Faves.com had a smart team, top angel investors and big aspirations to become a dominant player in the emerging social network arena. But the 7-year-old upstart — founded at about the same time as Facebook — missed the mark. After a few years on life support, Seattle angel investor Mike Koss just decided to pull the plug on the service. Why didn’t Faves.com, formerly known as Blue Dot, become the next Twitter or Facebook? I asked Koss that question today, and a few others about some of the lessons he learned about investing in ad-supported businesses.

Koss invested in the company in 2006 and later took on the co-CEO role working alongside Mohit Srivastava, a software engineer who has since returned to Microsoft. Koss has been running Faves with a part-time contractor over the past few years, just keeping the lights on. But he just decided to call it quits in part because the site was just “not earning enough money.”

Why did you close down Faves after all of the years? “The original expectation was to be something like a Twitter or a Facebook, but we reset those expectations way down a couple years ago. We had a series B (financing) with a couple of prominent local angels joining me in that. But we could never really hit on a new idea that we thought was game changing enough. And ad-supported sites need to have either really targeted direct selling opportunities or very high volume of users, and we didn’t have either of those.”

Why do you think you missed the Twitter or Facebook opportunity? “That’s a good question. I think there’s a lot of luck involved in that. It is hard to say. If you look back in our history, I think back in 2006, we were the darlings of (TechCrunch founder) Mike Arrington and we were in his top 10 products that he could not live without … and we had a pretty nice growth curve…. Things were looking pretty exciting back then, but then we just plateaued out and at our peak we had one million unique visitors per month. We plateaued at that level, and ad rates seemed to get worse and worse and our traffic basically started to dwindle away.”

What have you learned from the Faves experience? “I think it has made me a little bit more, I guess you can say either pessimistic or conservative. We kind of built it with the philosophy which was pretty predominant in that period of 2005 to 2006, which was build an audience and worry about how to make money later. We were a bit naive about what the prospects were for the advertising revenue rates. We were basically a factor of 10 off what we really needed to make just to have a sustainable, cash-flow positive business.”

What were you making on Faves with advertising? “Today, we are typically making about 50 cents per 1,000 page views right now. So, if you do the math on that, one million page views per month is going to pay you $500, so that is not a business. That’s a hobby for a part-time developer. A lot of entrepreneurs don’t really understand that. They think, ‘Oh, five million users, that’s a lot of people.’ But it’s not for a general Internet audience.”

So you don’t invest in online ad startups? “Yeah, I don’t like that anymore. (Laughs) I don’t see it being a viable business plan. Any company that comes to me with a pure ad-supported model, I tell them that they have to go back to the drawing board because I am not going to invest in something that will only pay off if you get, you know, 10 million uniques a month. And probably won’t even pay off well until you get to 100 million.”

I tracked Blue Dot fairly closely from its origins to its demise. Here’s one of my early reports on Blue Dot in which Kabir Shahani — who went on to create Seattle startup Appature — explained how the startup was different than other social sites.

“A lot of social sites on the Web were asking the question: Who are my friends? We didn’t need to know who our friends were. We were really interested in, what can I learn from my friends, what can I learn about my friends?”

A bit eerie, isn’t it, considering what Facebook has become?

John Cook is co-founder of GeekWire. Follow on Twitter: @geekwirenews and Facebook.

Comments

  • http://twitter.com/ethanschaffer Ethan Schaffer

    Sad to see them go after getting so far along.
     

  • Guest

    If “Seattle’s Facebook” struggled so mightily, what hope is there for Palo Alto’s Facebook? I certainly hope the latter goes IPO before it becomes 2012’s version of Faves.

  • Guest

    If “Seattle’s Facebook” struggled so mightily, what hope is there for Palo Alto’s Facebook? I certainly hope the latter goes IPO before it becomes 2012’s version of Faves.

  • http://twitter.com/tywolfejones Ty Wolfe-Jones

    I really tried to use BlueDot in the early days and just didn’t see it. I think one of the key points was, “…we could never really hit on a new idea that we thought was game changing enough.” I couldn’t differentiate BlueDot/Faves in my mind from other things I was using, even when one friend of mine swore by it. Wish they could’ve found that secret sauce as it would have been nice to see a Seattle company break out in this space.

    • johnhcook

      Sometimes services take off because they have one killer feature, or at least something unique. Maybe that was The Wall concept at Facebook, maybe something else. Good execution certainly helps, but sometimes it seems it is the oddball little twists and turns which help a service get to that critical mass. Thanks for the comment, Ty. Good points. 

    • http://faves.com/users/mike mckoss

      Blue Dot was pretty innovative when we started – remember, this was pre-Twitter and Facebook was only available at Harvard (and with no concept of the News Feed). So, we pre-dated many of the features that people love today in Twitter and Facebook.  But you could probably come up with 4 or 5 other companies getting about the same traction with similar features to us.

      I agree with you that we were not differentiated ENOUGH to get the kind of broad adoption we’d need to stay alive.  It’s especially tough when you see that even the “winners” in this space (social bookmarking/social discovery) are not necessarily knocking it out of the park (delicious, digg, reddit).It’s just very hard to get to critical mass for an ad-supported service.  We COULD keep Faves.com alive – but we’ve decided in our investor group that we don’t have a new concept that would merit further cash outlays.We sunk over $2 million into Blue Dot – mostly spent in the first 2 years.   I’m going to really miss the product myself, but without a real business model, we can’t keep it going just because WE like it.

      • johnhcook

        Thanks for the follow-up Mike. I didn’t ask this when we spoke, but wondering if you think there could have been one feature that might have helped you get over that hump? Since you did start around the same time as Facebook, was there one thing that they did especially well? Was it the wall “concept,” or maybe just their natural head start on college campuses? 

        • http://faves.com/users/mike mckoss

          I actually think this idea that a “feature” can make a big difference in your audience is a major mistake we made.  For example, we added the “Blue Dot Buzz” feature to enhance community-wide social discovery around topics.  We thought it would be a break-out feature that would launch us to the next level of user growth.

          After working on our content ranking and scoring algorithms for a couple of months we launched it — and it was a big yawn.  We never had more than 10% of our page views coming from the Buzz feature.

          What I think is a much better paradigm than big feature release are continuous incremental refinement – BUT ONLY if you have good metrics in place to give you feedback on their immediate effect.  We never build a system that could tell us the impact of small changes in our site; so we had to take these leaps of faith on larger feature campaigns.

          As a bonus – I’ve attached a chart of our Daily Unique users from Jan 2006 until today.  We peaked at 40K daily uniques, but then tailed off to 10K uniques we have today.

          • http://www.puzzazz.com Roy Leban

            Thanks for sharing the chartt. I assume the trough toward the left is the rename from Blue Dot to Faves (wow!). What is the short peak in the middle?

          • http://twitter.com/InfiniteHoops Tosh Meston

            Yes, the trough was right after the rename.  Just about 100 days exactly. 

          • http://twitter.com/tywolfejones Ty Wolfe-Jones

            Yes I remember it in my mind competing with Delicious and Digg, which I don’t use now either. Whether it really did or not actually compete with those that was my understanding a first blush and where I put it in my mind.

            Like I said I had a friend locally who really saw it and used it regularly for his Real Estate business as a way to share everything from recent real estate news and personal things he wanted to share. He regularly pointed to it in his newsletters, etc. He doesn’t even use Facebook this way now. So I know it had some devoted users who really got it. 

            It’s hard to say what that “thing” could’ve been or if there is even a single feature that would have captured the rest of us. It took me a long time to take the Facebook Wall and I still won’t use Twitter.com, I only like it when I can organize the feed and info in other clients.

            Hopefully guys are just on to bigger and better. Great learning experience to say the least!

          • Victoriawholic

            What’s the best way to raise awareness of a new feature on a social networking feature like this? What happened to the intellectual property [scoring algorithms]? What did they do?

      • http://twitter.com/chrisamccoy Chris McCoy

        I have a lot of admiration for what your team did, Mike. Really appreciate the “post-mortem”. 

        Question: did you attempt at raising an A Round either at all, or outside of Seattle? What kind of feedback did you get in those early days?What are you starting next? ;)

        • http://faves.com/users/mike mckoss

          We need a “B” round in 2009 – enough to keep the lights on for 2 years, keep up with site performance and anti-spam.  But it wasn’t enough to execute on a new direction.

          I’m now working on a web application development platform – pageforest.com.

      • Victoriawholic

        What other revenue model enhancements did you consider – and why did you reject them? 

        • http://faves.com/users/mike mckoss

          We thought about doing something more like reddit – where topic communities could be created.  Ultimately, it came down to losing some amount of faith in advertising as a revenue model, and not being confident we could make a go of it with user-paid subscriptions.

  • Valid

    I was involved in conferences a lot at the time that bluedot thought it was up and coming, and the person they had speaking at conferences was so incredibly annoying.  He would get up in development sessions and talk about “dotting” things and attempt to coin words and otherwise give extremely on-message bullet point heavy marketing speeches and bore/annoy his audience.

    I think part of why they didn’t succeed was that they were actively annoying the people in the communities they were trying to pitch to.

    • http://www.puzzazz.com Roy Leban

      That’s harsh. I know this company that’s been talking about “tweeting” things for years, clearly a coined use of the word. What’s the difference? Twitter succeeded and Faves didn’t. 

      Personally, I didn’t care for the terms “dot” or “dotting” either (I liked Faves, fave, and faving much better). But I’m smart enough to know that my personal opinion here has little to do with why they didn’t make it.

      • Guest

        The difference, Roy, is that Twitter didn’t coin phrases like “Tweet,” “Retweet,” “hash tag,” etc. Twitter’s users did.

        [image]

        Observe the flywheel above. A successful company doesn’t define an argot and insist that it be used. A successful company produces a product and actively involves its customers in defining the language, the grammar, and the behaviour that governs it.

        • http://www.puzzazz.com Roy Leban

          I wasn’t at any of those conferences, so I don’t know what was said, but, from my perspective, Blue Dot didn’t insist that people use the term “dot” any more than many other companies, including Twitter and probably whatever your favorite company is, try to make their terms stick.

        • http://faves.com/users/mike mckoss

          I can see your point.  We had some very young and exuberant founders when we started.  I can see that we might have come across better in the early days by toning down the rhetoric.

          In essence – we were a “social bookmarking” site – but with some not-yet-explored social interactions.  The founders were very keen to not be lumped in with sites like delicious, and so tried hard to differentiate what Blue Dot was doing from them.

  • Jasonkim

    This headline is pretty comical. Trust me, they had no chance to be the next FB.

    • Guest

      Can we really trust you, Jason?

    • http://faves.com/users/mike mckoss

      I would agree that our early success trajectory was no where near as intense as Facebook’s; but the company was well capitalized in the early days.  The investment was there, but we didn’t hit on the right formula to get the user growth we needed.

      Hind-sight is 20-20.  I think the interesting question would be “would an objective angel investor be able distinguish between an early Facebook and an early Blue Dot” when it comes to it’s chances for success.  I think you might find it hard to do so if you looked at both companies at the time they took their first dollar of outside investment.

  • http://www.naturalmedtherapies.com/ Naturalmedtherapy

    Hey Nice news.I am waiting For features like facebook also.

  • http://www.photostudiosupplies.com Garry Jones

    Very bad news

  • https://otakuontheloose.wordpress.com/ space sheriff

    This is big news. Faves always appears high up on lists of bookmarking sites. I wonder how many similar sites are also in the brink of closing down.

    Honestly speaking, Faves never gave the feeling of a social networking site such as facebook. But it was a good bookmarking site.

  • LK

    This was bound to fail. Mohit knew about this when he quit Faves and went back to sucking Microsoft’s tits. 

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