BUSINESS 2.0:

Giving the Audience Its Own Domain

Richard Rosenblatt helped broker the $580 million sale of MySpace. Now he wants to build millions of sites like it - this time, in vertical niches.

By John Heilemann, Business 2.0 Magazine columnist

(Business 2.0 Magazine) -- We meet for drinks at a Manhattan steak house, and immediately he utters a remarkable phrase - one as evocative of a bygone era as 'Tune in, turn on, drop out.' Richard Rosenblatt is explaining why he hasn't spoken much to the press since his latest startup launched last May.

"We've decided to wait to tell our story," he says, "until the IPO."

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SOCIAL PLAYER: Richard Rosenblatt's audacious plan for building millions of MySpaces has already reaped $220 million from venture capitalists.
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Why Rosenblatt is making an exception and talking to Business 2.0 is interesting, and we'll come to that soon enough. For now, let's focus on those three little letters and what they signify.

First, understand that Rosenblatt isn't kidding: He informs me that his company, Demand Media - an ambitious attempt to build a user-generated content powerhouse on top of a pile of generic Web domain names - intends to go public in late 2007 and attain a $2 billion market cap by mid-2008.

And Rosenblatt isn't alone in seeing these goals as achievable: Venture capitalists have already pumped a jaw-dropping $220 million into Demand.

On the road to fortune or flameout

The first conclusion here is that anyone who still thinks Web 2.0 isn't a bubble ought to have his head examined. The second is that Rosenblatt is steaming toward disaster - or a monster payday. Either way, his story captures the current upheaval in both the old- and new-media industries, especially the frantic scramble to find the next MySpace.

Few people are better qualified for that pursuit than Rosenblatt.

A 37-year-old native of Los Angeles's San Fernando Valley with a high-pitched voice and a disarmingly guileless demeanor, Rosenblatt has been pushing user-generated content for a decade. In 1999 he sold his create-your-own-storefront startup iMall to ExciteAtHome for $565 million. Five years later he was recruited to lead the turnaround of Intermix Media and its main property, MySpace.

Inside of 18 months as Intermix's CEO, Rosenblatt took the company from the red to the black and then to the auction block, selling it to Rupert Murdoch's News Corp (Charts). for $580 million.

"Every major media company had looked at us," Rosenblatt recalls. "Mr. Murdoch was the last one in but the only one who totally got it."

A few months later, Rosenblatt was casting about for ideas for his next startup when he came across an article in - yup - Business 2.0 bearing the headline "Masters of Their Domains" (December 2005). The story was about how domain-name speculation had been transformed by cost-per-click advertising systems, how millions of people ignore search engines and type what they're looking for directly into their browser's address field, and how the owners of generic addresses (Candy.com, Cellphones.com) profit by setting up pages where the only content is blue-text link ads.

The perfect opportunity for sloths

The story set off a chain reaction inside Rosenblatt's head.

"I thought, it can't be that easy," he recalls. "So I talked to some domainers, and they said, 'We own 300,000 domains, we make $20 million a year, we have just four employees and some servers in the Caymans.' I thought, 'If you can make that much doing nothing, what if we added some Web 2.0 sprinkle so that people would come back - user publishing tools, social networking? What if we built a platform where we could snap that into as many domains as we wanted?' That's when the lightning bolt hit me: You'd have a company that generates its own traffic, generates its own content, and monetizes itself. It would be the perfect lazy-man's media company!"

Rosenblatt moved rapidly to turn this theory into practice, with Demand making nine acquisitions in the space of just six months. With two takeovers - of eNom and Bulk Register - the company became the world's second-largest domain registrar after Go Daddy. (See "Who's Your Go Daddy?")

The company has also snapped up user-driven sites such as Answerbag and eHow, and specialty content outfits such as Hillclimb Media (GolfLink.com, Trails.com).

What Rosenblatt is amassing are the resources to create a niche-driven, bottom-up online publishing conglomerate, one that can spawn an almost limitless number of narrow-focus websites at nearly zero marginal cost. Some will be existing shell domains gussied up with Rosenblatt's "sprinkle"; others will be created from scratch and turned into insta-brands. Some of the content will be professional; most will be user-generated.

"There are 59 million blogs out there, so we know people want to publish," Rosenblatt says. "You give them the tools, you give them an audience, and you pay them; then they tell you what they like - and you follow them to the verticals where they gravitate."

The need to be more 'MySpacey'

Thus Rosenblatt's answer to what comes after MySpace: a million micro-MySpaces. But he's quick to point out a key difference between his new outfit and his old one.

"MySpace was about your six-pack abs and your favorite bands," he explains earnestly. "This company is the thinking person's social network - it's not about what you show, but what you know."

Given how fast Rosenblatt is moving, it's easy to imagine him getting too far in front of the bandwagon he purports to be leading. Perhaps he's misread the lessons of MySpace: that exhibitionism is not peripheral but essential to community-driven sites.

But however imperfect, Rosenblatt's thinking about user-generated content and its implications is miles ahead of almost anyone else's in media, which is why so many of its majordomos - Barry Diller, Viacom (Charts), the New York Times (Charts) - are clamoring to meet him.

Among the media titans, the prevailing wisdom is that Murdoch made them all look like retrograde morons when he stole MySpace out from under their noses. Everyone is desperate not to miss the boat this time around. Everyone knows that their online offerings have to change, to become more MySpacey, but no one is exactly sure what the hell that means.

All of which puts Rosenblatt in an enviable position. Given his track record and what he claims about Demand's business even at this early, nascent stage - "We're very profitable," he says, "and we could go public now if we wanted to" - he'll soon be facing a barrage of buyout offers.

"We're not selling this one; this is a company we're going to build," Rosenblatt insists. But why would he say anything otherwise? My educated guess is that Demand's VCs value it at about $500 million. If Rosenblatt truly thinks the company will be worth at least $2 billion in 2008, the argument for holding out is unimpeachable.

And it has one other attraction. For six years now, the Internet industry has been waiting for a revival of the moribund IPO market. Rosenblatt would relish being known as the guy who jolted it back to life.

Sure, he's from the wrong valley - San Fernando, not Silicon - but who cares? As Rosenblatt says with a shit-eating grin, "Someone has to do it!"

John Heilemann wrote "Pride Before the Fall." His next book is "The Valley." He lives in Brooklyn.

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More from Business 2.0 columnist John Heilemann:

Architect William McDonough: The buildings of tomorrow

Anthony Volodkin: The Hype Machine

Martin Nisenholtz: The New York Times' digital makeover Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.