Primed and ready for take-off, SocialGo targets the Facebook generation

Two words define the current zeitgeist. They are the twin pillars of a new internet revolution.  They describe the way an entire generation now communicates, and they have even spawned a multi-Oscar nominated movie. 

I refer of course in this roundabout and rather laboured introduction to the social network, or more precisely the phenomenon of social networking.

At the vanguard is Facebook, which has acquired an almost “Googlesque” omnipresence on the web.

It seems to be everywhere. Nowadays it’s not just the kids that use it – media, commerce and even the wily political classes are turned on and tuned into it. 

This bright idea Mark Zuckerberg shared with a clique of friends and colleagues at Harvard now has a worldwide base of 600 million users and last year generated an estimated US$2 billion of revenues.

But for every Facebook there is a Bebo or Buzz that fails to scale those heights, or an expensive white elephant such as MySpace that illustrates just how difficult it is to make money from the worldwide web.

However the operative word here is difficult - it is not impossible to make money from the web, so long as you have an innovative and original way of doing business. 

And speaking to Dominic Wheatley recently, it became apparent there is still plenty to play for in the social networking space – and crucially there’s money to be made.

Wheatley is the chairman of AIM-listed SocialGo (LON:SGO), which has created a subscription-based model that allows individuals, clubs, groups and companies to set up their own social networks.

This is an interesting and scalable concept that creates interactive presences on the web that pretty, but static Joomla-style web templates don’t offer.

While there is a free version of SocialGo, it is merely a taster designed to hook potential subscribers to the product.

The fees start at a very reasonable US$24.99 per month right the way up to US$149.99 concierge service where the company actually helps manage the site. There’s even a boxed up version that is sold via Apple stores in the US.

French politician Dominique de Villepin is using SocialGo to mobilise supporters and communicate with them, though you wouldn’t know it is an off-the-peg solution. 

The basic paid-for set up is impressive, the design is slick, and the dashboard easy and intuitive to navigate. It allows the user to vet material and moderate conversations as well as providing facilities to upload photos and video. There is even the capacity to monetise your web presence. 

Now this isn’t a product review. I mention just how good and professional SocialGo looks because the idea is gaining some traction, and yet this is the product’s first incarnation.

Revenues were around US$120,000 in December 2010– an almost three-fold increase from the same period ayear earlier and growing at a healthy pace.

On current projections it is expected the group will break even towards the end of the summer of this year, though this is not set in stone. 

That’s quite an amazing feat. SocialGo has only been out in the market since February 2009. So really, all we are seeing at the moment is the first adopters taking a look and using it.

There has been no marketing to speak of other than a modest pay per click campaign, which brings in around a quarter of the company’s new subscriptions and some in-house search engine optimisation, which has taken care of the rest.

Moreover, these are revenues that have been garnered from a versions one product, a pathfinder. Version two is in the beta testing currently and will hit the market in early summer.

It is hoped the updated version of SocialGo will attract a new and interested potential client base, while making the current base of users more inclined to renew their subscription.

So as sales rise, the churn figure falls. In this finely calibrated model, both have to move only a tiny bit in the right direction for the finances to transform completely.

Wheatley explains: “Version one was a pathfinder product to establish two things. First of all would people use this sort of product to create social networks and then second would they pay for it?

“Here we are today with more than US$100,000 of income a month and rising from a zero in just 20 months. But there were several things we needed to tweak.”

Among them was linking with the existing social networks such as Facebook and Linkedin and making some of the routine processes such as signing up to SocialGo and setting up a social website a lot easier.  

“The first thing to report is we have nailed the networking side.” Wheatley said. “Thousands of people now have busy active social networks across business associations, politics, education, hobbies and charities.

“But we wanted people to be able to consolidate their online activity.  So we are building the bridges from the private islands (SocialGo networks) to the mainlands of Facebook, Linked in and so on.”

Veterans of the tech sector will remember Wheatley from his previous exploits.

He was the founder of and driving force behind Eidos who was there at the dawn of personal computing and gaming.

His company spawned classics such as Football Manager and Hitman, but Eidos is probably still best remembered for bringing us Lara Croft, the buxom heroine of Tomb Raider.

Okay his background is not internet, or social media for that matter. But he does know a thing or two about bringing new and innovative products to the masses and just how that marketplace works.

Not that this helped with Wheatley’s last venture, Bright Things, which is a blot on an otherwise pristine CV.

He says that Bright Things got the product and the market right. Pricing was the issue and the one part of the equation out of Wheatley’s control.

That was down to the company’s partner Bandai, who Wheatley says charged too much for the toy after becoming carried away by the response from retailers. 

Although the project petered out, Wheatley kept Bright Things going in order to find a new business idea to reverse into it. 

It was during 2007 that Wheatley met Alex Halliday and Steve Hardman who had started work on a niche social network and immediately saw the potential. 

“I asked them if they could create a website that would allow anyone to create their own social network using the engine that Alex had built. They said they could and it marked the birth of the idea.”

Wheatley is quick to point out that this is far from a one-man-band. The entrepreneur provides the business know-how, strategic vision and access to the capital markets.

The programming and creative side of things is overseen by SocialGo's Alex Halliday, a self-proclaimed geek who Wheatley likens to Zuckerberg two or three times during our conversation. 

At 25 Halliday is AIM’s youngest chief executive.

Steve Hardman is chief operating officer and has been in the technology business for two decades and brings with him a wealth of experience.

When the three first met back in 2007 the initial iteration of SocialGO was free and relied for its income on advertising.

Wheatley got the idea instantly, but reckoned the subscription model had far more potential. He raised cash for the operation before finally wrapping it in to Bright Things and issuing the founders with shares.

SocialGo is an odd company in that it is quoted on the market when really it should be under the wing of an incubator fund until it finds feet commercially.

And in fact in recent years the management has operated as if this has been the case, coming to market to raise funds as and when it has passed certain milestones.

“I got them the money and the wherewithal to build a team around Alex,” Wheatley explains. 

“It’s been a little like I am back above the shop in Fulham (creating Eidos).”

Now the development phase is over it is up to SocialGo to prove that it can turn a good idea into a money generating proposition.

There are a number of things to note here. First, as we have seen the group does have the capacity to make cash on its current growth trajectory without a great deal happening.

As I have also indicated, there only has to be a small positive re-calibration of churn and new sales for proposition to alter radically.

However, according to Wheatley the real excitement comes a year to 18 months down the line. 

His assertion is borne of the experience gleaned in the computer and video games field where a product starts taking on its own momentum as the interest builds.

It is a phenomenon that he has also seen on the internet with innovations such as Twitter and Linkedin, which were a slow burn at first as they went through several iterations before finally going into orbit.

“Everyone thinks Twitter was born two years ago,” Wheatley says. 

“It wasn’t, it was born back in 2004. It took them three years to get a million users. 

“There was no sudden lift-off. They were constantly updating and revising it. 

“A lot of people came and left and are now going back to use it. It’s exactly the same process with us. You do get a certain tipping point at a certain critical mass.” 

This is a scalable model where the annual costs are largely static irrespective of how quickly the company grows.

The company raised £300,000 last month at 2.75 pence, after a small share placing with Vikrant Bhargava (founder of Party Gaming and on the SocialGO board) in November. 

Further fund raisings could be expected, however it might be done to fund specific projects such a opening another office in the States if it is needed, or launching a paid-for marketing campaign that helps build and sustain sales momentum.

It is interesting that all of this is being masterminded not from Silicon Valley, but trendy Hoxton, with its lofts and warehouses, which is on the City’s Bohemian outer fringes.

It is also interesting that SocialGo has attracted one very high profile investor with a major online success under his belt in Bhargava.

The co-founder of PartyGaming, who is conservatively estimated to be worth £200 million, has a 20 per cent stake in SocialGo and sits as a non-executive director.

After that Wheatley is the next biggest investor, with almost 19 per cent followed by the management, which means over half the shares reside in the hands of the directors.

This of course is re-assuring as it shows the bosses have a great deal of faith in SocialGo, and so far it hasn’t created any liquidity problems.

Recently the shares have enjoyed a very strong run and are up 150 per cent in the past three months.

But if Wheatley is correct this is only the start. “We are on our way. The excitement will be if we do get to the tipping point and the thing goes sharply upwards.”