AdultFriendFinder.com May Have Been Acquired For $1 Billion+The world’s basest online dating site may have had a major liquidity event.
Palo Alto based Various, Inc., which owns AdultFriendFinder and scores of other sites, has been acquired, says a source with knowledge of the deal.
The company, which was founded by Andrew Conru, is rumored to now have revenues in excess of $300 million annually.
The acquisition price is said to be 3x revenue, or around $1 billion.The accidental 'friend' finder
Andrew Conru didn't aspire to be a sex-industry mogul. But his $200 million empire attests to the old adage: If you can't beat 'em, join 'em.
You know how you'll be trying to do work, and the Internet will inexorably drag you into porn? That's exactly what happened to Andrew Conru's career.
A mechanical engineering doctoral student at Stanford who grew up with churchgoing Lutheran parents in northern Indiana--the kind of guy who holds the door for everyone until he gets stuck there so long that someone has to make a joke so he can let go--Conru started the first online dating site, WebPersonals, in the early '90s. He sold it in 1995, pocketed a minor windfall, and started all over again.
Now he owns 27 sites under an umbrella company called Various, controlling twice as much online dating traffic as better-known rivals Match.com and Yahoo (Charts) Personals. But his clients tend to be much more fun. That's because most of them post pictures in which they're having sex. When you've already seen your date naked, it's a lot easier to focus on what she's saying.
Of all the dating sites Conru has launched--ones for Latinos, seniors, Asians, Jews, churchgoers--the biggest by far is AdultFriendFinder, which accounts for more than 60 percent of Various's revenue. Conru says his privately held, 450-person company brings in well over $200 million in annual revenue, averaging 40 percent growth for the past nine years. With more than 35 million visitors in 2006 and 75,000 new users registering each day, AFF ranks among the 100 most popular sites in the United States.
It's become so mainstream that a joke about it appeared in the Diane Keaton and Mandy Moore romantic comedy Because I Said So. "In Hugh Hefner's day, it was 'It's OK to look at sexuality,'" Conru says. "Now it's OK to be sexual."
This coming from a gawky, bespectacled guy nicknamed the Professor who collects 1930s movie posters but whose AFF profile states "I've had a ménage à trois." If that's the least bit true, AdultFriendFinder is a very effective service.
Various's headquarters in Palo Alto isn't what you'd expect from a major competitor to the likes of Match.com. Through the years the company has gradually taken over almost all of the offices in the dingy, motel-like complex where it moved a decade ago. One of the few non-Various doors has a sign reading "Vineyard Christian Fellowship." Conru says Vineyard is a very nice neighbor.
Even inside Various's doors, the company feels less like an industry leader than like a bunch of random businesses. Some people are coding for SeniorFriendFinder, others are doing customer service for FilipinoFriendFinder. It's like one of those magazine companies where the Christmas-sweatered woman edits Cat Fancy next door to the long-haired Guitar Player rocker dude.
Behind one door on the bottom floor, several writers are working on AFF's online magazine. A man whose pen name is Colonel Lingus is writing a column about his recent trip to the Adult Entertainment Expo. A woman is reviewing a piece on how to make the most convincing ejaculate for your user photo. Other staffers are digging up "investigative" pieces for March, which they've declared, without congressional approval, to be Fantasy Month.
In a bigger office upstairs, Various chief product director Lunatic E'sex--his legal name since he was 21--works with a team that kicks more than 1,000 fake users off AFF each day, people who are trying to solicit visitors to their own adult sites. E'sex, who sports long dark hair, sunglasses, a leather choker, and Guinness-worthy long nails, is particularly good at telling real sex freaks from the fake ones.
Though, to be honest, it's not that hard. The fake ones are usually incredibly hot women. For a site that gets more traffic than any other adult site in the world, there's a severe lack of pornworthy images. That's because the 24 million users from 195 countries (116,000 members in China thus far) are real people, not actresses or models, and many are 40 or older and almost always male, hunting for a very small percentage of women.
Also, it appears that there are a whole lot more swingers out there than anyone thought: Couples make up 10 percent of all accounts and, according to Conru, tend to be the most active. If you wondered what those doughy older people on Real Sex do when they're not being filmed by HBO, they're logging in at AFF.
Sandy Hamilton, a 42-year-old former veterinary technician who lives in Fort Worth, Texas, is so dedicated to the site that she no longer watches TV. If she's home, she's on AFF, often putting on free live-cam shows for 1,300 members. She met her ex-roommate on the site and, as the photos on her profile attest, has also met quite a few men very, very intimately.
"I'm not interested in having a relationship right now," Hamilton says. "Love does me dirty." Instead, she prefers to meet guys online. The courting ritual goes like this: She sends the required two e-mails back and forth to unlock personal e-mail addresses and real names. Then she'll have a long, deep phone conversation. After that, she arranges a time to get together, leaves her door unlocked, and gets in bed naked.
"Tim," 50, met his 28-year-old fiancée on the site, though they tell friends they met at the Coke display at Wal-Mart (Charts). They still have sex with other Peoria, Ill., AFF users about twice a month, and one of those couples will serve as bridesmaid and groomsman at their wedding in May.
"Ours is kind of a Cinderella story," Tim says. "A lot of people on the site look up to us and ask us for advice."
These are precisely the people, Conru has learned, who make the best customers. And he's been looking for customers for a long time. Despite his engineering background, engineering personality, and engineering looks, he has always considered himself an entrepreneur. He started his first enterprise when he was 8, selling his parents' vegetables to neighbors. ("I learned a lot of business stuff back then," he says. "No matter how bad I wanted to sell a 10-pound zucchini, no one wanted to buy it.")
He started five more businesses while he was in grad school. From 1993 to 1997, Conru would work all day on his companies, including a Web development firm, and work on his doctoral thesis at night. The morning he finished it, he threw his notes in the garbage and went in to work as usual.
After figuring out that building websites for others wasn't nearly as lucrative as creating his own permanent revenue stream, he started another matchmaking site, not entirely unlike the one he had sold to an Australian company.
FriendFinder was intended as a site where people could find buddies for poker or fishing or golf. "When I first started, I thought I could help people," he says while eating a chicken sandwich he started only after finishing all the salad on his plate. "I was going to give more options to people who weren't social and didn't get out much."
People, perhaps, like mechanical engineering grad students at Stanford who grew up with churchgoing Lutheran parents in northern Indiana.
A few days after the site went live, however, Conru found that people were posting naked pictures of themselves, looking for partners for activities that clearly were not golf. So he deleted them. They'd post them again. And he'd delete them again.
"I decided to create a release valve," he says about the launch of AdultFriendFinder. "Six months later the adult site was as big as the regular site."
Conru soon discovered something even more interesting than the fact that people in Peoria are willing to act on their elaborate fantasy lives. He found he could build a community through exclusion. Most other social-networking sites, from Match.com (Charts) and eHarmony to MySpace (Charts) and YouTube (Charts), are based on the assumption that the site that amasses the most users wins.
Conru, on the other hand, believed that people would pay more to be part of a small group of like-minded souls. After all, you don't shop for a mate at Wal-Mart; you want to go to a cool bar. And if that bar brings in the kind of crowd you like, you'll pay more for the drinks. The average AFF user pays $20 a month; others shell out as much as $50.
"The more niche you get, the more value per member," Conru explains. "People pay money for a filter." He wasn't bothering to charge members of his religious dating site, BigChurch.com, until the guy who ran it insisted. Registrations jumped immediately. "He was right," Conru says. "On the Web there are not enough filters for sincerity."
While most websites then were taking in venture capital, Conru grew the business organically, in part because the VCs didn't want to have anything to do with his nudie pictures, but also because he'd taken funding for an earlier startup and wound up disappointed with his cut.
"When you start out, you don't need a lot of money, as the Web 2.0 crowd finally figured out," he says. "All I really needed was a computer." And when you discover a world where people pay you to put up their homemade porn, you can keep your costs pretty low.
To expand without investment capital, Conru invented a massive affiliate program, in effect outsourcing his marketing to the public. Anyone who could direct traffic to his sites would get a cut of the business they sent his way, in the deal structure of their choosing (per click, per registration, or as a lifetime cut of the money spent by the referral). Various now has more than 500,000 of these affiliates.
Michael McQuown, whose company Thunder Road places ads for AFF, makes at least a third of his revenue from Various. And he prefers sending users AFF's way, since it converts traffic to signups the most often. "They pioneered the first really good affiliate program," McQuown says, "and they still have the best one."
The affiliate program helped Various to grow, between 1998 and 2001, from 16 employees to 80, forcing Conru to act less like an entrepreneur and more like a CEO--a role he didn't exactly embrace. "That's a bumpy ride," he says. "You go from being one of the guys to running the company. It's a tough skill for a founder, learning to be hands-off."
Having never had a boss except in a few summer jobs, Conru had little idea about how to deal with employees he barely knew. So he brought in a human resources coordinator, choosing Natalie Cedeno--a devout Christian who was initially so uncomfortable with AFF that she would ask other employees to spell out dirty words to her--because she was a POW interrogator during Desert Storm. Conru figured those skills would be useful not just for hiring but also for jettisoning people he'd hired too quickly during the boom.
"In 2000 it was so hard to find people that we hired a homeless guy because he could type," Conru says. "He slept under the desk. We just required that he keep his shoes on."
During Cedeno's first three weeks, she canned more than 30 people. "It was emotionally hard," Conru says. Cedeno also initiated strict compliance rules, such as a time-card system, believing that Various was particularly vulnerable to lawsuits because of the risqué nature of the business. "She said, 'Do you know what COBRA is?' And I said, 'Yes. It's a snake,'" Conru says. "I knew it was something you threw at people when they left."
But as AFF grew, Conru's entrepreneurial jones was feeling less and less sated. So he kept launching new sites. So many, in fact, that he's able to decorate the walls near his corner office with posters of the failures (Slim.com, Nicecards.com, Sharerent.com, and others). About half of the things he's tried over the years ultimately flamed out, he says. "You need to do as many as possible simultaneously and see what sticks. Especially on the Internet, where the cost of entry is so low."
And when things fail, he doesn't feel as bad because he has so much other stuff going on. This may be the same theory AFF users employ with dating.
A few years ago, he also started to expand by buying other companies. Back when he ran his small Web development shop in 1994, Conru had hired Lars Mapstead to bang out HTML for $11 an hour. It didn't take Mapstead long to figure out that he could make a lot more by starting his own Web development company.
So he did. And the two stayed friends, which is surprising once you get a glance at Mapstead. A 37-year-old blond surfer dude with a big shock of chin hair, he wears loud Hawaiian shirts and is known in the industry as Legendary Lars. Since it's too cold for the Hawaiian shirt, today he's wearing a ski cap that says "Legendary" and a T-shirt that also says "Legendary." It's unlikely that his underwear does not say "Legendary."
Once Mapstead got into the adult space, first with chat rooms and then with Cams.com (phone sex with a video-camera), he and Conru agreed not to invade each other's turf. In their own little porn Treaty of Tordesillas, Conru got online communities and Mapstead got live video. In 2005, when the lines started to blur, they merged, with Mapstead getting about 10 percent of Various.
And 100 percent of the attention. Conru, who has avoided interviews through the years and has flown only once since an engine caught fire on a flight from Hawaii eight years ago, has made Mapstead the face of Various. That becomes most apparent every January, when Mapstead drags Conru to Las Vegas for the Adult Entertainment Expo's Players Ball, where guests dress as pimps and hookers. "He lasts for 15 minutes, then says, 'There's nobody to talk to about business here,'" Mapstead says. "Then he goes upstairs to code."
Mapstead also generates many of the ideas for new ventures. "Every time he comes up with something, I start thinking, 'How much work is this going to be?'" Conru says. "There are times I tell Lars not to come up with any more. It's like he's beating me up with ideas." In the past two years, the two have expanded Various from 200 to 450 employees, adding Cams.com workers in Las Vegas and customer service reps in Taiwan and the Philippines.
Conru sees this as another tipping point for the company. "You have to become like a VC," he says. "My role will be acting as a mentor to a bunch of entrepreneurs. I don't know if I'm the right person to do that."
Part of the issue is that if Conru hopes to continue his current growth rate, he can't just come up with ideas for new sites. He'll have to acquire more companies. This year his goal is to buy six businesses--preferably outside the adult industry. So far he's done well with the three purchases he's made (Gradfinder.com, Bondage.com, and a personals site called Fast Cupid), but he's been weighing other choices for an uncharacteristically long time.
"Most acquisitions lose money," he explains. "It's kind of like playing poker. Poker is a dangerous game. If you're doing well, you think it's skill, and if you're doing poorly, it's the cards." Conru also plans to start some mainstream companies based on the features he's built for his adult sites. For instance, he hopes to use code from Cams.com and AFF to allow tutors in India to teach English to people in China. "We already have the sunk cost," he says. "We may as well try it in another area."
This is a good time to segue out of the adult market and online dating, because both of those industries are hurting. Not only has the Web dating niche matured out of its growth phase, but the porn gold rush is over too. "People used to go to bulletin boards, but now they go straight to the search engines, so there's this tollbooth effect," Conru says. "All the money is going to the search engines."
But Conru can't sell his business and start over, even though that's exactly what he would have done years ago if he hadn't slipped into the adult world. He can't sell because AFF is far too big for any adult company to afford and far too dirty for any mainstream company to stomach. And because most investment banks don't want to get involved with pictures of people having sex in their own bedrooms--let alone kitchens, living rooms, motel rooms, airplane bathrooms, and Renaissance fairs--he'll likely never get a fair price for going public.
So unless he can diversify himself out of the vice niche, something not even Philip Morris has been able to do, Conru is destined for a life in porn. He's at peace with that, though. "I never thought I'd be in the adult business," he says. "But the people are more fun. They're less stuffy." Besides, if he hadn't, it's a fair guess that he would never have had that threesome.