A blast from the past is making new waves in social networking. United Online (UNTD) -- the parent company of Classmates.com -- is acquiring schoolFeed. (Terms of the deal aren't being disclosed.)
SchoolFeed is a fast-growing app on Facebook (FB) that connects users of the world's largest social networking website through their alma mater affiliations. There are now more than 19 million Facebook users tethered to schoolFeed, and the app is tacking on roughly 100,000 new registered users daily.
Sure, 19 million is a far cry from the more than 900 million active Facebook users, but there's probably a good chance that you've received a request from one of your Facebook pals to connect through schoolFeed.
The Rise and Stall of Classmates.com
Classmates.com was an early arrival on the dot-com social networking scene. Its goal was -- and continues to be -- to connect high school and college alums who wax nostalgic. The website was formed in 1995, nearly a decade before Mark Zuckerberg redefined the way that friends engage with one another online.
United Online acquired Classmates.com for $100 million in 2004, just as Zuckerberg was starting to shake up the Harvard campus. United Online thought that it was getting a bargain in the aftermath of the dot-com bubble, but Facebook succeeded at the social networking game in a way that Classmates never did.
The problem with Classmates was that the model called for premium memberships. Only paying subscribers had easy access to other paying members. Maybe it would've worked, but then free ad-based social networking disrupted the model.
Friendster, MySpace, and eventually Facebook didn't install tollbooths. They understood that scaling in size meant providing open experiences for free. As Facebook evolved from campus-specific networks to global connections, Classmates and its archaic model never stood a chance.
Today, United Online commands a $350 million market cap, and that's for a company that includes floral arrangement giant FTD, loyalty shopping club My Points, and the Juno and NetZero Internet access providers.
An Ugly, Dated Model
Classmates offers free registrations, but the available features are limited. Users need to purchase Memory Lane All-Access Passes to see who's checking out their profile, and to read and reply to every message they receive.
The rates are reasonable. The All-Access Pass starts at $15 for three months and goes up to $59 for two years. But paying a cover charge doesn't make a lot of sense when Facebook -- with its larger collection of registered users who went to school with you -- is available for free.
Facebook, on the other hand, went public with a market cap of $104 billion, and even after a swift sell-off is still roughly 170 times more valuable than United Online.
The SchoolFeed acquisition should help increase awareness for Classmates.com and its Memory Lane efforts, but is there any likelihood it will help United Online finally get right what it has been fumbling since 2004?
As long as Classmates.com is run with the velvet rope philosophy that demands people pay a premium to engage with a smaller subset of their schools' alumni than Facebook offers for free, SchoolFeed won't be any kind of fix for United Online's woes.
Business models matter. Classmates was fashionably early to the right party, but with the wrong model.
Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Facebook.