Website Looks to Past for Its Future

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Website Looks to Past for Its Future
With original and online yearbooks.

They say nostalgia isn’t what it used to be, but Mark Goldston is betting a big part of his company’s future on it anyway.

Under increasing competitive pressure from Facebook, Goldston is repositioning United Online’s Classmates division as a nostalgia site instead of only a social network that helps old school pals find each other and reconnect.

Classmates will relaunch at the end of the year to highlight its nostalgia content. That means, for example, that you could see newspaper clippings, and radio and TV broadcasts from the year you graduated from high school. One of the main features of the new website will be digital copies of thousands of old high school yearbooks.

“We’ve got to be more strategically smart about how we can create a compelling business proposition,” Goldston, the company’s chief executive, told the Business Journal. “Rather than just continuing down the same path and price promoting and discounting our membership plans, another idea is to do this strategic revamp.”

Classmates hasn’t proved to be a must-read website that could compete with the phenomenal success of the big social networking sites.

“It was never a site that got a lot of usage. It wasn’t like a Facebook account where you were going regularly,” said George Sutton, a senior research analyst for Craig-Hallum Capital Group LLC in Minneapolis. “They’re trying to turn it into a site that will have quite a bit of third-party generated content to get you interested.”

Currently, Classmates users can register for free for basic service, but if they pay an annual subscription fee of $39 – with deep discounts sometimes available – they get access to the site’s additional features, including direct e-mail with former classmates and a locator to see where those classmates are living now. Trouble is consumers can do much of that on Facebook and other social network sites for free.

Classmates has already added 20,000 digital copies of high school yearbooks to its paid-access website, and will continue to add yearbooks and additional nostalgic content in the second half of this year. When the revamped site launches, Goldston said he hopes to have at least 70,000 yearbooks downloaded to the website.

After the redesign is complete, the site will offer an additional option beyond free or pay: one-day passes to view yearbooks and other nostalgic items.

When the Woodland Hills company announced its earnings Aug. 4, Goldston said that the launch of the digitized yearbooks was “the first step in our planned transition of the business from a social networking company into a premier nostalgia content company.”

It was something of a bright spot in an otherwise not-so-pretty picture. Operating income at the Classmates Media division – including European social network StayFriends and shopping website MyPoints – was down 22 percent from the same period in 2009. Revenue for the second quarter was $48.8 million, down 16 percent.

Although the number of paid subscribers on Classmates rose by 8 percent during the quarter, Goldston attributed the drop in revenue to discounted subscriptions.

The lagging quarter for Classmates was only one factor in United Online’s companywide decline in net income to $13.1 million, down from $17.7 million in the same period the prior year.

United’s two dial-up Internet service divisions, NetZero and Juno, reported operating income was down 20 percent from the same period a year ago.

That may seem bleak, but there could still be a long life for United Online’s dial-up services. Mike Crawford, a senior analyst for B. Riley & Co. in West Los Angeles, said he expects it to remain a revenue generator for the company for up to 10 more years.

“It’s going to run its course,” Crawford said. “But it’s something that’s generating quite a bit of cash right now.”

That cash, he said, could be used for United to invest in other projects, such as the Classmates redesign.

Finally, FTD, the company’s online flower division, reported second quarter operating income was down 26 percent from the previous year. Goldston blamed that on higher advertising costs and deeper discounts.

Although member interest in Classmates has started to taper off, United Online has grown the company significantly since acquiring it in 2004, when the site had 1.4 million paying subscribers. Today, paying subscribers have grown to nearly 5 million out of more than 50 million total registered users.

MySpace, for comparison’s sake, claims to have 70 million members and Facebook 150 million in the United States.

But Classmates has been hit by growing pains. In November 2009, United Online announced that it was cutting 71 employees from its Classmates Media division to “increase efficiency.”

The company was also hit with two lawsuits earlier this year. The first alleged that some of the website’s users had received misleading promotional e-mails telling them that former classmates were attempting to contact them. They could find out who these classmates were only by paying for a subscription to the website.

Classmates settled the lawsuit by giving all members a $2 credit toward a subscription.

The second suit alleged that Classmates violated users’ privacy when it made their profiles public on Facebook and iPhone applications. Although users could opt out of a public profile, the lawsuit claimed that this process was confusing. That case was dismissed.

But the biggest challenge Classmates faces is growing competition from free social networking websites. Classmates has a different business model than most ad-supported social networks, but Goldston admitted that the increased popularity of these free sites prompted him to redirect the service by tapping into the nostalgia of Classmates’ members.

“In light of social networks, the most powerful part of our positioning should be our ability to reconnect you to your past,” he said.

A former competitor of Classmates called Reunion.com, which was founded in 2002, faced a similar challenge. The Santa Monica website expanded into “people search” – providing visitors with different ways of finding people from their past, whether old boyfriends or girlfriends or former co-workers. The site offers free and paid services, and rebranded as MyLife.com in 2009.

“Facebook does a pretty good job of reconnecting old classmates. They’ve definitely cut into that market,” said Jeff Tinsley, MyLife’s chief executive.

Since rebranding, MyLife has seen traffic to its website skyrocket. In June, the site had 12.3 million viewers, up from 7.8 million in February, according to digital marketing researcher comScore Inc. The company also surpassed Classmates’ 11.3 million viewers, or those who visited the website including nonsubscribers.

Sutton at Craig-Hallum expects Classmates’ nostalgia play to help boost its sagging revenue because it’s targeting people over 40 who might enjoy reliving old memories. But he warned that the company won’t be able to gauge its success until the relaunch is in full swing.

Another challenge is the sheer volume of work. There are about 40,000 public and private high schools in the United States. If each one had 60 yearbooks, that means the total universe of postwar American high school yearbooks would be about 2.4 million. That means the 70,000 yearbooks that Classmates hopes to have available by the end of the year is only about 3 percent of that total.

Classmates is getting yearbooks from collectors and asking members to send in theirs. The company has a machine that automatically scans in the yearbooks so customers can view them online in a book-viewer format.

Goldston said he thinks adding the yearbooks will help generate initial interest from users who don’t have their yearbooks anymore.

“I’ve had 37 years to lose my high school yearbook and I have no clue where it is,” he said.

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