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Social Networking's Next Phase

By James Abels, Wealthmonitor, a part of the Mergermarket Group.

LiveWorld, a developer of social networks, has been approached by investment bankers to help structure a sale, said CEO Peter Friedman. However, their valuation of USD 30m - USD 40m was too low, he said. "We did not think that was a strong enough valuation for what it is," he said.

The California-based company creates branded social networks for corporate clients and is currently listed on the Pink Sheets. Friedman said that he had not yet decided when to re-list on a major exchange, though, he said it could happen this year.

He said that though people "nose" around to buy the company, it is not for sale right now.

LiveWorld was publicly traded on the Nasdaq after going public in 1999.

It has lived a long life that lead it from a Nasdaq high of USD 29.50 on 31 December 1999 to its current listing of USD 0.52 on the Pink Sheets. Yet Friedman said with that his company is a survival story of the dot com bust.

After it occurred, he said he cut 90% of the company's expenses. That included an all-around salary reduction of 25% to 80% and a Pink Sheets listing due to its low cost.

"I remember thinking, at least you have jobs," Friedman said of LiveWorld's salary cuts.

While staunching its slide toward death, he said revenue fell to an all-time low of USD 1.8m.

In 2005, Friedman said the company had approximately USD 10m in revenue. Perhaps more important, he said it was profitable.

LiveWorld had USD 1.2m of profit in 2005, he said.

The company has not released its complete 2006 financial results yet. Friedman said he could not clarify whether the company would end up posting a profit for the year until Q4 results were announced. The company was reporting at time of press that 2006 profits could range between a loss of USD 500,000 and a gain of USD 500,000.

Revenue for 2006 should be approximately USD 10m, according to company reports.

Last October, LiveWorld hired a new CFO to help the company push towards a new exchange listing. Auditing, which Friedman said he cut out as another cost-saving measure, has been restarted.

The company also entered a joint partnership with publicly-traded WPP last July to help develop online communities for the publicly-traded company's agencies worldwide. The international public relations firm also bought a small piece of LiveWorld, Friedman said.

"It was a creative way of putting the focus on it [social networks in marketing campaigns]," he said, "many, many more WPP agencies are paying attention than they were."

While Friedman said companies such as WPP may ultimately acquire social networking technology that option was not currently attractive to him because an exclusive arrangement with one agency would undercut plans to increasingly partner with other marketing agencies.

WPP became a direct investor in LiveWorld around the same time the joint venture was announced, said Friedman.

LiveWorld is also focused on diversifying its client base beyond stalwart customers such as HBO, eBay, and MiniCooper, which helped the company withstand the dot com bust.

Last year, he said non-AOL and non-eBay business grew from 80% - 100%. AOL became a major customer of the company after the dot com bust.

Friedman said that his company, which had been running social networks long before MySpace was around, is way ahead of the market in terms of product sophistication.

For instance, he said it regularly creates sites for foreign companies in different languages. Further, much of the company has developed a strong business moderating user-generated content in branded social networks - some of which it has not created itself.

An executive with one competitor warned, however, that one of LiveWorld's challenges stems from its experience level. With a mature software package that is a few years old, the company is increasingly competing with younger versions of itself that may use newer Web 2.0 technology.

Although Friedman said it was a fair concern, he said much of his own technology has been recoded in recent years and also relies on a combination of proprietary and open source code to make it more nimble to allow the kind of user interaction and customization that defines the hype of Web 2.0.