by the way, on a rebranding tour, because for a while there, it seemed like other people were talking about Tagged, and now you want to grab hold of the conversation?
Greg: Yeah, so I wouldn’t call it rebranding. I’d say for the most part, for most of our history, we’ve actually been pretty publicity shy. I’ve always been of the mind to just focus on the core, on the core product, metrics and such, and “the rest will follow.” Because we didn’t do that much PR ourselves, there’s really a vacuum out there, and thus others were able to tell our story for us. Perception is reality, and a lot of this year is about telling our internal story, so that the external perception matches the internal reality.
Andrew: Okay, cool.
Greg: So, for the first time, we are being very much more proactive about PR.
Andrew: Okay. So, going back to your entrepreneurial story, here’s the other thing that jumped out at me as I was looking at your experience. After Flying Chickens, which was an impressive launch, you launched something called Jumpstart Technologies, which apparently is an incubator. You’re still, after one business, you go and launch an incubator. What kind of incubator was it?
Greg: So we started with Flying Chickens. We merged with LimeSpot. That was our big bust. We took an idea within LimeSpot and launched a site called CrushLink. So CrushLink was an anonymous matchmaker, where you would make a list of everyone that you have a crush on, and those people get e-mails saying, “Someone has a crush on you.” They would come and make their own lists of secret crushes, and if there’s ever a match, then we tell both parties. And so, we launched that site at the end of 2000, and got it wildly growing to millions of registered users and made some money, also off of CP advertising with affiliate fees and used that money. After we graduated in 2001, we moved out to the San Francisco Bay Area to start our Ph.D.s in Physics at Stanford, but also used that money to start an incubator called Jumpstart Technologies. I was really fortunate to have met Reid Hoffman back in 2001 when he was still a VP at PayPal, before he was “the Reid Hoffman” today. We immediately hit it off, and he’s been one of my mentors, and has been really valuable. Reid really encouraged us to keep pursuing startups, and said that we really had something here and we could really build a great company together. Because at that point, when we’re in school, all these businesses were really side projects. I mean, really, we’re in school studying physics and math. We were going to start doing our Ph.D.s at Stanford, and these were just side projects that we thought were fun to work at.
Andrew: As I understand it, what he thought you guys had was an understanding of viral.
Andrew: What did you, at that point, understand and learn about viral?
Greg: I’d say, it sounds obvious today, but we started doing quantitative and analytical A/B testing back in 2000. So being math and physics students, it just seemed natural to us that we should be testing multiple versions of things, running little “micro experiments,” and continue to get gains and optimize virality so you can get exponential growth.
Andrew: Do you have an example of something that you learn through these A/B tests?
Greg: Sure. One of my favorite examples that I like to share is when you add a smiley face to the end of an e-mail subject line, it increases the open rate by 10%.
Andrew: Oh, that’s great. And the idea behind CrushLink was I would say I’ve got a crush on someone, maybe I’ve got a crush on Greg. I would type in Greg’s e-mail address, Greg would get an e-mail that says, “Someone has a crush on you,” smiley face, a link over to CrushLink, where they would get to guess who that person is who had a crush on Greg.
Greg: We really discouraged guessing. I mean, really we wanted people to make accurate lists of their crushes, and the whole idea behind the site was to reveal mutual secret crushes. So you’ve got to understand, we were a couple of Harvard students, Harvard math and physics students, trying to figure out how to short-circuit the dating process. And we thought, there must be lots of people who like each other, but just no one’s afraid to initiate contact. So let’s just create this system that is anonymous, and we will only tell both parties if they have crushes on each other, and otherwise no one ever finds out and so it’s low risk.
Andrew: And the virality was that you were getting everyone who got a, “You’ve got a crush” e-mail, smiley face, I love that, you were getting them all to upload as many e-mail addresses of potential admirers as possible, so you then get more people in the system.
Greg: We thought people have generally more than one crush, and so as long as they make a list of most or all of their crushes, then it should naturally spread.
Andrew: Okay. One of my challenges in this interview is I don’t want to focus on the negative part, because I know that you can’t address it. I’d love to just have a beer and talk to you about what some of the viral tactics were, but I know that it doesn’t make sense for you to talk publicly, and I don’t want to just beat the conversation to death with references to the Salon.com article from 2002, where they say that even their dog has a CrushLink e-mail.
Greg: At the end of the day, you could put an e-mail address for anybody, and it’s completely user-generated, so we merely wrote the system.
Andrew: Okay. The issue is, and I won’t beat this to death. The issue is that some people think you made it, that you were overaggressive in getting people to upload e-mail addresses, and then you were overaggressive in getting the people who received those e-mails to come in and do the same, and it was . . .
Greg: Well, I think that, if you were to talk to our 10 million users, who created 2 million matches with each other, I think you’d get a much different story.
Andrew: Okay. Well, then what I do feel comfortable talking about is the CPA fees. So you got all these people in the system. Where did the CPA, the Cost Per Acquisition, come in? How were you generating your revenue?
Greg: Oh, gotcha. There were a couple different models. One model was if you put in your list and didn’t get any matches, then we would actually give you a few hints. The first few hints were free, and these were hints that were interesting enough, like, “The person’s name starts with a letter between A through G.” But they didn’t give it away. So the first few were free, and after that, you could do some offers in order to get more hints.
Andrew: Oh, get out! That’s way ahead of your time. So, if I want more hints to figure out who has a crush on me, I can sign up for I don’t know what. Netflix is usually the standard CPA example.
Greg: We were one of the first few who really did incentivize CPA advertising.
Andrew: Yeah, that’s what it sounds like. Okay. So, that’s CrushLink. Then how does that lead into Jumpstart Technologies? What made you decide that you wanted to help others build their businesses?
Greg: Basically, Reid Hoffman convinced us that it was a good idea to start a real company, because back then, it was really just me and Johann doing everything; I did all the front end, he did all the back end, and kind of doing this in between classes. So we took CrushLink and the revenue we’d generated to start an incubator called Jumpstart Technologies, and it really was just an incubator for our various ideas. Out of that, Tagged was one of the ideas. We also incubated Hi5.com.
Andrew: Did you guys run Hi5, or you funded somebody else or help somebody else run it?
Greg: Hi5 was started by Ramu Yalamanchi and Akash Garg, and they had a third employee named Aaron Chu. The three of them were running Hi5 when we met each other and decided to bring them in-house and incubate them.
Andrew: What were you able to incubate in this situation?
Greg: We gave them office space and lots of auxiliary services. So design, sysadmin, QA, product, marketing, etc. By the time they moved out, they were somewhere between 5 and 10 million registered users, and they’d grown to about 10 employees and were profitable, completely only angel funded. So we grew them from their beginning to that point, and then they were off to the races on their own.
Andrew: And beyond CrushLink and Hi5 and Tagged, were there other companies that you guys incubated at Jumpstart?
Greg: Yeah, we launched a couple other Crush sites. One was called SomeoneLikesYou.com. We also had some failures. So we tried the Crush idea on mobile phones in Japan, and this was back in 2003, where we had to work with the carriers and such, and we could just never, even though we had pretty high level contacts in Japan, we could never get those carrier deals. So it just never got off the ground. We also thought that since we were kind of in the dating space, we tried launching a paid dating site called Ladies.com, but we found it was really hard to make viral, because you really don’t want your friends to know you’re on a dating site, plus we didn’t really have much experience doing any sort of paid user acquisition. So that was another failure. Those are a few examples. We definitely had some small successes like CrushLink, some failures, and what remains today is Tagged and Hi5.
Andrew: And CrushLink was all bootstrapped, right?
Greg: Completely bootstrapped.
Andrew: What size revenues did you guys get up to?
Greg: I think over the history of CrushLink, we made $2 million or $3 million. It doesn’t sound huge, but this was when we were in college and grad school.
Andrew: And it’s all profit though, right?
Greg: It’s mostly all profit, but then we used it to start our incubator. Essentially that was the funding for our incubator. And then our incubator, we grew to be over 60 people, so it was a pretty serious operation.
Andrew: Get out. So why did you decide to incubate so many ideas, instead of focusing on CrushLink or one other idea?
Greg: That was one of our biggest lessons, honestly. You can imagine, it was fun coming out to Silicon Valley, in our early 20s, just lots of energy and lots of ideas. We wanted to do many things at once. So while we were pursuing our Ph.D.s in physics during the day, at night we were supposedly running multiple different businesses in San Francisco, just being very scattered. It’s fun to be scattered, working on lots of different things, very creative and such. But it’s also a recipe for mediocrity, and halfway through the incubator, we actually received an investment from Peter Thiel, who had recently just sold PayPal. He invested in us in 2003, and really kind of beat the focus lesson into our heads. He just said, “Look, what you’re doing is crazy. You’re doing way too many things. Most successful people do one thing really well, and there are very few Steve Jobs out there who can do two things well, much less four or five things. So, put very bluntly, do you want to get one A, or do you want to get four Cs?”
Andrew: Do you have an example of something that you weren’t able to do because you were focused on so many companies? Do you have a single example that shows how your potential was dampened because you were so scattered?
Greg: Sure, I mean, I was spending six hours a day doing my Ph.D., and you can’t do a Ph.D. in physics on six hours a day. Thus, I had maybe another six hours spread over four businesses at the same time. You can’t launch a startup on an hour and a half per day, right? So, in general, we were just spread way too thin. Starting in around 2004, we really focused down. We walked away from some of those failed businesses. We took leave from Stanford in the fall of ’04, and then eventually, by the end of ’05, we were 100% focused on Tagged. By then, Hi5 was spun out and on their own as well.
Andrew: How’d you meet Reid Hoffman?
Greg: Randomly. One of my friends from high school was roommates with Luke Nosek, who was one of the first six people at PayPal, and Reid was his boss. So, literally, Luke was the second person I met in Silicon Valley, and Reid was the third. It’s one of those lucky things that you couldn’t predict, and it just happened.
Andrew: How did you win him over so quickly? Did you just jump in there and show him your numbers? Was there something else?
Greg: I was just myself. Really, this was when I was 21. I didn’t even know the concept of winning someone over. I didn’t even know what that meant. Really, Luke just thought we should meet, and we did, at a coffee shop, and hit it off, and the rest is history. Some of these things, when you’re talking about a mentorship relationship, it can’t be forced. The chemistry just has to be there, and it just is there or is not there. In our case, it was.
Andrew: Okay. 2005, Peter Thiel, Reid Hoffman, Scott Bannister put in $1.5 million into your company.
Greg: Into Tagged, yes.
Andrew: Into, right, Tagged. Also 2005, you mentioned in a TechCrunch article that I read, that you were watching MySpace get sold to Fox. You’re watching the social networking scene heat up. How did that make you shift your vision of what Tagged could be?
Greg: We started Tagged, believe it or not, as the search for America’s coolest teens.
Andrew: Oh, tell me about that.
Greg: This is back on ’03 and ’04, when “American Idol” and reality shows were really big, and our idea was, we had started CrushLink, which was really successful, especially among teens, and we were brainstorming other ideas. Teens love crushes, what else do they like? And we thought, teens like to be cool! So, we had this pretty hokey idea of let’s let teens, instead of creating crush lists, let’s let them create “cool lists” of their friends. If you were on enough “cool lists,” we would deem you cool, and then invite you to participate in this reality show that we would start called “The Search for America’s Coolest Teens.” After we launched the site, all the requests that we got were social networking things. So they wanted photos, they wanted messages, they wanted full profiles, and such. At that point, Friendster was taking off, and so was MySpace, and we were thinking, look, if this is happening in the market, plus we’re getting all these requests from users, let’s just become a teen social networking site. So, that was really our first pivot, in 2004. We actually consider the launch of Tagged to be October 2004, because that’s when we re-launched as a social networking site.
Andrew: So at first, actually, do you remember when you first launched Tagged? What year?
Greg: December of ’03 was when we launched the search for America’s coolest teens.
Andrew: ’03. And do you and Johann have a patent on tagging?
Greg: No. Tagged was really just a play on words.
Andrew: Yeah, what’s the reference there?
Greg: With teens, instead of saying, “I friend you,” we say, “I tag you.” Or you tag me, you’ve been tagged, join my tag team. It was really just a play on words. It had nothing to do with photo tagging or anything like that.
Andrew: Okay. Where I got that was, Wikipedia, it says you guys have . . . you and the Tagged thing, in 2007?
Greg: Oh, yes. We have a feature on Tagged that’s called “tags,” which are basically quick comments. So they’re these small images that you can post on each other’s profiles, and the innovation was letting users create these tags. So, they aren’t created by us. They’re created by users, and over a half a million of them have been created at this point. A small number of creators, create this huge library for us, and then anybody can go and pick from that library.
Andrew: I see. So if I see your profile on Tagged, I can say, “Entrepreneur, Mixergy,” I can toss in whatever keywords I think. I can tag you with whatever keywords I think are relevant.
Greg: No, sorry, sorry. Tags are really just small images that are quick comments.
Andrew: Images as comments, I see.
Greg: Like, “Happy birthday” or “Happy St. Patrick’s Day,” or “Hope you feel better,” “Thanks for being my friend,” things like that. And we’ve let users create, and we’ve approved, over half a million different images in our tags library.
Andrew: Why was it, in 2007 when you got the patent, why’d you think it was so important to your business that it was worth patenting? Help me understand the thought process there.
Greg: What we thought, this was an interesting innovation and something that was very unique to Tagged, and so we wanted to protect our IP.
Andrew: Did you think that it would help get new members somehow or increase engagement?
Greg: No. I mean, getting a patent . . . users don’t know that we have a patent.
Andrew: I don’t mean the patent, I mean tagging. Was tagging part of your plan for increasing viral or engagement?
Greg: Tagging was a great way to increase engagement, because you remember back in the day, and even today, a lot of comments are Flash, or they’re lots of images, taken from various comment sites, where you have to cut and paste HTML code and such. This really just made it a lot simpler, where you just point and click in a library, and it just happens.
Andrew: Ah, I see. And with that simplicity, I can add a comment to your site, and you can feel that you and I have been talking. Gotcha.
Greg: Exactly. Exactly. So it’s just reducing the barrier. On Facebook today, you can just click “like” on a comment or on a status. So, for us, you can kind of do the same thing, except you do it with images.
Andrew: All right. So, you said going towards a social network was the first big pivot. What was the next big pivot?
Greg: The next big pivot was in 2006, where, when we opened up, not just from US teens, which is only 25 million potential members, all the way to all countries and all ages 13 plus. We did that in October 2006. The reason was, we had sought to enter the teen market, but by ’06, we were losing to Facebook, which had launched its own high school product, and we were also losing to MySpace, which was bigger than us plus Facebook combined, at that point. We’re thinking, look, we tried to target a market, are not winning it, so maybe we’re just constraining ourselves by focusing on this small market, and let’s expand to the one billion people in the world who are 13 plus. It was somewhat in an act of desperation, because we weren’t winning our market, and we were thinking, what else could we do to increase our business, and we thought why not just open up to all countries and all ages, 13 plus.
Andrew: Why do you think that MySpace and Facebook did so well? I feel like you had viral right, you had viral understood, backwards and forwards, you were willing to be viral, you came up with engagement tactics that, as you said, Facebook didn’t have the “like” button until years after you came out with the tags. Why do you think they did so well, then?
Greg: Honestly, I think a lot of it was timing. MySpace launched in September of ’03. Facebook launched in February of ’04. We were so scattered and doing so many things, that Johann and I didn’t become 100% focused on Tagged until December ’05. By then, MySpace was already huge and had already been sold to NewsCorp. Facebook was huge, and they were already valued at over half a billion dollars by then, so a big part was timing. In Facebook’s case, it’s really just superior execution. I mean, those guys have been execution machines from the beginning. They’ve been able to hold that as they’ve grown from 2 people to 2,000 employees. So it’s been really impressive to watch, and I’d say there’s an element of luck and timing to any startup success. But I actually think that in Facebook’s case, not that much of the success could be attributed to luck and timing. A lot of it was just execution.
Andrew: Okay. What’s most impressive to you? I want to get back to Tagged in a moment, but what’s most impressive to you with the execution of Facebook? What are they doing that’s especially good in your eyes?
Greg: The product is just really good. Both the attention to detail . . . I really compare their execution a lot to Apple’s, where there’s just exquisite attention to detail and just the smallest things. You get small delights every now and then when you see, wow, someone actually took the time to think about this. But those are the small things, and that’s just the day-to-day execution. I think another big piece is just the willingness to take risks with bold product visions, and the quintessential example is news feed. So, news feed changed the way social networks worked. Where before it was just friends lists with profile pages, you had to go to every single person’s profile to see what’s changed, they flipped that on its head, and you recall, launched amid a ton of controversy. But as soon as I and others in the social networking world saw that, we just thought it was genius. And today, the news feed is a standard product that any company needs to have. Some startups are merely a feed. Twitter is just a feed, right? It took the creativity to think of something like that, but then it took real boldness to just go ahead and launch that, even amid all that controversy.
Andrew: Was your next big pivot, the next big realization, was it Meet Me, which you launched in ’07?
Greg: Yes. The next, and hopefully final pivot was in 2007, where we were full-on competing with Facebook, MySpace, and everyone else, trying to become the world’s social network, and we were just not winning. We were not even in the top five. Hi5 was in the top five. We were somewhere between six and ten. I just thought, look, things aren’t working. For the first time, we really did user surveys and really listened more closely to our users and found out that, to our surprise, most of them were already using Tagged to meet new people. We actually let the users inform our decision to make that pivot, and turned Tagged from a social network, which we define as a place to keep in touch with people you already know, into a social discovery site, which is a place to meet new people for any social reason. Since then, since ’08, we’ve been working on a product that’s great for dating, flirting, and other romantic reasons, is great for playing social games, where you actually meet people playing those games, and is also great for meeting people with common interests. Those are the three use cases that we are currently trying to power.
Andrew: I’ve had, I guess, an account on Tagged for years, but I created a new one a few hours ago in preparation for this interview. What I saw was, I think the very first experience was a list of people and then I think I was shown, one at a time, each person, and I got to click yes or no, do I want to meet them. And if I clicked yes, then I was told I needed to put a picture up on my site, which I did, because I wanted to continue the experience, and that person went to the top of the page and I got to click yes or no on the rest of the people. But that first person who I clicked yes on, she stayed up there with a bunch of flowers next to her face, and I could pick which of those to send over, and that reminded me of James’s website, Hot or Not.
Greg: Oh, yeah, definitely. In fact, James is a good friend of mine. I also met him, I think in 2001 or 2002, soon after I came out to the Bay Area. In many ways, he’s actually told me that the dating part of Tagged is in many ways really the extension of the vision that he had at Hot or Not before they stopped working on it.
Andrew: I can see that, because there’s the, “Pick the person that you think is interesting,” the virtual goods portion where you get to buy them flowers and connect with them, but you also have the social aspect that he couldn’t build into Hot or Not.
Greg: Right. I think Hot or Not was a just bit too early for the social aspect, because it launched in 2000, well before social networking was in its prime. Yeah, in some ways it also harkens back to the CrushLink days, right? So, here we are, our algorithm presents people to you one at a time and asks you a question, “Are you interested, yes or no?” Again, if two people click “yes” on each other, then we form a match. So in the CrushLink days, we were trying to uncover mutual secret crushes, but now we’re actually just trying to connect people who didn’t know each other, but may potentially be great matches and form a connection.
Andrew: If I want to send a person a note saying, if I wanted to let the person I have a crush on know that I have a crush on them, I could buy her flowers. I think I could also pay a few extra bucks if I want to know who viewed my profile, and all that is getting me to the revenues. Where are they coming from?
Greg: Revenues were completely advertising through 2008. But then starting in 2009, we started building various premium features, like the ones you mentioned, so, virtual gifts, our VIP subscription product, and also social games. Today we actually have a very healthy mix of about 50% ads and 50% premium features.
Andrew: 50% ad, 50% premium features. What are some of those premium features?
Greg: Some of the few that I just mentioned – virtual gifts and our VIP subscription and social games. We have a really fun game called Pets, which is our number one game, where you can, in our virtual world, buy, sell, and own other users as your pets. It’s a strangely interesting game, and people really get into it. So something like 15% of our daily active users actually play the Pets game. It’s very interactive, where every action involves another player. We actually like to think that it’s actually social, thus because you’re really playing with people, every action involves someone else, you’re actually meeting people, and lots of people form teams. If you want to get noticed by someone, you could just buy them, or you could buy one of their pets away from them, etc. Actually, lots of meeting happens in the game, and that’s really our approach to social games. Who you play with is as important as what you’re playing, and even though you’re ostensibly playing games, you’re actually also meeting people and forming connections that hopefully will go beyond the game itself.
Andrew: I remember talking to the MySpace people back when they launched it, and I think they were dating off of MySpace. Have you met anyone, or have you dated anyone off of Tagged.com?
Greg: I haven’t. I have had a girlfriend since 2006, and it wasn’t until ’07 that we turned into a social discovery site.
Andrew: I see.
Greg: But yeah, MySpace definitely had some of its roots in dating and so-called being a “hookup site.” They’ve obviously gone through a lot of their pivots, and you should have an interesting interview with them as well.
Andrew: I’d love it. I don’t know if they could be open about what’s going on right now, though.
Andrew: Usually people can’t be open until years later.
Greg: Well, we used to be publicity shy, and I’m still much more internal than an external person, but we actually are very open and transparent. That’s one of our values, so I’m really extending that to the public.
Andrew: Why were you so closed before? Why didn’t I read more articles about you back then?
Greg: To be honest, and this is one of my more recent lessons, I just didn’t see the point of PR. Of course, it’s a lesson I’ve learned. I really thought, just focus on the product, just focus on the metrics and doing what’s right for users, and the rest will follow and the story will tell itself. We actually did a bunch of PR back in 2006. So we were in Business Week a couple times, we were in Wall Street Journal and such. But still, we weren’t winning the market. We were still figuring out where we were going to be when we grew up. We still had a number of pivots to come, and I just didn’t know what we had to brag about. I actually think of myself, and I think I’m a pretty humble person. I don’t like to brag, and a lot of PR just seemed like puffery to me. Then, I decided to stop doing it, and we didn’t do it for a number of years. But now the lesson I’ve learned is that, basically, every part of the business affects every other part. When you have good PR, it makes it easier to hire, which translates into building better products to get more users, to make more money, which then will get you more PR, let you hire more people, and so on and so forth, and every part affects every other part, either positively or negatively. Whereas we used to be only so focused on product, users, and revenue, we now have to focus on everything else. So this year we’re really making a big push on both PR and on our recruiting and generally on teambuilding.
Andrew: I see. You said you wanted to have your say. Let’s just ask about one article, the famous, “Tagged is the World’s Most Annoying Website,” is what Sean Gregory of Time Magazine said, and that just took off online. And what he said was that, basically his whole address book was uploaded into Tagged, and then his boss, Dinda, was sent an e-mail that said . . . I can’t even figure it out right now. I don’t even know how to explain this in a paragraph. Basically, she got an e-mail that said, “Click yes if you want to see Dinda’s photos, otherwise click no, but you have to click,” funny there were no yes or no tabs in the e-mail. Basically, they were saying you’re aggressive. So what do you say about that?
Greg: We are very analytical here, and we do lots of A/B testing and test lots of different versions of our registration path, and the whole address book importing and inviting process. There was a three-day period in June of ’09 where we launched a version that was extremely viral, but honestly made it a bit too easy to have accidents where you could import your entire address book and invite them. It took multiple confirmatory steps, but still I think a lot of people just blew through the process too fast, accidentally imported and invited their boss, their dentist, their ex-girlfriend, etc., and got embarrassed by that and were thus confused and frustrated at the whole experience. As soon as we got complaints about this, we shut down that path. It was a Sunday, on June 7 of ’09. The whole path was only up for 72 hours, but a number of people were affected, including Sean Gregory, and were justifiably confused and frustrated.
Andrew: The attorneys general in New York and Texas, when they came after you, it was just for those three days? The mistake that took only three days?
Greg: They were looking at . . . they asked for a lot of information. Really, that’s what sparked all the controversy. We had been testing versions of this registration path starting in April of that year, before switching to 100% on June 4, so they also included some of that testing period as well. It was a relatively short period, but when you’re very big, like us, and viral marketing can make things go exponential, things can get exponentially bad pretty quick as well. We definitely learned our lesson, to be much more careful about any sort of viral tuning. We have a whole compliance process in place now, and I’m happy to say that it’s been almost two years since that incident, and we haven’t had any similar incidents since then.
Andrew: I went through the process just a few hours ago, and none of my friends got an e-mail. Did you guys do any advertising over the years, or was it all just viral organic?
Greg: No. So it was all through viral and word-of-mouth. I believe that social products, when built right, should be able to spread that way. You look at really breakout successes like Facebook and Twitter and YouTube, etc., none of them ever spent a dime on marketing.
Andrew: How do you put user experience and your own internal metrics side by side? I’ll give you an example that will help you understand my question better. I go to, I think it’s the Economist magazine, and immediately I get a popup that says, sign up for a subscription to the Economist magazine. They must have internal data that says that is the most effective thing to do, and they should pop up more often, and they should pop up bigger. On the other hand, user experience suffers because of it. How do you know, did user experience suffer too much? Or was it worth it? There’s no metric for user experience like that, is there?
Greg: No. I say what you’re describing is a familiar trade-off between engagement and monetization. Ideally, your monetization is native, so it’s really part of the experience, and thus they’re not at odds. Ads are basically not native. When you’re watching television, after seven minutes, there are three minutes of ads, that’s not native, that’s not a good experience. Yet, it works. Ideally, for new entrepreneurs, I’d recommend trying to find a native form of monetization. I actually think that our premium features are very much native. You can get a great experience completely for free, and if you want a slightly enhanced experience, then you can pay for it, but it’s all within the experience itself.
In their case, I think you basically have to make the trade-off between engagement and revenue. One way to measure it is to do user surveys. In a month or so, we’re actually going to have a new executive joining us, who’s going to be completely in charge of customer experience, and one of the metrics is to do lots of user surveys on a periodic basis, surveying user satisfaction. There’s a so-called NPS, net promoter score, and great products and companies and brands have really high ones, and it spans the gamut. That’s one way you can generally measure user satisfaction. But I’d say, for all the super-mathy-analytics people out there, analytics is not enough, and part of building a great company is that you have to be good at both sides of the brain. You need to be creative with the right side, as well as analytical with the left side. If something just doesn’t make common sense, even if the numbers speak to it, you should really think twice.
I think a really good example of this is when Jeff Bezos launched Amazon Prime and various initiatives around shipping. They did various tests and did a lot of analysis and data and such, and just could not justify giving people free shipping for such a low price. But intuitively, at a very visceral level, he just felt like this was the right thing to do and it was going to make consumers so much more loyal to Amazon, and he was right. The data said otherwise, but his gut was right. Today, if you ask people who are Amazon Prime Members, it changed the way they shop, because this barrier about shipping isn’t there any more. No matter what it is, they go to Amazon first and look for something that’s Amazon Prime, and just buy it. It’s changed the way I’ve shopped, and I think it has further extended Amazon’s lead.
Andrew: Do you have an example like that? Because I tend to be that way. I tend to be very analytical and need numbers to justify things. Do you have an example where the numbers said one thing, but your gut said differently, and you went with your gut? Anything at all, on business.
Greg: On Tagged?
Greg: Oh, in business. This might be a little too high level, but I’d say when we decided to focus on Tagged and walk away from the other businesses. We had other parts, these various other viral sites that were profitable, making money, and we literally walked away from some of the profitable parts of Jumpstart in order to work on this unprofitable part called Tagged. We had learned the focus lesson, saying that we could only do one thing. But how could we possibly choose what to work on? The data will suggest, work on what’s working, not on what’s not working. But we just saw such a bigger opportunity in social, rather than various direct-marketing websites, that our gut and our heart just led us to Tagged, and it was a tough decision. Actually, I remember discussing as I’m playing poker with million-dollar chips, because we’re making it could go either way, and it was going to be a huge outcome one way or the other.
Andrew: What’s one of the profitable businesses that you had to turn your back on in order to focus on Tagged?
Greg: One example was, we had a movie ticket site called Free Flix Tix. It was a site where you could invite five friends, and then we would send you a free movie ticket, and you could do more advertising offers and get more tickets. So we did have to pay the cost of movie tickets in order to get the viral distribution, but then we made money on the back end when people did more offers to get more tickets. The idea, it was growing, it was making money and such, but actually by the time we made this decision, I was already in my mid-twenties, and I just kind of decided, what do I want to do with the next five or ten years of my life? We’ve had lots of success making small viral sites, that have made money, lasted a couple years, but there’s no sustainable value there. After five or six years of doing business, I didn’t really have anything to point to, saying, “Look, we built that.” Going forward, in the next five or ten years, I want to build something that is big and lasting, and the keyword there is lasting. Maybe five years from now, I’m not working on Tagged any more, but Tagged is big, it’s lasting, and I can really point to, tell my mom, “Look, Ma, I built that.” Everyone here on my team is part of the first 50 people that built this big, amazing thing that is really making a difference to the world, because we’re enabling over 100 million new human connections every single month. That’s a sort of satisfaction and sense of accomplishment that money can’t buy. That’s a decision I had to make with our gut and our hearts and not with the math and the data.
Andrew: You know, I really admire, listening to this interview, how you found ways to make things viral. I kind of wish that we had a live audience, the way that I used to, so I could have them give you their websites, just to hear how you would make their websites viral. Do you think anything, just about, could be made viral online?
Greg: I don’t think anything can be. I mean, it’s definitely much easier if something is inherently social. Social networking site, where you’re hanging out with your friends, that’s inherently social. The site is more useful, the more friends that are on it. Something like a dating site, which we tried to make viral, actually didn’t work, because, it might be too much to say, but a dating site may be inherently anti-social, because you don’t want others to know that you’re using a dating site. We actually couldn’t make that viral. That said, I think lots of things can be made viral, and while I’ve been focused on Tagged, I’ve also been advising some other startups to help them get viral, including Hi5 and LinkedIn, which Reid started, in the early days. I’ve also advised Flixster and Pinger and Jaxtr, and all these sites have gotten exponentially viral.
Andrew: How do these guys get to talk to you and win you over the way that you won over Reid Hoffman? I know that you say that there’s no formula for it. But how do they get to have Greg to come in and help them make their sites more viral?
Greg: I say it’s really useful to get an introduction. If you’re able to find me through Reid, or through someone else, that always helps. Personal chemistry is very important to me, so working with the founders or whoever’s going to be doing the viral marketing and the people that I want to spend my time with, is important, and I say the last thing is a product or service that I’m generally excited about and think that I can personally make a positive impact on. Find someone that knows me and network your way in.
Andrew: Final question. My audience loves it when I get actionable advice for them at the end of these interviews. Do you have one thing, one piece of marketing advice that’s actionable, that people can go and use right after this interview?
Greg: Viral marketing?
Andrew: Or any kind of marketing. That was a mouthful, the way that I put that, isn’t it, Greg?
Greg: Yeah. Any sort of marketing advice. Let me think. I think we’ve talked a lot about viral marketing already. One thing I’ve learned recently, and this maybe is not as actionable as you’d like, but it’s just PR works. And for an analytical, scientific guy like me, PR just, it’s something you cannot analyze. It’s really hard to run the numbers and get the data and stuff, but it just works. We have been very proactive with PR this whole year, and now, people know about us. When candidates come in to interview, they’re like, “Oh, yeah, I just saw this article,” or, “I just saw this video that you did, and wow, I didn’t know you were doing so well.” I go to parties, and people are slapping me on the back, going, “Wow! You guys are kicking butt, and gosh, there’s so much buzz about you guys!” That perception is reality, and the actual reality is, we’ve been doing great for three or four years, ever since the pivot in ’07, and now we’re merely talking about it. But the fact that we are kind of putting this out there actually has concrete results. So it’s something that I’ve learned personally recently, and I would encourage all your listeners to really act on PR, because it matters and it definitely is worth doing.
Andrew: All right. It definitely did. When I was doing my research, there was a period, there where these guys were real scumbags. What are they up to? Who are they trying to cheat? And then I saw these other articles, by people who I trust, people who are no wimps, like Michael Arrington. Michael Arrington wasn’t sitting there as a big wimp with you. He was pushing hard. But he also said, “Hey, there’s a real company here that you guys need to look at,” and when I read those articles, I said, “I have to really find out how they did this. How did Greg, how did Johann, how did the team over at Tagged build this company up.” You’re absolutely right. It did work in your case. It works in general.
Greg: Yeah. In that period, it was really our fault that we created this vacuum out there, and thus we let others fill in the vacuum for us. Other people have their agendas, and we can’t control what others say about us, but we can control whether or not we create a vacuum. So looking back, we shouldn’t have done that. Now we are working hard on filling our vacuum. PR, like every other part of the business, really does self-replicate. The way you found out about us was you saw this video that I did with Mike back in September of last year. Now we’re doing a video. I’m sure others are going to watch this, and I wouldn’t say that it’s “viral,” but it definitely spreads. It works, and all your listeners should definitely have a PR strategy.
Andrew: Thank you. It’s very powerful, too, to hear from the founder. It’s really powerful to hear from the founder.
Greg: Sure, thank you. I’m really excited to be working on Tagged, but I’m also a student and a big proponent of entrepreneurship. So anything I can do to give back to the entrepreneur community, I would certainly love to.
Andrew: All right, I appreciate it. The website, of course, is Tagged.com. Check it out. I’m Andrew. It’s right on his shirt. I always admire when entrepreneurs have shirts with their logo or somewhere in the back. All right. I’ve got to do that myself. No more sweaters. Thanks, everyone.
Greg: It’s been great talking to you.
Andrew: Thank you.