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Reading the tea leaves and not liking what they see in the future, the folks at United Online (NASDAQ:UNTD) are preparing to take division Classmates.com public. Now. Naturally, they’ve found some enablers on Wall Street and being the first of this Web 2.0 contingent to try the IPO route, it’ll probably sell. The i-banking marketing tizzy will focus minds on what the WSJ says is growing ad revenue and more paying customers.

For investors, however, the fact that Classmates.com has lost money since they started goosing expenses in 2004 doesn’t bode well. Once they close on their US$125 million IPO, pay the 6% IPO commission, cover the US$2 million of legals and accounting work, they’ll have about US$115 million left over to try to grow the business: more funds to place ads on Facebook and Google, I guess.

And even if it all works, what’s the ultimate goal? What are they trying to accomplish? What will be termed a “Victory”? Getting more hits? They are barely awake as it is, as the quote below highlights:

Facebook and MySpace users on average visit 20 times a month,” said Andrew Lipsman, a senior analyst at comScore. “It’s only about two occasions a month on Classmates. It seems to function as a way to reconnect with classmates, but it’s not as integral a part of people’s daily Internet lives.

Classmates.com grew during a period where it was largely the only forum to find friends or acquaintances from highschool or university. Naturally, people registered. Some even paid for a Gold Membership, but there wasn’t much value for the money: one big feature is that Classmates will email you an activity report regarding your profile page each month. Probably because they have figured out that most subscribers didn’t check for themselves…too busy building their Facebook universe. Other attractions for fee-paying customers: you can email other members of the site, a feature that Faceook provides for free (see prior post “Linked In & Classmates.com on death watch“, July 8-07).

But the days of being the only social networking site are long over. And, I predict, a large portion of the current paid subscriber base will fall away as people over the age of 30 discover/migrate to Facebook. Once you’ve found someone it is easy to keep them, and there’s no need to continue with a Classmates account.

And the stigma of joining Facebook is subsiding. A few months ago, it was something my friend’s teenage daughter did. Or hip kids in advertising. Today, is it starting to fill up with puffy men in suits. And well known VCs. And journalists. And TV anchors. And Ontario PC Leader John Tory (but not yet Premier Dalton McGuinty).

That Classmates can go public reminds one of the me-too days of grocery delivery websites, when underwriters sold stories based on the tag line: “they’re a bit like so-and-so”. Back in the day, when Webvan existed, institutional sales people priced things off Webvan’s revenue or eyeball metrics when they sold shares in PeaPod, for example. This time, the only bet for Wall Street is to say: once they’re public, one of the Dead Tree Media (”DTM”) groups will have to buy them to get into social networking.

Not a very compelling storyline, but worth a crack.

Try as they might, Classmates.com just isn’t Facebook or MySpace. They had their chance and missed the opportunity. And selling eyeballs is no longer going to entice institutional investors. Fund managers would do well to recall that smart money sunk US$830 million into Webvan before Chapter 11 called.

Classmates.com was useful for a time, much like rabbit ears on a black & white television. But at this point, it’s a short.