Tuesday, June 10, 2003

Gay Web site pays off

By Lisa Leff
The Associated Press

SAN FRANCISCO - At the height of the dot-com boom, Lowell Selvin ran an Internet company with a Web site boasting 2.5 million registered users - and audience surveys showed it was both trendsetting and unusually loyal.

Yet as often as not, Selvin came away empty-handed in meetings with potential investors. Many venture capitalists just weren't ready to stake money on Gay.com.

"We got calls from analysts and reviewers saying, 'Your metrics are incredible, but there were one or two partners in the room who were fearful, homophobic or whatever and made the decision not to invest,'" he recalled.

Four years later, successor firm PlanetOut Partners has grown to four gay- and lesbian-oriented sites and just posted its first profitable quarter. With backing from J.P. Morgan, Flatiron Partners and America Online, as well as advertising from dozens of Fortune 500 companies, the company dominates its niche in a way any high-tech entrepreneur would envy.

Still small by corporate standards - last year, it had revenues of $14 million, with first-quarter earnings of $103,000, equal to what Wal-Mart makes every seven minutes - PlanetOut's success is about more than dollars, backers say.

It has created a business both gay enough for San Francisco and buttoned-down enough for Wall Street.

"These folks at PlanetOut didn't get into this business to become overnight millionaires," said Jerry Colonna, a J.P. Morgan partner who sits on PlanetOut's board of directors and was its first major investor.

"They did it because of a deep and abiding passion for creating a successful gay-owned business - and proving that being gay-owned doesn't necessarily mean not successful."

Based in San Francisco's financial district, in corporate digs that once housed The Gap's online division, PlanetOut Partners is the result of Gay.com's 1999 acquisition of competitor PlanetOut.com.

Today, both sites still have their own personalities - Gay.com is the saucy "Queer As Folk" to PlanetOut's more sentimental "Will and Grace" - but offer a similar mix of news, online matchmaking, health and financial advice.

Thanks to the acquisitions of OutandAbout.com and Kleptomaniac.com, the sites also offer information about gay-friendly travel destinations and merchandise such as muscle T-shirts, condoms and DVDs.

The company owes its status partly to the fact that gays and lesbians tend to be particularly active Internet users and more comfortable than heterosexuals with shopping and dating online.

"The draw for me was that it was a way to get 'out' in the community without really risking anything," said Suzanne Armstrong, 33, a PlanetOut.com member from the Canadian city of Calgary who uses the site to meet other women and to get the latest gay news.

The company's two principal sites have 6.9 million registered members, numbers Selvin says make PlanetOut the world's largest media company serving the gay and lesbian market.

The numbers apparently haven't been lost on Planet Out's advertisers, which include major corporations including Sears, Nieman Marcus, American Airlines and Visa.

"The fact is they have brought together more people from the community than any other medium to date has," said Mike Wilke, executive director of Commercial Closet Association, a group that monitors gay-oriented advertising.

The three largest gay magazines, The Advocate, Out and Girlfriends, have combined circulation of about 300,000.

The popularity of its dating services helped shield PlanetOut when advertisers slashed their spending, something that spelled death for many Internet startups.

Today, 60 percent of its revenue comes from a subscription-based personals service, launched two years ago, that allows prospective daters to check out each other's profiles and chat.

With revenues projected to hit $24 million this year and expenses holding steady, Selvin is deciding whether it's time to take PlanetOut public.

He says it's been great bringing the company into the black, but even more gratifying when conferences seek him out as an expert on online business, instead of CEO of a gay-owned and gay-led business.

Sometimes, he runs into representatives of venture capital firms that decided not to invest in Gay.com early on.

He smiles politely, but feels vindicated when they tell him, "Out of all our possible portfolio companies, I wish we had invested in you."

5th and Race to be built
5/3 Bancorp to take write-off
Taiwan consults Chabot
Tristate Summary
Morning Memo: Hot tips & news to start your business day

Gay Web site pays off
Harry Potter hype in high gear
Britain not ready for Euro
Business Digest