Mo' money to build a bigger Dogster niche

A year ago (give or take 10 days) I wrote about Dogster Inc. – the maker of the highly popular dogster.com and catster.com – turning profitable, an unusual fate among Web 2.0 companies. It was still a very small business, but gave co-founders Ted Rheingold, John Vars and Steven Reading a foundation to grow their company at the pace free cashflows were being generated. Up until then I had considered Dogster as an amusing parody of other social networking sites, and suddenly realized that there might be much more than met the eye.

A few metrics caught my attention: the size of the user base, the consistent growth, a promising ARPU (Average Revenue Per User) and a CPM which was higher than I expected, thanks to an advertising program that was more than pure banner and text ads. These metrics doubled in a few months, allowing the company to scale its operation to 10 salaried employees while increasing its cash balance. The other thing increasing was the list of brand advertisers interested in reaching out to this thriving community of passionate dogs and cats lovers, including the likes of Disney, Target, PetSmart, Clorox/FreshStep, Gap/Old Navy, Warner Brothers, Nintendo and VPI Pet Insurance.

As the company turned in its first six-figure revenue month, it became clear that the small Dogster “niche” was turning into a real business. The economics of that market are indeed significant: 63% of US households have cats or dogs (160M pets total), yearly spending is around $36B, and advertising budgets on pet products are in the billions of USD. It also became clear that the solid organic, and profitable, growth of Dogster could sustain a bit of a booster in the form of an outside financing – which leads to today’s news.

A couple of hours ago, CEO Ted Rheingold announced on the Dogster blog that the company had closed a $1M Series A financing from a roster of angel investors – mixing successful Internet entrepreneurs and experienced investors. As a matter of disclosure, but you already guessed, I am thrilled to be involved in this great syndicate (*). Joining the Dogster board as the representative of Series A investors is Michael Parekh, an active angel investor – and blogger, who in a previous life founded the Internet Research activity of Goldman Sachs. The official press release is here.

Dogster will be using these funds to accelerate the development of new features, hire a number of new employees including a kick-ass Marketing Director, launch a number of new properties in -ster, build new distribution partnerships like the VideoEgg or Userplane one, and more generally have additional means to engage and support our users.

Staying true to the values of the community as it grows 4 to 5–fold over the next 12 months is certainly going to be challenging for the team, but I have total confidence in their ability to bring the company to the next level. Congratulations for the success to date, best of luck for the future.

Now, esteemed reader, give us a hand: think of 5 of your favorites dogs and/or cats, and point their owners to the registration pages of Dogster and Catster.

And yes: Woof!

Oh, I was SO waiting for that headline: “the bubble is back, the new sock puppet got funded”. Greg (Linden), have you noticed the “profitable for 3 quarters”, “positive cashflows”, “making money” mentions ?

(*) Just to list a few of these angel investors: Joshua Schachter - del.icio.us./Yahoo, Adam Beguelin - Truveo/AOL, Michael Tanne – Wink, Jim Young – hotornot, Mike Arrington – TechCrunch, Mike Jones - Userplane/AOL, George Sarlo - Walden Funds, Frank Caufield - Darwin VC, Aydin Senkut - Felicis Ventures, Robert Simon - Alta Partners, Brad Feld – Mobius Ventures,… and more.

More:

• Yes, it is true that Dogster had several funding avenues, and the team elected to only raise a $1M round that ended up being oversubscribed (a lot).
• A great coverage is developing: Matt Marshall on VentureBeat, Liz Gaines on GigaOm, Dan Farber on ZDNet, Bambi Francisco, Tom Taulli on BloggingStocks.
• Rafat is already betting on a CNet take-out. Dude, please let me pay long term capital gains on an exit for once.
• Here is the TechMeme thread.

Comments

[Greg Linden]

I don't know, Jeff. According to Alexa, Dogster's traffic is essentially flat:

http://www.alexa.com/data/details/traffic_details?&range=1y&size=medium&compare_sites=&y=p&url=dogster.com#top

Unless Alexa is wrong, I am not sure you can characterize Dogster as a site with "consistent growth".

[Jeff Clavier]

Greg> You know Alexa is so skewed that it sometimes does not mean crap. Having access to numbers re users subscriptions, visits and page views, I stand by the "consistent growth".

[Gopi]

I also doubt it will grow to 3-4 fold in the next 12 months...Yes Alexa is not accurate but ranking.websearch.com is accurate for non-techie mainstream websites (as its gets data from a spyware installed in 10% of US households)...It also shows more or less flat growth.

http://ranking.websearch.com/TrankTrend.aspx?url=www.dogster.com&period=3&size=1

But said all this i am sure this site can sustain a consistent 2-3 million/year business and you will get a decent return for your investment but not a outsize return!

[Jeff Clavier]

Gopi> We'll see about the size of the return when we get there. For now, we are going to focus at building a great company.

[Jason Wood]

Jeff,

The success of Dogster speaks to the greater concept of specialized consumption. As someone in the business for a long time, could you speak to how Dogster would've been impossibe to create even a few years ago? It seems to me that without:

A) The maturation of the online ad/revenue model
B) The commodiziation of the infrastructure stack (i.e., allowing a company to bootstrap to launch)
C) the pervasiveness of the concept of "long tail"

...Dogster wouldn't have a chance at success. Would you agree?

[vps hosting]

I am sure that growth of dogster.com has increased with time, i am also aware that for bieng in the online business, we need to be very smart and matured to handle major responsibilities which come all of a sudden without expectations.

[Greg Linden]

Picking up on this old thread again, Jeff, I wonder if you are still claiming consistent growth for Dogster?

The Alexa chart shows a steady decline in traffic since Sept 2006.

http://www.alexa.com/data/details/traffic_details/dogster.com?compare_sites=&range=3y&size=medium&y=p#top

Is that data wrong? You said it "does not mean crap" before, so is it true that Dogster's internal numbers do not show this same decline?

[Ted Rheingold]

Hi Greg,

Jeff forwarded me your comment, so I thought I would answer.

Yes, the Alexa stats are off, way off. Starting about a year ago they stopped reflecting usage trends as seen in both our internal and 3rd party web stat tools.

However, we do find that compete.com is reflecting our usage trends correctly. Compete gets anonymized logs direct from ISPs - instead of using a distributed toolbar as Alexa does - and so far they've displayed the right trends for all the sites I know actual numbers for.

Looking at Compete for dogster.com and catster.com you will see that our growth and usage has remained very steady. Check out the overall monthly visits, the pages/visit, and average stay to see significant growth. In fact just earlier this month we had our biggest day ever in terms of uniques, dog profiles added and banner ads served. (http://tinyurl.com/2a4o5w)

At this point we are a 15 person break-even business. We have over 550,000 registered members, about a quarter of which log in weekly. Our subscription program, virtual currency and digital gifts features are all widely embraced on both our sites. Shutterfly, 9-Lives, Arm & Hammer and Pup-peroni are run-of-site sponsors and we currently have direct ad buys live on the site for Paramount Pictures, Suzuki Motors, Mug Rootbeer, Humane Society US, AKC Foods and a bunch more.

Overall I think Alexa is a dead service. Compete and Quantcast are doing a much better job by relying on a much better data pool. Our business and our communities are doing great. We may not have the growth of a zombie biting app on Facebook, but we'll be popular a lot longer. From what we're experiencing you definitely don't need hyper growth to be very successful on the Internet.