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Chatting with the new king of chat rooms

The Bebo website is one of the hottest properties on the internet, but founders Michael and Xochi Birch have no desire to cash in their chips

WHEN Michael Birch and his wife, Xochi, moved to California in April 2002, they were struggling internet entrepreneurs without enough money to pay for their accommodation.

“We weren’t making any money at the time,” recalled Birch last week on a visit back to London. “That was financially our most difficult period. So we kicked my wife’s parents out of their bedroom and lived there for three months with our two kids.”

Four-and-a-half years later, the company that Michael and Xochi Birch went on to create — www.Bebo.com — is one of the hottest properties on the internet. In less than two years it has acquired more than 27m users and claims to have overtaken MySpace to become the leading social-networking website in the UK and Ireland.

Bebo still has only 15 full-time employees, including four in London, and as yet generates modest revenues from advertising. But its huge and growing audience of young users has prompted suggestions that the business is already worth hundreds of millions of pounds.

Sounds fanciful? It might have been last year, before News Corporation (ultimate owner of The Sunday Times) paid $580m (£310m) for the company behind MySpace. At the time, MySpace had 14m registered users. Today it has more than 100m and is increasingly seen as a powerful advertising medium. Last week, one Wall Street analyst suggested that, within a few years,

MySpace could be worth between $10 billion and $20 billion.

Bebo is about a year behind MySpace but seemingly growing every bit as fast. “It’s continuing to grow at a relatively linear rate,” says Birch.

The company recently launched Bebo Bands, which has attracted thousands of musicians to offer their music to the website’s users. A relaunch of the video-hosting feature, Bebo TV, has proved popular, and Birch is working on other ideas to spur “Beboers” to spend even more time on the site.

Rapid growth by word-of-mouth recommendation is the key to the social-networking phenomenon. “If I join and on average get 1.1 other people to sign up, then we’re going to have infinite growth,” says Birch, “whereas if I only get 0.9 of a person to sign up, then it’s going to decline and stop growing. We spent a long time doing experiments, finding out how you get that mechanism going.”

In May Birch accepted a $15m investment from Benchmark Capital to help the business grow more quickly but, “so far, we’ve not needed it”. The money remains on deposit.

Benchmark is an experienced, early-stage technology investor, and Birch says the relationship is working well.

“Benchmark’s interest is the same as ours,” he says. “It’s about building a real business. The way to do that isn’t trying to make as much money out of it as you can in the short term.

“If we stopped trying to grow we’d be very profitable. But we invest hundreds of thousands a month in new hardware to cope with future growth. We’re profitable and we reinvest all the profit into the business.”

Birch, 36, is almost dismissive of the need for Bebo to generate revenues at this stage. For the next two or three years, his priority is to establish the firm as one of the global leaders in social networking. The big challenge is in America, where Bebo is currently a distant third behind MySpace and Facebook, a college-based site.

“At the moment there’s a race for traffic,” says Birch. “Implementing a successful business model does not necessarily help in that goal. There are so many avenues that social networking can go down.”

Advertising, and search-advertising in particular, is only the most obvious possibility. Birch also believes that Bebo should be able to sell its users music, and has other ideas that he prefers to keep under wraps.

Softly spoken and laid-back, and with a very English sense of humour, Birch makes it sound easy — perhaps the inner confidence that comes from knowing you’re worth many tens of millions of pounds, at least on paper. Unsurprisingly, he is no longer dependent on his in-laws’ hospitality for his family’s accommodation.

“We’re building them a new house now so they’re getting paid back,” he says.

Bebo is the sixth business Birch and his wife have founded, along with Michael’s brother, Paul, since they committed themselves to the internet in 1999. The first three — Lemonlink, BabysittingCircle and FriendlyWills — were unsuccessful, but since then the Birch trio have enjoyed a series of successes that laid the foundation for Bebo.

Birch began his career in the unlikely setting of Zurich, the insurer — a move forced on him by the dismal jobs market at the time he graduated with a degree in physics from Imperial College, London.

His initial thought was that programming in insurance represented a combination of two of the most boring things imaginable. “I was correct about insurance. It’s pretty boring. I was just frustrated by the environment, because it’s very bureaucratic and not exactly pro-entrepreneurial. But I found out that I really liked the computing side of it.”

Birch stayed in insurance for six years, including a couple of years with Liverpool Victoria in Bournemouth, before becoming a freelance IT contractor.

He gave up work to concentrate on his own ventures just after Xochi, whom he had met in a bar while at Imperial, gave birth to their first child.

The rising property market enabled the Birches to remortgage their flat in Richmond, southwest London, and ride out their initial disappointments.

Their first success came with BirthdayAlarm.com, initially a simple birthday-alert service that evolved into an e-cards business.

By the time the Birches decided to act on a long-standing plan to move close to Xochi’s parents just outside San Francisco, BirthdayAlarm was still not generating much revenue.

“We were confident that BirthdayAlarm was going to do well because we could see the traffic ramping up,” says Birch. “It was this weird situation where we were really excited about our success and yet we had nothing to show for it.”

His confidence proved well placed. BirthdayAlarm did eventually take off, enabling Xochi’s parents to move back into their bedroom, and she and Michael to rent “a really terrible apartment somewhere”.

The success of BirthdayAlarm, which the Birch family still owns, helped provide the funding for the launch of Bebo. By late 2004, BirthdayAlarm was producing a profit of “hundreds of thousands of dollars a month”.

Perhaps the most crucial moment in Bebo’s pre-history was Birch’s reaction when he first saw Friendster, a pioneering social-networking site that launched in 2002.

“I remember thinking what an amazing concept this was,” says Birch. “I was just fascinated by it and immediately wanted to build a site similar to it. I had one look at it for about half an hour, and then set off coding. We went ‘live’ exactly 13 days after I first saw Friendster.”

Birch’s first attempt at a social networking site was called Ringo.com. Within a couple of days it had 30,000 members and was growing exponentially.

“It was really quite a stressful time,” remembers Birch. “There was myself and my wife in this 120 sq ft office in the suburbs of San Francisco, trying to cope with the amount of traffic we were getting.”

Overwhelmed by requests for customer support, and lacking the finance to support Ringo’s growth, Birch was ready to sell after just a few months (it is now a photo-sharing site that is part of Monster.com, the online jobs company). But the Ringo rollercoaster provided crucial lessons when he came to launch Bebo.

Birch says he is finding Bebo a much more relaxed and enjoyable experience. “It’s fun to run it. We are having a good time doing it. There’s a great sense of satisfaction with the community growing and people spending so much time on the website. There’s a lot of joy in it.”

That sense of joy is not significantly diminished by the constant media attention on the risk of sexual predators patrolling the site. Bebo has put in place a number of safety controls, including a button to file police reports on those acting suspiciously — a strong deterrent, Birch believes. He says that cyber-bullying is a far more widespread problem.

In the past few months Bebo has been named as an acquisition target for the media giant Viacom and other large companies. The stories, even the untrue ones, did Bebo no harm because the hefty price tags attached underlined the growth and potential of its business.

However, Birch is adamant that he has no interest in selling. “We used to follow conversations a bit more (when we received approaches). Now we pretty much just say ‘No’ immediately. I was more curious to begin with.

“We’re not looking to sell. I’ve spent all these years trying to get to this point. To sell out as soon as I get to it just seems a little bit silly.”

BirthdayAlarm is another matter. Birch says the e-cards business virtually runs itself, all the while producing a healthy monthly income for its owners.

“It’s possible that we will look to sell it,” says Birch. “We spend no time on it at all. It’s just a distraction, it just confuses people (about his commitment to Bebo).

“We might sell it and get some money in the bank, and remove any temptation to sell Bebo.”

Vital statistics
Born: July 7, 1970
School: Cheshunt, Hertfordshire
Universities: Imperial College, London
First job: computer programmer at Zurich insurance
Status: married to co-founder Xochi, with two children
Salary package: ‘Not a great deal — it’s a start-up mentality’
Homes: San Francisco and a flat in Richmond, London
Car: Range Rover
Favourite book: The Data Warehouse Toolkit, by Ralph Kimball
Favourite film: Sleuth
Favourite music: Pink Floyd
Last holiday: Hawaii in 2004

Working day

THE Bebo.com co-founder and chief executive gets up at 6.30am to get his children, aged five and seven, ready for school. After dropping them off, Michael Birch and co-founder wife Xochi reach their office at 8am.

“I try to spend half of my time at my desk programming,” he said. “I try to have as few meetings as possible — maybe one a day.”

These are most often with prospective commercial partners or equipment suppliers.
He takes half an hour for lunch, makes a few phone calls and spends a lot of time doing e-mails. Xochi, who is responsible for finance and customer service, tends to go home a little earlier, but Michael leaves about 7pm to see the kids for an hour before they go to bed.

He goes out three nights a week, to see colleagues at networking events or the launch of a website.

Downtime

LIKE many hard-working professionals in their thirties, Michael Birch says he tends to feel “a degree of guilt for not spending enough time with the kids”. Weekends therefore revolve around the children.

He and Xochi might take them to the zoo, or drive up to Lake Tahoe and stay in a hotel somewhere. “I have no hobbies whatever,” says Birch, though when he was younger he used to play a lot of chess.

On weekday evenings, when he’s not out socialising with industry colleagues, he usually just goes home and watches television or DVDs rented from Netflix, the online movie service. “It’s a pretty boring life,” he says.

Birch struggles to remember the last proper holiday he took with his family. He says he tends to combine work with trips back home to the UK: “Work is my hobby.”