• by Mark Walsh  @markfwal, August 28, 2006

As the popularity of online social networks explodes, Classmates.com--which helped define the category when it launched a decade ago--is looking a bit, well, old school.

Over the last year, the site has seen its traffic fall by more than 20 percent as a new crop of competitors including MySpace.com, Facebook and MyYearbook have quickly built up huge followings of young, Internet-savvy adherents. Even Classmates' impressive user base of 44 million has already been eclipsed by the 100 million members MySpace has amassed practically overnight.

More direct rival Facebook has picked up nine million users since starting in 2004. Mark Goldston--chairman and CEO of United Online, the Internet services company that acquired Classmates two years ago for $100 million--acknowledges that the social networking landscape has grown far more crowded.

"There's a lot of things to choose from and people are trying a lot of different sites," said Goldston. The youthful members drawn to other social networking sites also tend to spend more time hanging out within their virtual confines.

To encourage Classmates members to spend more time on the site and help boost advertising, the company recently unveiled a more streamlined look and added personalization features.

Among them is the creation of a My Favorites section within a user's profile page that allows them to list preferences in movies, books, music and other categories. Those lists are automatically turned into advertiser links, via ad technology, that directs users to the sites of merchants sponsoring the categories, such as Netflix for movies and Amazon for books.

Last month, Classmates also gave its users the ability to create their own Web pages through a partnership with another United Online unit, Web hosting firm MySite.com.

"We always want to think about enhancing our user-generated content experience, and to the degree that we can monetize that activity, it's absolutely central to our strategy," said Goldston.

To help lead its advertising push, United Online last month brought on Advertising.com executive Jeremy Helfand as executive vice president of sales and chief sales officer, a newly created position. Classmates itself is now also seeking to fill several key positions including media director and vice president, business development.

In addition to Classmates' main school-affiliation section, Goldston said efforts are underway to expand the channels devoted to military personnel and work-related acquaintances. The company plans to help people in those groups to organize reunions, much the way it does for school alumni.

Furthermore, Goldston expects the company to add new affinity groups to the current mix, although he declined to specify what they might be. "We've got some other tricks up our sleeve in terms of areas related to social networking," he said.

One thing that won't change is Classmates' reliance on paid subscriptions. Despite its renewed emphasis on advertising, Classmates still derives the vast majority of its revenue by charging for full access to the site. Just 2 million of its "gold" members, who pay $39 a year, account for most of the company's income.

And when it comes to upstart competitors such as Facebook grabbing market share, Goldston isn't terribly concerned. With a user base with an average age in the late-30s, Classmates is aimed at adults rather than teens and 20-somethings. "We want people to have credit cards, to be paid subscribers, so advertisers know they're reaching someone who can transact," said Goldston.

But observers point out that Facebook's college-age users are potentially Classmates' future customers. Rather than switching sites, the Gen Y crowd is more likely to stick with the social sites they're already using after graduating, the say. Facebook has already created a section aimed at the corporate sector to branch out from its collegiate roots, for instance.

"In the long run, this group would keep in touch with their "classmates" via MySpace, and at least theoretically have no need for something like Classmates in the future," wrote Tim Bajarin, principal analyst at tech consultancy Creative Strategies, in an e-mail.

Goldston acknowledges that even his own college-age kids use Facebook. But he believes they will eventually outgrow it. "What we offer is a completely different experience," he said.