Web Masters Episode #50: Gary Kremen


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Gary Kremen:

We were selling things, 1,000, $2,000. But when an order came in, it was good, especially in the beginning. So, if we got a $1,000 order, that would give us 10 days of runway or being able to eat during the weekend. And we started getting orders through email instead of purchase orders, kind of this connecting of Lotus notes in the mime protocol for attachments just kind of came out and people started implementing and hooking that up. So, we’d start getting purchase orders as attachments. It was a new technology. There wasn’t even hardly standards for that. So, one day we get this big purchase order, a thousand bucks and my partner would comes running in and he goes, “Hey, we just got a big purchase order.” and I go, “I see it. I see it, from HP.” And he goes, “Yeah.” He said, “Oh, I hope they buy more.”

And I’m looking at the purchase order, and it was from a woman. And you got to understand the gender balance of the internet or USENET and email. I bet it was 100 men to one woman probably like that, but it was starting to change. Like I say, Lotus notes and other technologies, people would hook gateways to go to the outside world. This was a 1992, 1993. I asked my partner, a guy named Ben Dubin, who later went to HBS and became a venture guy. I go, Well, do you think this woman’s cute?” He’s like, “What are you talking about?” I go, “Well, what if she sent a picture instead of a purchase order?” And he’s like, “Well, that’s crazy because there’s no easy way to get pictures.” And I had an intuition, “But what if it was like 900 numbers? What if we could tell people where the closest Kinko’s were?” because those were the only people at a scanner. So, I kind of put this idea together that, “Hey, maybe we could do an email-based dating service and people could attach pictures.”

Aaron Dinin:

Email-based dating. Well, that sounds crazy. It’s so much easier to open an app on your phone and swipe left or right. But that’s only because, in the early nineties, someone first had the idea to try online dating and they did it using email. And you just heard the man explain why, his name is Gary Kremen and he’s the founder of the granddaddy of all dating websites, Match.com. Are you ready to hear the story? Well, let’s get dialed in.

[INTRO]

Aaron Dinin:

Welcome to Web Masters. This is the podcast where some of the Internet’s most successful innovators share their stories in order to teach all of us how to be better entrepreneurs. I am your host, Aaron Dinin. I’m a serial entrepreneur and I teach in the innovation and entrepreneurship initiative at Duke University. You’ve have surely heard of the company we’re going to be discussing in this episode of Web Masters, it’s Match.com, arguably the Internet’s most famous dating website. But I think the story of how Match.com got started is going to surprise you. The company today looks almost nothing like the company that was launched more than 25 years ago. I can’t wait to tell you that story, but I got to wait because first I need to tell you about our sponsor.

Web Masters is being brought to you thanks to the generous support of Latona’s. Latona’s is a boutique mergers and acquisitions broker that helps people buy and sell cashflow positive internet businesses and other digital assets. That includes things like SAS apps, amazon FBAs, domain portfolios, content networks, Shopify stores, and yes, even dating websites. If you have a profitable internet business and you’re thinking of selling it, be sure you reach out to the team at Latona’s, their expert brokers can help you get it sold for a great price. Or, if you’re interested in buying an internet business, Latona’s can help you too. Just head on over to their website, latonas.com, where you’ll find listings for all the businesses they’ve currently got for sale. That website again is latonas.com, L-A-T-O-N-A-S.com.

Even if you’ve never used it, when you think of Match.com, surely you start to imagine a website full of dating profiles. That might be true now, but one of the incredible things about Match.com is that it existed before websites existed, at least for the general public. That’s because its founder, Gary Kremen, was someone who very early in his experiences with computers recognized the commercial opportunities of the internet well before the internet even allowed commercial enterprises.

Gary Kremen:

You know, first time I discovered computers was in high school where we actually had a PDPA made by digital electronic company deck something, a company lost in time, but probably one of the innovators around the time. The first IPMPCs and Commodore Pets came out, and I used all three of those. So, I learned both the personal computer side and the business side. And I would say, this is in the late seventies. And then, when I went to college, undergraduate Northwestern degree in electrical engineering and computer science, I used some of the very nascent, there wasn’t even a way to get outside, but email as connectivity systems.

Gary Kremen:

So, I always saw even back then there might be a commercial way to make money. When I graduated from Northwestern, I went to go work at a place called the Aerospace Corporation. Despite the name, it was a nonprofit kind of like MITRE or Rand or Sandia, and we were probably one of the first 100 nodes on ARPANET. So, you could do the primitive FTP. And that was the protocol for communications, FTP in real time and USENET. And I immediately saw commercial applications of both. So, that’s dating myself. If you want to talk early, that’s early.

Aaron Dinin:

I got to know, were you one of those people programming with punch cards?

Gary Kremen:

I did for a long time, yep. Format 26, format 29, the two different Hollerith cards you had, and Fortran and COBOL. So, I go back that long, but I’ve stayed current, Aaron.

Aaron Dinin:

I love hearing the stories about punch cards and about how you can tell whether or not your code executed properly by the length of the print out

Gary Kremen:

That’s right. And they charge you per page. But they got smarter, and if you were more than 10 pages, they’d cut you off. But I do remember those days using cybers and faxes, those were probably pretty good experience because with punch cards, you really did have to focus on debugging. It was no IDEs or that type of technology. But in any case, when I got, in 1985 to start using this nascent internet before.com and.net and dot.org, I immediately saw the commercial, people are starting to do social and commercial things. And it wasn’t just the science and engineering, which most people were using it for. So, when I went to Stanford Business School starting in 1987, I probably was one of the only five people of my 300 classmates who actually had anyone to email to. In fact, I like to joke, I did the first social network. I wish I had copies of it. I used to send out something called the Gary Kremen newsletter to all the people on my list. Things like mailing lists, were all new. Attachments didn’t even exist back then.

Aaron Dinin:

It sounds like you were entrepreneurial from a pretty early age. Where do you think that came from? Were your parents or a close family member entrepreneurial or was it kind of all de novo?

Gary Kremen:

All de novo. My parents were school teachers in Chicago public schools. In fact, they were very against entrepreneurship. Now that I’m a little older, I can see some of the negatives because there’s a bias. Everyone’s going to be like Mark Zuckerberg, but that’s an exceptional case. The average entrepreneur needs a whole bunch of swings before they even get on base, and most don’t even get there. But that’s not what you see in the media and the culture.

Aaron Dinin:

Out of curiosity, why do you think that is?

Gary Kremen:

I don’t think people realize that Babe Ruth had more strikeouts than anyone else had. There’s some kind of strange media or in the mind selection bias. Silicon valley here is just littered with people whose ventures didn’t work out, but that’s not the way you hear it because to be an entrepreneur is to have optimism, eternal optimism.

Aaron Dinin:

And you must have been one of those people, with starting Match.com. Was that your first attempt at a company?

Gary Kremen:

Oh no, not at all. In fact, even when I was working at my first job at Aerospace as an engineer, I just saw that I wanted a combined business. I actually took all the classes for the CPA at night, they were paying. And they kind of pushed me into software, cost estimation and software engineering and computer security.

So, I knew maybe from summer jobs that I wanted to run my own gig because I had difficulties working for other people. Working for the man was not for me and I never could manage up well. Across and down, fine. So, when I got out of business school, I wasn’t able to get a job like most people did in that year. And I’d be a “consultant” as a controller for a little bit. I was working at a early modem manufacturer called Telebit, they’re the first people that had a 14, four modem. And I was living here and I was very poor. People, split houses with their fellow classmates, and I did that too. And when my classmates left to go take high paying jobs at McKinsey or Goldman Sachs, since no one was giving me a job, I kicked all the MBAs out and I started putting people in my house, raising rents as an entrepreneur would do.

Aaron Dinin:

Well, I definitely appreciate the entrepreneurialness of it, but, of course, it wasn’t a company. What was your first company?

Gary Kremen:

One of my roommates worked at Sun Microsystems. We started a little business taking Sun equipment, and they were an early computer manufacturer, and putting in new memory and cleaning the machines up and reselling them on USENET. That was our first venture. And we made some money on that. We could buy a machine at an employee auction at Sun for $1,000 and maybe sell it for $5,000 bucks. And then, we came up with the idea, “Let’s take all these free programs on USENET, be sure they compile that and Sun’s and HP’s and IBM’s and sell them to people who didn’t have USENET access or even internet access.” You had to understand the time, what was going on. If anyone had email, it was people at research institutions. People were just starting to hook Lotus Notes up, maybe to the outside world, but they had it internally. So, I started the world’s first open source software company called Full Source Software. It’s in the computer museum here in Mountain View. For $99, you’d get 30 programming aids or something like that. And we sold hundreds of thousands of dollars of that.

Aaron Dinin:

Wow, really, the first open source software company? I never really thought about what that would have been. That’s a cool claim to fame. And so, what’d you do once you had that?

Gary Kremen:

What happened is, we took a couple of the programs and improved them, and we started another company called Los Altos Technologies, which was a Unix server side computer company. One of my first misses at billion dollar opportunities, I was number 14 on the firewall mailing list and really didn’t get it. I should’ve got that one, but I didn’t. But we took some of these programs, one was the first security assurance program or software engineer like doing checksums and seeing that no files changed in your operating system. And another was a password cracker to be sure your password’s good. Yet another opportunity to be McAfee or whatever that we didn’t go down that road. One of our programs, one kind of like Norton Erase, but a more sophisticated version of it for Unix, stayed in business for 20 years.

People in the military were buying it instead of smashing their disc drives with a hammer at the end of a mission, they would use this to declassify the disc and start over. So, it actually had a small amount of commercial success. We raised a small amount of money and they brought in a CEO. We didn’t see things eye-to-eye, but whatever. This is, 1991, 1992, so it’s living out here in very nascent Silicon valley where the culture was chip guys or chip people. Well, it was all male, very gendered chip guys, and there were just starting to be some smaller client server software companies, usually the database companies like Oracle and Sybase and Informix. So, a CEO was brought up and I became EVP for sales, marketing and business development. And I went out to go see other companies that redistribute our stuff. And at the same time, I was doing a lot of dating, and dating technology for the most part was alternative newspapers, 900 numbers, you put an ad on it.

Aaron Dinin:

This is the point at which Gary is starting to think about dating and dating technologies. And that’s what inspired him to ask the fateful question you heard at the beginning of the episode, after receiving a purchase order from a female.

Gary Kremen:

I asked my partner, “Well, do you think this woman’s cute?”

Aaron Dinin:

Okay. So, you think based on that story and based on what you probably already know about Match.com that Gary went on to build a dating company of some sort. And yeah, Match.com has certainly grown and evolved over the years, but the fundamental premise is surely the same as whatever Gary probably started with. It’s about helping people find dates using the internet, but that’s actually not the story. And that’s what makes the story of Match.com’s founding so interesting. You see, Gary’s mind quickly went from, “Hey, this internet thing could be great for finding dates.” to, “Hey, this internet thing could be great for connecting people who want to exchange something of value with other people.”

Gary Kremen:

So, I came up with the idea for profiles, all done through email, parsing through email. And I left that company, moved from Palo Alto to San Francisco, January 1st, 1994. 1993, I wrote the business plan, which is still up there on kremen.com. I put it up there for the second one for this idea of doing classified advertising online because I had this vision more than dating that maybe we should do jobs, maybe we should do autos because I spent so much time in the classified advertising, buying cars and dating, that I realized I want to see pictures. I want to hear someone’s voice. So, I left to go do that idea, started writing some patent applications, I’m a big believer in that kind of stuff. And did it credit card cash advance, and started a dating service, that simple.

Aaron Dinin:

As you heard, the first business plan Gary wrote was for online dating, but the second one and the one he eventually started pursuing, even as he built the online dating company was around a bigger vision of classified advertising that led him to create a company called Electric Classifieds, Inc. And Match.com was just one of the services using his online classifieds technologies. And why was he so sure that classified advertising online was the real opportunity? Well, I’ll let him explain.

Gary Kremen:

Willie Sutton was a famous bank robber, and they asked him why he robbed banks. He said, “That’s where the money is.” So, one of the things when I wrote the Match.com business plan, I realized that some of the wealthiest people at the time were people who owned media, newspapers. And I came across some statistic that most of the money was in, not subscriptions, but the classified ads in the back. And they had kind of local moats around them, entry barriers. And I said, “That’s where I’m going to go. I’m going to take away the chandler’s money and the renter’s money by going doing this online.”

Aaron Dinin:

Now, imagine teleporting yourself back to the early 1990s. The nascent web is hardly known outside a small community of people and nobody is really selling anything on it. So, if you have something to sell or a job you want to publicize, or you’re hoping to meet that special someone, how are you going to do it? You don’t have Craigslist or LinkedIn or Tinder. Instead, all that stuff happened in the classifieds sections of newspapers, and newspapers made tons of money from it. The worldwide web changed all of that, and Gary’s company. Electric Classifieds, Inc was at the forefront of that change.

Gary Kremen:

But eventually, I got some angel money. Then I raised money from venture, saw the web, put it all together and was growing two, three, 4% a day. Probably the first people to ever hook a payments gateway up through the web, but very early, around when the Wall Street Journal started charging for subscriptions online. And we invented cool things, like I said, dynamic webpages, responsive webpages, webpages that are different depending on the speed of your modem, depending on your IP address, depending on your user agent. You can imagine how much that’s used today, probably every single person on the planet uses that.

Aaron Dinin:

So, Match.com was one of the properties within the broader Electric Classifieds umbrella. It was an umbrella that also covered things like jobs.com and housing.com and cars.com and even sex.com, which would go on to become its own interesting story related to the legality surrounding digital asset ownership. Something that, by the way, wasn’t clearly defined in the early days of the web. And while Match got a lot of the publicity, Gary was trying to grow his user base across all the different verticals, using marketing strategies that really hadn’t even been invented yet.

Gary Kremen:

I think we were some of the earliest online marketers with all these businesses because we would post in USENET forums. I would get magazines and write down all the email addresses in Sun World and send people unsolicited commercial email, it wasn’t called spam back the. If it was valuable, people wouldn’t have it. I would break email lists with other little tiny companies. So, I developed an email list. I hate that term growth hacking, but it was early growth hacking, just interviewing customers. We went out to physical events in the nascent technology community in the early or mid 1990s in San Francisco, that’s what we did. And we got some articles written about us and things like that.

Gary Kremen:

It was a sexy story. I’m looking on my wall, I’m just going to walk over, an interesting article from Forbes dated July 3rd, 1995. And here’s one from the Chronicle about the same time, help wine and online publishers, people wanting to do classified advertising online. It was new. I went to go see every newspaper publisher in the world, and talk about people who missed the boat. I’ll never forget some of the crazy stories I have. “Oh, our brand is the best thing since sliced bread. No one is ever going to care about this internet thing.”

Aaron Dinin:

So, in the beginning, we’ve got Gary trying to sell his online classifieds technology to newspapers, but they didn’t think it was worth their time. They thought the internet was a fad and that their print-based classified businesses were way too much of a cash cow to mess with. Whoops. But still, Gary had trouble selling to those publishers in the short term, so he wanted to pursue a different strategy. He wanted to build users and customers for his own online classifieds websites including, of course, Match but he ran into a problem.

Gary Kremen:

That was my broader vision. Now, that was not the same as what other people, my investors said. We definitely had some big disagreements. What you’ve got to understand is, people then didn’t invest in content businesses. That was something no one ever heard of. They invested in technology. Even Yahoo, it was technology. So, the investors didn’t see the value of content, they saw the value of technology and we developed all this really cool technology. And we had disagreements on what’s the value? They thought we should be investing in technology. I thought we should be investing in customer acquisition and marketing. And then, Match caused so much friction with them because their venture people who came from traditional, everyone was a traditional fund back then, and they had limited partners who were pension funds, and the idea that people wouldn’t be wanting to use a dating service to get married or LGBTQ dating, that was something they were dead set against. And we’d have vision arguments, big time, over it.

Aaron Dinin:

So wait, having Match.com as one of the classified services being supported by your technology was a problem for your investors?

Gary Kremen:

I’m just trying to give it from investor’s point of view. They’re like, “It’s not even about dating in the classifieds. It’s about, we can’t have that dating content. If our pension fund or the endowment of Stanford University found out that there was gay dating on the service, we wouldn’t be able to raise more money and we’d be the laughing stock of Silicon valley.”

Aaron Dinin:

Well, it’s good to know you were ultimately vindicated, I guess.

Gary Kremen:

Yeah. They all lost all their investment because they didn’t listen, because I’m the only one who made any money on the whole thing, but whatever.

Aaron Dinin:

So what happened? How did we get from that classifieds companies that your investors hated to the Match.com we have now?

Gary Kremen:

What happened is, they were so embarrassed by the whole thing, they sold it for seven million dollars.

Aaron Dinin:

Only seven million, that’s crazy.

Gary Kremen:

Yeah, but I’m trying to look at it as favorably to them as a new area, seven million dollars is a lot and it supported technology that would help bring newspaper classifieds online, that’s their thinking. Now, I knew that was ridiculous because newspapers were slow as molasses in January and they would never implement stuff. They couldn’t even get their typesetting machines working, let alone take their classifieds out of their antiquated databases, even if they had that. And I thought that was horrible idea. That was the big fight we had. I thought it was stupid. I thought we had to compete with them. And I thought, that’s not what companies do. They sell technology to other companies. They do enterprise sales. So, they invested tons of money into this idea. And, of course, it failed. And the good part of the story is, it failed. And a couple of years later, I went around and bought all the debt and foreclosed on the patents and sold them and made a huge return.

Aaron Dinin:

Gary just covered a lot of ground in a relatively short explanation. So, let me help unpack it a bit. By 1998, Gary had left Electric Classifieds, Inc., though he remained on the board. And his investors sold Match.com to a company called Ascendant. Ascendant would soon turn around and sell Match to another company, IAC, in 1999 for a nice little profit.

Gary Kremen:

They sold this business unit. Think of it as a business unit sale. And they gave them a license to the IP, the people who bought Ascendant who resold it for $50 million in eight months.

Aaron Dinin:

That’s the Match.com we all know today, but all the other IP from Electric Classifieds wasn’t sold, and it was some really valuable IP. Remember, Gary talked about patenting things like dynamic and responsive websites, which are technologies pretty much every other major website would start using within a few years. Instead, all the IP got wrapped into a newly structured company that ultimately fell apart. And when it did, Gary was there to pick up the pieces,

Gary Kremen:

The technology and the patents were still in the company, which they renamed Instant Objects, and that thing eventually went out of business. And I went and bought all the debt and the foreclosure sale to get at these assets that even included bank accounts they forgot.

Aaron Dinin:

Gary turned around and eventually sold those patents, making a nice little profit in the process. And that’s actually how Gary Kremen, founder of Match.com became a successful entrepreneur. It wasn’t Match.com that helped him achieve entrepreneurial success, it was by selling the technology he’d built as part of this digital classified service. Though technically, I suppose, Match.com still played a role. It was, after all, Match.com that caused his investors so many problems, which ultimately allowed Gary to buy up the other valuable IP and then sell it. Still, like I told you in the beginning, the story of creating Match.com, isn’t exactly the usual founder story we hear on Web Masters, and that’s probably because Gary Kremen wasn’t well, the usual type of entrepreneur. By that, I mean he wasn’t someone who devoted himself to executing his vision. Instead, he took a different approach to entrepreneurship.

Gary Kremen:

I have a short attention span. So, I jump around. The good news is, I’ve jumped to some great fields, but unfortunately I’m usually too early. You know how it is, the pioneers get arrows in the back and the settlers get the land. I’ve gotten better, but there’s only been a couple of times where I’ve gotten the land. Usually, I get the arrows in the back.

Aaron Dinin:

Well, as long as they’re just figurative arrows, I suppose that’s not a bad thing. It clearly worked out for Gary. I’d like to thank him for taking the time to share his story and the story of founding Match.com with all of us. If you’d like to see what he’s up to these days, you can follow him on Twitter, he’s at G Kremen. And boy, has he done a lot since is building Electric Classifieds, Inc. that includes some impressive work in clean energy, and he’s even now a public servant. In 2014, he was elected to the Santa Clara Valley water district board of directors. And he’s passionate about helping Californians deal with climate change and the region’s increasingly more urgent water shortages. That about wraps up this episode of Web Masters. If you enjoyed it, I hope you’ll consider taking a few moments to leave a great review on your favorite podcasting app and share it with some friends.

If you’ve got any questions, thoughts or feedback on the episode, you can reach us on Twitter. We are @WebMastersPod. I’m on Twitter too @AaronDinin. That’s A-A-R-O-N-D-I-N-I-N. And, as always, don’t forget, you can find tons more content from me about startups and entrepreneurship over on my website, it’s aarondinin.com. Before I go, I need to thank our audio engineer, Ryan Higgs for his help pulling together this episode and thanks to our sponsor, Latona’s, for all their support. Don’t forget, if you’re interested in buying or selling an internet business, be sure to check out the latonas.com. One final thanks to all of you for listening. If you’re not already, be sure you’re subscribed, so you get the next episode as soon as it’s released, which is happening very soon. For now though, it’s time for me to sign off.

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