May 09, 2008

Mergelab Comes to an Early Close, Shutting Down in Beta

Not every social aggregator is on the path to riches or fame and fortune. Even the best designed, thoroughly coordinated sites can find the push to grow a user base and generate community difficult, especially as the number of similar sites spirals ever higher, driving a need for differentiation and specialization.

With this background comes the news that Mergelab, who I helped first cover back in March, is shutting down completely by June 30, having never reached an open beta period.

Unlike other sites which operate with you as the anchor, asking you to set up the many Web services you use and then share your profile with friends, Mergelab asked instead for you to put in your contacts, and then, it would scour the Web and grab their updates, giving you their updates all in one place, much like Spokeo. Also unlike other sites, Mergelab had opted to not integrate comments or rating systems for shared content.

While the site's interface was clean and showed promise for some who would like a less-noisy area to keep updated on friends, Mergelab never got the chance to succeed on the public stage.

I talked with Alan Steele, one of Mergelab's three employees, by phone yesterday, and he helped paint a picture of how the team quickly learned that not only was the space crowded, but that venture capitalists were looking for more than a stand-alone site.

My Mergelab feed in action
As he put it, VCs and investment bankers, upon hearing Mergelab's position, would quickly ask about two things: their Facebook application strategy, and how they would approach Open Social. He said, "There is so much investment in the social networking side of things. All the investors are pouring their energy and money in the space. Intellectually, I should have figured this out six months ago, but I didn't understand this all viscerally until recently."

It was just two months ago when Mergelab first became comfortable opening up and being covered on my blog. In the ensuing weeks, while focused on building a product, external pressures to gain revenue and pay employees grew too overbearing, and more profitable opportunities came up for two of Mergelab's team, making them reevaluate along the way.

"At every stage of building something like this, you have to ask where are we, what are our prospects, and should we keep doing this instead of other things," Steele said. "(Shutting down) was a rational decision on where we were and what our needs were."

Mergelab's strategy to scour the Web and find data on friends turned out to be a contributing factor to the stress of growing as well. With about 100 invitation-only beta users, Mergelab had seen tens of thousands of contacts imported, meaning the company's servers were tracking thousands of feeds, aggregating data, slicing it per user and presenting it in a simple way. As Steele said, "A small number of users can create large amounts of data. To scale up to an open beta, we would have to had fired up a significant farm of servers."

Looking at significant new expenditures ahead, combined with negligible revenue, and the prospect of other alternatives, Steele and team figured the right thing to do was to close early, rather than getting the site so far out ahead that more users would be affected. And despite the crowding in the space, with alternatives like SocialThing, FriendFeed, Iminta, Plaxo, Spokeo and others, Steele said even thinking about competition was the wrong step for the company, so early in its process.

"It's too early to think about destroying a competitor or going ahead of them. Instead, you have to focus on your differentiators and your business model," he said. "Competition wasn't a huge factor, because when you're at this stage, you can't spend too much time worrying about competition."

The official announcement of Mergelab's shutting down comes at noon today, with final closure on June 30th. The company's technology assets are now up for grabs to interested buyers.