A Web 2.0 entrepreneur counts his blessings

A Web 2.0 entrepreneur counts his blessings

Posted by Caroline McCarthy
December 10, 2008 4:00 AM PST

sulemanali.jpgSuleman Ali cashed out just in time.

The 26-year-old, a former Microsoft employee who helped put together the Windows Home Server product, founded a company called Esgut
within months of the debut of Facebook’s developer platform in May
2007. Esgut is a portfolio of Facebook applications, and a few of them,
like Superlatives and Entourage, became genuine viral hits. In April,
Ali sold the 12-employee Esgut to the Social Gaming Network, a Silicon Valley company backed by the likes of Bezos Expeditions, the Founders Fund, and Greylock Partners. He said the price was in the seven figures.

But Ali is the first to acknowledge that for upstart social-platform
developers, hailed just months ago as the Valley’s hottest breed of
bright young things, the condition has taken a significant turn for the
worse.

"Most people are not counting on anything," the lanky and
bespectacled Ali said over lunch at an organic restaurant near New
York’s Union Square in early December. "They’re just operating from day
to day."

When Facebook’s developer platform launched, the social network’s
traffic began to really skyrocket. What had started as a no-frills
networking site for students at elite universities became a Silicon
Valley buzz factory with legitimate geek credentials. And however
gimmicky many of the most popular Facebook Platform apps were, millions
of people decided they now had a reason to join the site. The
floodgates had opened. Facebook was a phenomenon.

When other social networks such as MySpace, Friendster, and Hi5 also
paraded out developer platforms, the tech world took it as evidence
that there was a big future in building platform applications. More
importantly for developers and ambitious tech entrepreneurs, it looked
like there could be gobs of money in it; the open, anyone-can-play
attitude created the notion that there was enough for everyone.

"The social platform (on Facebook) actually launched the last day
that I was at Microsoft…I was quitting without any idea of what I was
going to do," Ali recalled. His aims for leaving Redmond were
starry-eyed. "I left because I wanted to do a start-up. I wanted to see
what I could do out there on my own. And I wanted to care deeply about
what I was working on."

But he had no concrete plans to go the Facebook route initially, he
said. "I ended up in my parents’ house in Florida and was kind of
bored, and started building Facebook apps just out of restlessness and
the desire to do something."

Then, Ali continued, he went to the Graphing Social Patterns West
conference in San Diego in March and met Social Gaming Network founder
Shervin Pishevar. At the time, he was looking to raise venture funding
but hadn’t thought about selling his apps. "We talked for 30 minutes
and he was like, ‘You sound like the exact type of people we want at
SGN.’"

Ali sold Esgut to Pishevar’s company the next month.

Widgets buzz turns into hush
Ali got lucky. Even before the reality of the recession set in, the
social-platform craze was subsiding. The venture capital buzz about
widgets began to quiet over the summer.
Some of the sillier novelty apps wore off in popularity. Companies that
were snapping up small apps and raising huge amounts of venture
capital, like Slide and RockYou, grew intimidatingly bigger–but the
glut of independent apps made it more difficult to grab the attention
of potential buyers. And after new restrictions, a redesign, and then
the social network’s focus on expanding through its Facebook Connect
log-in service, it became evident that a social-network platform is
still a new phenomenon that can change dramatically, and not always to
the benefit of little start-ups.

"There’s definitely a lot of tightening up," Ali said. "There’s a
few people that I know that have apps that are relatively small, and
they’re selling them for valuations lower than what they could’ve sold
them for a month ago, and there are just no buyers in the marketplace.
I think they’re going to have a hard time selling, period–forget
trying to sell at a lower valuation. They’re just having a hard time
getting rid of them."

So would he still be able to sell his company as easily now? "No,
probably not," Ali admitted. "If we were the same company we were then,
it would be much harder to sell today. I think we would’ve had to
evolve as a company. I think we would need to be generating more
revenue than we were."

But for all his concern about the fate of social-platform developers
in a recession, Ali is still strikingly bullish on Facebook–enough so
that his newest project is a fund for Facebook stock. He started
purchasing it in November, he said, and is meeting with investors in
the hopes of purchasing more. He added with surprising gusto that
Facebook’s decision to delay direct cash-outs hasn’t derailed his plan.

"I think that’s actually good news for us," Ali said. "I think that
means that the price that we pay will actually go down because there
are all these employees who intended to sell stock back to Facebook,
and now they’re not going to be able to sell it to Facebook, (so)
they’ll have to sell it somewhere else."

He hopes to keep the stock until Facebook files for an initial
public offering, and he still thinks that’s on track, too. "I think
it’s going to be a function of the economy and when the markets open
back up for an IPO," he said, and cited target dates that had been
provided in interviews by Facebook investor and board member Jim
Breyer. "From a Facebook perspective, I think it’ll be ready to IPO in
2011."

Many critics would say that’s wishful thinking, and that the company
will sell–to existing investor Microsoft, maybe–for much lower than
its $15 billion preferred-stock valuation.

But Ali got lucky on Facebook once already, and even in a recession he hasn’t given up hope that it could happen again.

Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite
happily addicted to social-media tools and restaurant blogs. Her
pre-CNET resume includes interning at an IT security firm and brewing
cappuccinos. E-mail Caroline

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