Social networking service Tagged, Inc. announced it has acquired the social game network hi5 today, doubling Tagged’s monthly active users to 20 million. The combination will also increase the total number of registered users to 330 million, up from 100 million.

According to The WSJ’s report, the deal’s terms were not disclosed, but include the hi5 website and user base.

Hi5 used to be among the top three social networks in 2008, behind MySpace and Facebook, but suffered as Facebook began to move into international markets. Since then, hi5 has tried to remain competitive by reinventing itself as a social gaming company. In February of 2010, it acquired the social game developer Big Six, whose platform was to become a part of the hi5 network. Earlier in the year, the company suffered from layoffs and also hired a new CEO, Bill Gossman.

With the focus on gaming, hi5 closed an additional round of funding in July 2010, raising $14 million. The round, led by Crosslink Capital, brought the social network’s funding to over $34 million. It also appeared to include the $3 million in debt funding raised from Mohr Davidow in April 2010.

Sadly, it was all for naught. By September, the company confirmed “significant layoffs” where 29 people (19 FT) were let go.

Tagged, meanwhile, has been growing. In January, it doubled staff and gave out raises, acquired social networking client Digsby in the spring, and, more recently, acquired the machine learning company Topicmarks.

Tagged has a small U.S. presence, with about 30% of its user base located here. But the network is popular in Southeast Asia, South America as well as in some European countries like Spain, Portugal and Romania. Only 10% of its user base overlaps with hi5, which is what made the deal appealing. Post-acquisition, Tagged will leave hi5′s website up and running, allowing users to enter the Tagged site through hi5′s domain.

Tagged’s revenue was $33 million in 2010, and CEO Greg Tseng told the WSJ he expects it to be between $43 million and $45 million in 2011. Unlike Facebook, which is focused on connecting people who know each other, San Francisco-based Tagged is designed to be a network for meeting new people through games, gifts, browsing features and more.

Tagged CEO Greg Tseng says that they intend to keep the Digsby software as a standalone product, and also incorporate features into Tagged over time. Says Tseng: “They have expertise and technology in real-time communications which we want to use to push into instant messaging, group chat, video chat, etc. IM is our most requested feature on Tagged.”

Digsby has 3 million registered users today (Tagged has over 100 million), and the company has raised $500,000 in funding.

If you’re unfamiliar with Digsby, there’s a good overview video here showing how the product works. It allows users to interact with social networks, webmail and instant messaging services. Websites can also integrate Digsby into their sites.

She’s joining Tagged, a social network that has somehow survived, and even thrived, in a Facebook world. Her first day at Tagged as Chief Customer Officer is on Monday morning.

Part of her job will be what CEO Greg Tseng is calling “onshoring” of a bunch of customer service jobs. Fifty customer service reps working with Tagged in India as contractors will be let go, and the company will be replacing them with new full time employee hires in San Francisco.

Tagged, with more than 100 million users, is on track to meet their $50 million revenue goal this calendar year, and are currently at a $40 million run rate, says Tseng. They have 65 full time employees, and will be at 100 by year end (not including the new customer service reps).

So it’s no surprise they let half their staff go, some 500 people, in early January.

Another, smaller, social network has apparently found a say to be relevant in a Facebook world. San Francisco based Tagged logged revenues of over $30 million in 2010 and are profitable with a staff of 50. We reported on that in late 2010 when I interviewed founder Greg Tseng. They’ve been profitable for the last three years.

And now they’re hiring. In an email to Tagged staff that we’ve obtained, Tseng gave an across the board 10% raise to every full time employee. And he let them know that they intend to double staff from 50 to 100 employees.

How are they doing it? They’re focusing on something Facebook has ignored for the last several years – letting users meet other users on the site. Facebook wants to mirror your real world social graph and doesn’t provide many tools to meet new people. Tagged is all about that, something we discussed extensively in our interview last year.

The email is below.

Dear team,

As announced at today’s team meeting, we have delivered another record year in 2010, increasing revenue to over $30 million and completing our third straight year of profitability!

Who made this happen? WE ALL DID.

So, I am delighted that these results allow me to announce that Tagged will be awarding a 10% raise — across to the board — to every full-time employee effective January 1, 2011. Congratulations!

When the company does well, we all do well, so this is a well-earned reward for everyone. It is also in anticipation of big 2011 plans which will require all of us to contribute 110%.

This year, we aim to increase revenue to over $50 million, double our team from 50 to 100 full-time employees, and have our most productive year ever in product development. These are all important steps toward achieving our mission of enabling anyone to meet and socialize with new people.

I hope you are as excited as I am about 2011 and congratulations again on a record 2010.

Best,
Greg

In September, I gave a candid update on Tagged in a video interview with Michael Arrington, discussing how we’d launched one of the original social networks in 2004 and competed for three years but did not win. How in 2007 we made the decision to differentiate by pivoting to social discovery, and how since then we’ve built a great product for meeting new people, become a profitable business and now operate a leading site for discovering new relationships.

Since September, many people have asked for a more detailed insider’s look at how a company like ours was able to pivot. Here it is.

First, some context. We’re not at all unique. Many successful startups go through some form of pivot, changing their direction when their first idea was not successful. PayPal was beaming money between Palm Pilots. YouTube was a video dating site. Twitter was group SMS, which came out of a struggling Odeo. Pandora started as a B2B music recommendation service. Groupon started as The Point, serving collective political action. The list goes on.

Of course, there are some notable exceptions, such as Amazon, eBay, LinkedIn, Facebook and Yelp, which brings up an important distinction between pivots and merely expanding a core business: Amazon going from books to other categories and Facebook going from college students to open registration. Tagged also first attempted an expansion and then a pivot.

The Tagged Story

I have always been interested in how people connect online—BBS’s, USENET, SixDegrees, eGroups, chat rooms, forums, and other methods—so I was extremely compelled when I first saw Friendster in January 2003. My best friend, Johann Schleier-Smith and I were running a different company at the time. However, we were so drawn that we decided to help start hi5.com as an international social networking site and co-found Tagged for U.S. teens. Facebook had started in February 2004 just for Harvard (I have user id 3607) and U.S. colleges, and MySpace had launched in September 2003. We started Tagged in October 2004 and used word of mouth and viral marketing to quickly attract about 10 percent of the 25 million U.S. teens.

But we were late. By July 2005, nine months after our launch, MySpace had already been sold to News Corp. and kept growing. Facebook had entered the market with its own high school product. By 2006, we were not winning the U.S. teen market, and in October we decided to expand globally and to ages 13 and up—just as Facebook made a similar move. This expanded our market from about 25 million to 1 billion people online—and launched us into the social networking battle with Facebook, MySpace, Bebo, hi5, Friendster, Orkut and others.

We got lift in 2007, registering more users than any other site at one point, but the engagement wasn’t strong. A battle for new features was waged, and Facebook launched the brilliant News Feed. Bebo and hi5 followed with their own feeds, and all three sites saw strong engagement gains. Our feed, called What’s New, produced no gain whatsoever.

By late 2007, our traffic was flat while others were growing. We weren’t in the top 5 social networks and faced being pushed out of the top 10. We had to acknowledge we’d lost the particular social networking battle we were fighting. We had to rethink and find a different path.

We took a step back and conducted a series of user polls and surveys. We also dug deep into our own stats to find answers to fundamental questions: Who were our users? What were they doing on Tagged? What was Tagged to them? The results were astounding:

• What is your main social site?
  • 49.2% Tagged
  • 36.8% MySpace
  • 4.7% Facebook
  • 2.3% Black Planet
  • 1.6% Bebo
  • 1.2% hi5
  • 4.3% Other
• Why do you use Tagged?
  • 51.2% to meet new people online
  • 24.5% to have something to do
  • 11.4% to keep up with online friends
  • 8.2% to keep up with real-life friends
  • 4.7% to express myself
• Who are your friends on Tagged?
  • 75.2% people I met on Tagged
  • 24.8% people I know in real life

This was an “ah ha” moment for us! People weren’t using our site to stay in touch with their friends. They were using it to meet new people. Tagged isn’t social networking, it is social discovery.

How did this happen? Perhaps because our Browse and Online Now features were easier to use than searching the site, and we didn’t have an established “network” concept. Perhaps because we had display names, not real names, and we showed ages by default. On Facebook, real names are used but not ages, and you only search for people you may already know. Facebook also goes to great lengths to prevent online-formed relationships that may “pollute” the social graph. So it may just be that one set of features encouraged staying in touch with existing friends, while the other encouraged meeting new friends.

In late 2007, with Facebook having been set at a $15 billion valuation, and with MySpace, hi5 and Bebo all continuing to grow, we executed our pivot, and we’ve spent the last three years building a clearly differentiated business.

We improved the UI and performance of our Browse and Search. We built and optimized a dating feature called Meet Me. We built a Groups feature for common interests. We built social games, the most popular is Pets, which is all about meeting people. We even re-architected our What’s New feed to focus on meeting people by adding an “Everyone” tab, where you can see the updates and photos from anyone on Tagged, subject to your filters. All these features are backed by powerful recommendation algorithms. On Facebook you just search an address book or otherwise find people you already know. On Tagged, we have to decide which 100 of 100 million users to recommend to you—it’s a different and much harder problem.

This pivot to social discovery has led to tremendous growth. Today we have over 100 million registered users with more than 20 million monthly unique visitors. Collectively, they form over 100 million new connections and consume over 5 billion pageviews per month. We achieved full-year profitability in 2008, did over $30 million in 2010 revenue, and we are targeting over $50 million for 2011. Even though we’re in a different space, Hitwise ranked us as the third largest social network in the U.S. behind Facebook and MySpace. In Q1 of 2010, comScore ranked us as a top 10 display advertising publisher in the U.S. And in October 2010, we made the Inc. 500 list of fastest growing companies.

This growth was only possible by the pivot and thank goodness we did it. Back in 2007 social networking was still up for grabs but today Facebook is the undisputed king, and most others that kept fighting have suffered declines or have died off. Meanwhile, meeting and socializing with new people remains a core human need that’s been sorely neglected online so I’m very excited by our new direction. Our mission is “to enable anyone to meet and socialize with new people” and our team works hard every day towards achieving it. Want to join us?

Postscript

People have asked me how I feel about not winning social networking now that Facebook is serving over 500 million active users and is the largest site in the world by usage. My reply is this:

I first met Zuck, Dustin, and Parker in 2004, and it has been awesome watching a Harvard dorm room business (hey I once started one) become a “once in a decade” company up there with Microsoft and Google. I have read about those, but this one I actually got to watch. Facebook never had to pivot, and while there is always some element of luck, from what I can tell, Facebook’s success is almost all due to superior execution, not resting on laurels, and the willingness to continually push the envelope toward achieving their mission. Their success is 100 percent deserved.

I certainly wish Tagged had become the king of social networking, but at least we played a hand (or two, if you include hi5). And only by playing did we find the winning direction for Tagged that I’m very passionate about. Still, if we ever see a pivot that could lead to the next “once in a decade” company, then guess what? We’ll pivot again.

Heard of Tagged? Back in 2005 it was a teenager-only social network, catering primarily to U.S. high school students as Facebook charged through the college crowds. By 2007 they were profitable and worth over $100 million.

Just one problem though. Facebook eventually started letting high school students in, and then everyone else. Tagged responded by opening up to everyone, too. But by mid 2007, CEO Greg Tseng tells me, Tagged knew it was in trouble.

“Facebook beat us,” he said. “We were just another social network…but not in the top five.”

So Tseng and team decided to reach out to users and ask them what they wanted. “The most important thing we learned was that people were using our site to meet new people.”

Bingo! Facebook isn’t big on helping you meet new people. You can search by name, and you can click on friends of friends, but you can’t just find new people you aren’t already connected to via someone else. At Tagged, people were using filtered search to meet people. For sharing activities, dating, or whatever.

“We focused on being the best place to meet new people for any social reason,” Tseng tells me.

Dating is obviously a big part of this. Facebook doesn’t have dating profiles. And there’s a stigma associated with Match.com and other dating sites, at least for some people. But on Tagged people can meet and date or engage in other activities. “Going to Tagged is like going to a bar with friends, and you will probably meet new people. Going to Match.com is like going to a singles event, and there’s a stigma with that.”

Users definitely agree. In 2007 Tagged had 20 million active users. Today they’ve hit 100 million. 1/3 to 1/4 visit the site each month and the site has 5 billion monthly page views.

And they’re spending money. Virtual gifts. VIP accounts that let you do things like see who’s viewing your profile for $20/month. Revenue has grown to $30+ million, and Inc. named them one of the 500 fastest growing companies two weeks ago. 2011 revenue should be $50+ million, says Tseng.

In a ruling issued earlier this week, a U.S. District Court Judge in the northern district of California found Vogeler guilty of sending messages to 6,079 Tagged users and assessed damages of $25 per violation for a total of $151,975. Court also ordered Vogeler to pay Tagged $50,000 in attorneys’ fees and to cease sending commercial emails through Tagged.com.

More information is expected to be shared on the Tagged blog soon.
Update: blog post is up.

Tagged, which has raised close to $14 million in venture capital to date, claims over 80 million registered users worldwide.

Ironically, the social networking company has itself been the subject of numerous customer complaints for sending deceptive bulk mail since its inception in 2004, and is regarded as a phishing and spamming site by some consumer anti-fraud advocates.

In November 2009, Tagged settled a court case with Texas and the New York Attorney General over its practices, coughing up $750,000 in penalties. As part of the settlement, Tagged has adopted privacy reforms and altered its invitation processes.

Tagged co-founder and CEO Greg Tseng was previously co-founder and CEO of Internet startup incubator Jumpstart Technologies, which in March 2006 was fined $900,000 for alleged violations of the CAN-SPAM Act, then the largest ever penalty for illegal spam.

The irony is strong with this one.

Read more on MediaPost.

On the spam issue: Tagged has always been aggressive about “encouraging” users to add their address book and invite new users. It’s sadly a proven way to get lots of new users, as Plaxo showed to everyone’s dismay earlier this decade by turning invitation spam into an art form. Back in 2007 I noted that Tagged was very aggressive with address book imports: “Tagged is also very aggressive with signing up new users. At registration users are strongly encouraged to invite their entire address book as friends. It’s a highly viral, albeit controversial, way to quickly add lots of new users.”

The fact is though that this is largely standard practice now. Facebook, Microsoft, MySpace, Google, and everyone else encourages users to sign in to their email accounts and invite everyone they know to try out their services.

Tagged definitely went overboard this time, forcing email recipients to open an account just to see pictures. But CEO Greg Tseng told me today they shut it down almost immediately (after a few days) based on user complaints.

They definitely deserve a slap on the wrist. But the picture peHUB paints, wtih fleeing board members distancing themselves from the company:

In the meantime, the company’s investors aren’t saying much, either, and some appear already to have distanced themselves from the startup. Former PayPal CEO Peter Thiel, Scott Banister, who cofounded IronPort Systems, and LinkedIn founder and CEO Reid Hoffman were among other high-profile angels who gave Tagged $1.5 milllion back in 2005. All three were on the board at one point. Hoffman, who hasn’t returned a request for comment, is the only angel who has kept his seat.

They added “What anyone is still doing on the board of this company mystifies me, honestly.”

Here’s the story of Tagged as Tseng sees it: Peter Thiel was never on the Tagged board of directors because of the conflict with his Facebook board seat. Scott Banister left to focus on his startup, Zivity. And Reid Hoffman, as the article noted, remains on the Tagged board.

Tagged has less than 40 employees and has been profitable for more than two years. They’ve raised just $13.5 million in capital and have revenue in the $10 million – $20 million range.

And the site is growing. Comscore says nearly 32 million people visited Tagged in April 2009, up from 14 million a year ago. And they’re not just hitting the site and bailing. Those visitors racked up over 5 billion page views in April 2009, up from less than a billion/month a year ago (chart below).

Clearly, they aren’t dead. Here’s hoping they keep the spam down to reasonable levels in line with competitors. But in the meantime, this small social network isn’t anywhere near the deadpool.

Update: Tseng apologizes for the email spam on the Tagged blog, and links to this document showing exactly how the process worked. Points for transparency.

http://viewer.docstoc.com/
Tagged_sign-up_process –

We’ve now remodeled social network valuations based on current user numbers and Facebook’s most recent $10 billion valuation. The results are dramatically different.

Based on the original year-old model, if Facebook was worth $15 billion (their then-current valuation), MySpace, with far more U.S. users, was worth nearly $20 billion:

Our model takes Comscore data for available countries and regions. We’ve graphed each of 26 well known social networks with the data we have been able to collect. We’ve then calculated the average advertising spend (estimated by PriceWaterhouseCoopers in a recent report) for each person online in each of those countries. For example, in the U.S., the total 2008 estimated Internet advertising spend is $25.2 billion. We’ve divided that by the number of people online in the U.S. according to Comscore (191 million), to get an average Internet spend per person of $132. View the raw data and calculations here.

The U.S., by the way, is only the 4th most valuable market per Internet user, trailing The UK ($213), Australia ($148) and Denmark ($144).

We’ve then multiplied the average Internet spend per user in each market with the number of unique users each social network has in that market, essentially creating a “weighted average” based on the advertising dollars chasing users. If a social network has more users in the U.S., Japan, the UK, Germany, Australia, and other bigger advertising networks, they will have a higher weighted average valuation.

We believe this model is an effective way to rank various competing social networks. It bumps down networks like Orkut and Friendster who have tens of millions of users in markets with very little advertising spend, and bumps up networks with lots of users in higher value markets.

Based on this model, MySpace is by far the most valuable social network. Second place Facebook has just 75% of the value of MySpace (even though it now has more users), followed by Bebo (26% of MySpace value), Hi5 and Amebio. LinkedIn comes in at no. 11, at 6% of MySpace’s value.

The new model takes into account the dramatic rise of Facebook usage over the last year, the massive recent decline in MySpace usage, and less dramatic changes in the other social networks. We’ve also modeled out the various valuations with the old Bebo ($850 million) and LinkedIn ($1 billion) valuations as pivot points. We’ve also added Twitter to the list just for kicks.

The bottom line: If Facebook is worth $10 billion today, MySpace is worth just $6.5 billion. Bebo is worth $1.8 billion, Twitter is worth $1.7 billion and LinkedIn is worth $0.8 billion. Facebook also accounts for 37% of all social networking value points in our model. Another way of saying this: If Facebook is worth $10 billion, the value of the entire social networking industry is $27.1 billion.

Lots of charts and graphs below. The full model is here if you want to look at all the data (I recommend zooming unless you have super vision). Thanks to TechCrunch intern Dan Romero for running the new model.

What were the top social media sites of 2008? ComScore came out with its worldwide traffic stats for November a few days ago (so these don’t include December). They are a mix of social networks and blogging platforms. Blogger, the orange line in the chart above, still rules the roost with an estimated 222 million unique worldwide visitors in November (up 44 percent from November, 2007). Facebook, the blue line, is on pace to pass it soon with 200 million unique visitors (up 116 percent). (Note, though, that this is more than the 140 million active users Facebook itself reports—go figure). MySpace is pretty steady at 126 million uniques. WordPress is a close fourth and gaining with 114 million (up 68 percent). And Windows Live Spaces is down 22 percent to 87 million uniques.

ComScore keeps a list of what it calls “social networking” sites, but these include blogging platforms and other social media sites as well. While the audience for blogs is still showing healthy growth overall, Facebook stands out as the social gorilla taking share from not only other social networks but blogs and other social media as well.

Below are the top 20 sites on comScore’s social networking list. It is really more of a social media site list, which is what I’m renaming it for this post. It is not definitive, but it gives a good lay of the land. (Here is a similar ranking from 2007). Note on this list the stubborn persistence of Yahoo’s Geocities at No. 6, the rise of Yahoo’s Flickr at No. 7, Six Apart at No. 10, and the presences of Chinese sites like Baidu Space and 56.com. The real surprise, though, is document-sharing site Scribd at No. 16, with nearly 24 million worldwide uniques.

Top Social Media Sites (ranked by unique worldwide visitors November, 2008; comScore)

1. Blogger (222 million)
2. Facebook (200 million)
3. MySpace (126 million)
4. WordPress (114 million)
5. Windows Live Spaces (87 million)
6. Yahoo Geocities (69 million)
7. Flickr (64 million)
8. hi5 (58 million)
9. Orkut (46 million)
10. Six Apart (46 million)
11. Baidu Space (40 million)
12. Friendster (31 million)
13. 56.com (29 million)
14. Webs.com (24 million)
15. Bebo (24 million)
16. Scribd (23 million)
17. Lycos Tripod (23 million)
18. Tagged (22 million)
19. imeem (22 million)
20. Netlog (21 million)

Here’s a screenshot of the actual data (as you can see, I rounded above):

It’s time to start comparing the big global social networks on something other than unique visitors and page views. I believe an effective way to value a particular user is based on the average Internet advertising spend per person in the country they live in. The higher the spend, the more value the social network can get out of the user by serving them advertising and other products. That means that, for now, users in a handful of key countries are worth far more in terms of revenue potential than those in the rest of the world.

We’ve begun to build out a model that looks at social network usage by country/region and compares that to available data on total Internet advertising spend in each of those countries. The model is then able to turn an apples-to-oranges comparison into an apples-to-apples comparison. The early results are surprising.

The ultimate financial value of any asset is, ultimately, what the market will pay for it. We have only a few data points to help us: Facebook, Bebo and LinkedIn are worth $15 billion, $850 million and $1 billion, respectively, based on relatively recent valuations (although only Bebo was actually sold completely; Facebook and LinkedIn raised investments at those valuations). The last valuation of MySpace was just $580 million, back in 2005 when it was acquired by News Corp.

Which valuation is most “correct?” It’s hard to say based on the data that’s been available to date, which is mostly just aggregate page view and unique visitor numbers from Comscore and other services. Based on worldwide unique visitors, for example, Facebook recently overtook MySpace to become the “largest” social network.

According to raw worldwide user number, the biggest social networks are Facebook, Myspace, Hi5, Friendster, Orkut and Bebo, in that order. But when you apply the model that we’ve created below, which takes into account where users live, the rankings change substantially. MySpace is by far the most valuable social network based on available data. A competitor like Orkut is worth only 1/20th of MySpace, even though it has nearly 1/4 the number of users.

Properly Ranking Social Networks

Our model takes Comscore data for available countries and regions. We’ve graphed each of 26 well known social networks with the data we have been able to collect. We’ve then calculated the average advertising spend (estimated by PriceWaterhouseCoopers in a recent report) for each person online in each of those countries. For example, in the U.S., the total 2008 estimated Internet advertising spend is $25.2 billion. We’ve divided that by the number of people online in the U.S. according to Comscore (191 million), to get an average Internet spend per person of $132. View the raw data and calculations here.

The U.S., by the way, is only the 4th most valuable market per Internet user, trailing The UK ($213), Australia ($148) and Denmark ($144).

We’ve then multiplied the average Internet spend per user in each market with the number of unique users each social network has in that market, essentially creating a “weighted average” based on the advertising dollars chasing users. If a social network has more users in the U.S., Japan, the UK, Germany, Australia, and other bigger advertising networks, they will have a higher weighted average valuation.

We believe this model is an effective way to rank various competing social networks. It bumps down networks like Orkut and Friendster who have tens of millions of users in markets with very little advertising spend, and bumps up networks with lots of users in higher value markets.

Based on this model, MySpace is by far the most valuable social network. Second place Facebook has just 75% of the value of MySpace (even though it now has more users), followed by Bebo (26% of MySpace value), Hi5 and Amebio. LinkedIn comes in at no. 11, at 6% of MySpace’s value.

Valuation Ranges

The real-world revenue numbers being reported for the big networks supports this approach to valuation and shows a direct tie between monetization efforts and where a network’s users are. MySpace is estimated to have generated $755 million in revenue over the last year. The (now) larger Facebook, with a far higher percentage of users in less lucrative markets, will generate just $255 million this year:

EMarketer estimates that MySpace will post $755 million in revenue in the fiscal year ending June 30. MySpace would not comment on the estimate. About a third of the revenue is expected to come from the Google ad pact. For the year, Facebook is estimated to earn $265 million in ad revenue.

Since we have three recent data points valuing social networks (Facebook at $15 billion, Bebo at $850 million, LinkedIn at $1 billion), we can start to apply valuation ranges based on the model. Facebook’s 10.2 million value points and $15 billion valuation puts a $1,467 value on each value point. LinkedIn is valued very similarly, at $1,325 per value point. Bebo, with lots of users in the rich UK market, appears to have been undervalued at only $241 per value point.

Based on these three publicly available data points we’ve created value ranges for each of the top 25 worldwide social networks. There is a very wide disparity (MySpace, for example, is worth between $3.3 billion and $20 billion, based on which comparable you look at). But it does yield very interesting data. For example, If Facebook and LinkedIn were valued similarly to Bebo, they would be worth just $2.5 billion and $182 million, respectively, far less than what their investors recently paid for a piece of them.

Interestingly, the recent sale of Polish social network Nasza-klasa for $92 million appears to be right in sync with Bebo’s price. The model estimates its value at $91 million based on Bebo’s valuation metrics.

There are some big flaws with the model and analysis in its current state. First, LinkedIn may be in a different class of network, given that all of its users are business focused (no super-poking going on there). As a result, it may be able to monetize users far better than its competitors, no matter what geographic market is being looked at. Still, we’ve decided to leave it in as a data point, with that caveat.

The model itself needs more data. The user numbers are based on April Comscore. We will shortly revise it with the May numbers, although the absolute rankings probably won’t change. More importantly, some big markets are not included yet. The Chinese Internet advertising market, for example, is estimated to be $2 billion in 2008, yet they are not included (mostly because I can’t find data on user numbers for the networks). Also, the Philippines isn’t broken out separately, again due to data availability issues (although the total Internet advertising market in the Philippines is just $3 million this year, so it won’t affect the rankings materially even though Friendster is so strong there). Finally, Russia is currently grouped with “the rest of Europe,” and needs to be separately broken out – it has a large and growing online advertising market and lots of users, so that update may affect the mid-level network rankings.

The advertising spend model is just an estimate and from a single source. I’m less concerned with this data since it doesn’t matter to the model if the estimates are absolutely correct. If the estimates are wrong by different rates in different countries, however, the model will break. If we find better relative data between countries, we’ll update the model with that data. But for now, the PriceWaterhouseCoopers data seems to be pretty good.

Finally, this model doesn’t take into account execution at the company level. Two very similar networks may monetize vastly differently based on methods of advertising and even the brute effort and passion of the employees. This model obviously doesn’t take that into account.

I also note Andrew Chen’s analysis last week which takes a similar approach to this using Google Trends data instead of Comscore. The Google data isn’t granular enough to really dig in to relative values, however, and he was lacking current and deep data on average Internet spend. Still, I agree with his methodology.

As I wrote at the very end of this post, you have to consider the current monetization value of users when comparing social networks. Raw user numbers are pointless without it.

Although Microsoft is part of the Data Portability Workgroup, this is a separate effort, confirms a spokesperson. So much for industry standards. But this is an important step in allowing people to take their contacts with them no matter where they reside, whether in their email or social networks. Instead of startups scraping Hotmail to ingest contacts, now they have a legitimate way of doing so.

In a way, this is a bit of a catch-up move. You can already import contacts easily from Gmail into services such as Facebook, Friendfeed and others. Maybe Microsoft had a touch of Gmail envy or were concerned about being left behind. At a certain point, an email service that doesn’t let you export your contacts could really be a damper on your social life elsewhere on the Web.

Now, the servers of our partners can say, “I want to create a room.” It automates the creation process on a server-to-server basis. Also, we will be putting advertising into these rooms.

In addition to the APIs, the company is also announcing the Meebo Network, which will serve ads inside Meebo Rooms across the Web, splitting the revenues with the Websites hosting the rooms. Since each Meebo Room is formed around a particular interest, ads can be targeted. And to the extent that sites participating in the network have demographic data on their members, that can be used for ad targeting as well. Only Meebo Rooms created through the API will show ads, not the ones created manually.

The launch partners joining the Meebo Network are Piczo, Revision3, RockYou, Social Project, and Tagged. Revision3, for instance, will create a Meebo room on its site where fans can watch a synchronized loop of Web TV shows while chatting. Access to the full APIs and the ad network is by invitation only at this point. Social networks could use the new APIs to automatically add chat rooms to every group page. Rock bands or movie sites could add Meebo Rooms to their sites for visiting fans.

Comparisons can be made here to Userplane, a white-label chat service which was bought by AOL in 2006 and powers many of the chat rooms on MySpace. But there are subtle differences. Most notable is the fact that Meebo Rooms can spread anywhere on the Web. Anyone can grab the embed code and put it on their blog or MySpace page as I’ve done below. Notes Sternberg:

A user cannot take a room off of MySpace and throw it somewhere else. We have all our rooms networked. A user can take the CBS Jericho room, and throw it on their WordPress blog. Our chat rooms are networked versus islands within Websites.

It is very hard to get a synchronous conversation going. You won’ get enough people on your MySpace page to have a conversation. But with Meebo Rooms, most of the traffic is coming from somewhere else. It solves the problem of the Web being so distributed.

The power of Meebo Rooms is that they let anyone create live conversations on their site by aggregating people with similar interests from other sites. In fact, it links people between sites. And that, hopes Sternberg, will give it enough scale to become an ad network of sorts. Meebo has raised $12.5 million from Sequoia Capital and Draper Fisher Jurvetson.

We do not know who made the investment. This is Tagged’s third round of financing. They previously raised two rounds – $1.5 from angel investors in September 2005, and $7 million from Mayfield three months later.

Like Hi5, Tagged is profitable. Back in May they were adding more new users per day – 350,000 – than MySpace.

With nearly $1 billion in venture capital invested in new web startups from April – June 2007 alone, its clear that silicon valley is rolling in money again. With all the hype around Facebook, second tier (but still huge) social networks are an easy bet to get big money. Let’s all just hope for a soft landing.

Co-founder and CEO Greg Tseng told me today that the company has reached profitability on $600,000 in monthly revenues, and that user growth has spiked to 350,000 new users per day. That’s well ahead of MySpace, which is currently growing by 250,000 – 300,000 users per day.

Comscore shows Tagged spiking nicely compared to the copetitors (the last time we compared the networks was September 2005). Click the image for a large view.

There are at least a couple of reasons for the growth. In October 2006 Tagged went from an under-18 site, to allowing users of any age to join. Tagged still has tight security in place for users under 18. For example, profiles for 13 and 14 year olds cannot be viewed by the public or registered users over 16, and profiles for 15-16 year olds are private to non users and users over 18. Older users can still add these youngsters as friends, but they must know their email address or last name to request the friendship, and the younger user must also accept them.

Tagged is also very aggressive with signing up new users. At registration users are strongly encouraged to invite their entire address book as friends. It’s a highly viral, albeit controversial, way to quickly add lots of new users.

Lots of these new users are sticking around, too. Tseng says that half of their 40 million users are active and have signed in over the last month. Tagged is now generating 1 billion monthly page views (about half of what MySpace does in a day).

Tagged is getting serious about revenue growth. The $600k/month they currently generate comes mostly from a search deal with Ask.com and low CPM display ads. The Ask.com partnership may be on the rocks, however. Tseng says the deal is “not performing.”

Piczo is adding 35,000 new member registrations per day, 75% of which are teenagers between 13 and 16 years old. Ten million unique visitors come to Piczo sites monthly, adding up to 2.5 billion page views. While this isn’t much compared to monster competitor MySpace (which serves over 1 billion pages per day), it shows what the power of the network effect can do when applied properly – Piczo hasn’t spent a dime on marketing.

And unlike Myspace, Piczo is focused on safety first. It is virtually impossible to browse user pages on Piczo. There is no search or browse feature. Users must share their page URL with others for it to be found, and there are numerous ways for users, parents and others to report inappropriate behavior. Piczo has full time staff reviewing all complaints and takes swift action to protect its members.

Piczo was founded in early 2004 as a paid service. Based on early user feedback it was relaunched as a free service, and founder Jim Conning sent out 100 emails to Canadian teenagers announcing the new site. That is where Piczo’s marketing efforts began and, until now, ended. The result of those 100 emails has been a massive viral spread of the product.

Piczo brought in a high powered CEO late last year, Jeremy Verba. Verba was previously GM and Vice President of AOL’s Voice Services division, which he grew to over a million subscribers. In addition, he was co-founder and president of E!Online, a joint venture of CNET and E!Entertainment Television, now a part of Comcast. Piczo is well funded after pocketing a total of US$7 million over two rounds of financing from Sierra Ventures and Catamount in 2005 and 2006.

The Social Networking Space

I thought this was a good opportunity to look up Comscore numbers on the largest social networking players and see how things are evolving (these are U.S. numbers only). MySpace is still the king, with over a billion page views per day, 100 million registered users and 56 million unique visitors per month. If anything, their lead is growing over competitors.

But that doesn’t mean there won’t be other winners in this space, too. Facebook continues to dominate the college and high school markets, and their recent decision to open themselves up to anyone will almost certainly increase their userbase and page views. Bebo, Tagged, Piczo, Friendster, Tagworld and Tribe all also show very nice growth rates, with little or no marketing spends.

There’s still room to grow internationally as well. Bebo and Piczo both have a strong presence in the UK in particular. Of course, the argument that these companies will be successful in non-English speaking countries v. local competitors isn’t nearly as certain. We expect consolidation to occur in the next 12 months, and the largest independents (Facebook, Bebo, etc.) to be acquired by the big guys (Yahoo, Microsoft and Viacom in particular seem to be actively looking).

This comes just two weeks after news of competitor Tagged’s $7 million financing by Mayfield was leaked and reported by Matt Marshall.

My previous posts on Tagworld are here.