Alcohol induced business ideas are rarely the stuff that dreams are made of, however, in the case of James Hong and website phenomenon HOTorNOT.com, that is exactly where it all began.

In 2000, James Hong, a recent business school graduate, was sitting around, having a few beers with his brother and a buddy Jim Young when the topic of conversation turned to women. Jim mentioned that he had met a girl at a party recently who, he believed, was a perfect 10. A switch clicked in James’ head.

James had been working with his brother on XMethods, a website that was the first directory of publicly available web services. They had discussed possible consumer services at great length, well aware that consumers would be utilizing these services too, but had yet to land on any truly worthwhile ideas. Until now.

After Jim had said he met a perfect 10 it dawned on James that they may be on to at least a mediocre idea for a consumer site. The original vision for HOTorNOT.com was a service where people could post their pictures into the system and other people would be able rate their “hotness” on a scale of 1 to 10. Clients would be able to call the web service, get a picture and have it float across or pop up on your screen at random times throughout the day. The idea behind this process was that James and Jim’s friends were all working at cubicles and the random pictures popping up would be as if there was a window with an attractive, or not so attractive, girl walking by. Since they couldn’t discuss her “hot or not” factor with anyone immediately they would be able to rate her in cyber space and compare their ratings with others.

Unemployed and not in the mood to job search, James decided to go ahead and give the website a shot. The weekend before the site launched James was visiting his parents when his father walked in on him working on HOTorNOT.com. Doubting that his parents would be okay with him working on this seemingly frivolous project, instead of job searching, James told his father that this was a project of Jim’s. James’ father would be the first person to ever see HOTorNOT.com…and he was immediately addicted!

The Impact of Viral Marketing: 40,000 Hits on the First Day

The following Monday morning HOTorNOT.com was launched with the pictures of James, his brother and other friends. At 2pm James emailed 40 of his friends urging them to check out the site but to “be kind” when rating him. He then went rollerblading for an hour in a big office lot outside of his building. While outside he went up to a random stranger and asked him if he had ever heard of HOTorNOT.com? The man replied, “No, what’s that?” “Go check it out, man,” urged James. When James went back inside he watched the log of hits to the site and sure enough 10 minutes later a hit came in. In that first day HOTorNOT.com had over 40,000 hits.

Three days later, James went rollerblading again in the same lot and again asked a random stranger if he had heard of HOTorNOT.com. This time, however, the man replied, “Yeah, dude, HOT or NOT!” The phenomenon had just begun.

Overcoming Bandwidth Issues with a Little Resourcefulness

The phenomenon, however, began to create some logistical problems instantaneously. The HOTorNOT website was running on the XMethods server and was subsequently shutting it down due to the high volume of traffic. After a person voted on whether someone was Hot or Not it was taking thirty seconds to load the next page. James and his brother quickly calculated that the bandwith necessary to keep up the rapidly growing site would cost at least $150,000 a year. Positive that they would be broke in no time they had to devise a way to afford this.

James’ biggest problem was figuring out what to do with the pictures, the primary culprit in the need for such an enormous bandwith. A few days prior, James and his brother had launched something on XMethods, a web service-based file system, basically a network drive, known as FTP. After sharing it with a friend, the friend pointed out that it was just as easy for someone to create a Yahoo Geocities account that allows them to FTP. This conversation came flooding back to James and the decision was made. They would provide users with instructions as to how to make a Yahoo Geocities account and submit URLs of their pictures. Knowing that a few users may be lost due to this decision, James and his brother ultimately chose to go ahead in hopes of keeping the site up and running. Even if it was still in purely survival mode.

The crisis only managed to stay averted for a mere 24 hours when the Salon.com, the first piece of real press on HOTorNOT, article was released. Again the site was slammed and James’ brothers XMethods site took a backseat. But for the sake of HOTorNOT and XMethods this could not continue. At 3am that morning James and his brother, Jim, took down the site…but not for long.

Using an extra PC, a 400 megahertz Celeron, no memory-in-it machine that James had been given when he opened an eTrade Account, James drove to the office he shared with Jim in Berkeley and mounted the computer so no one would be able to shut it off. At first glance it looked like a bunch of stuff under his desk with a little Ethernet cable coming…but it was obviously so much more. At 5am they were back online and the access logs started flying again.

Leveraging the Brand through Media

Though the two immediate problems had been solved the site was still running slowly. James decided to look into managed hosts, with Rackspace coming up as the Linux leader. After failing at selling to pitch his idea and the site to the Rackspace salesperson, James called the head of business development and said “I know you guys want to go public and it’s great to get your name out. Your whole value proposition is that you can help companies scale fast by outsourcing. If you can help us, I have all these upcoming interviews, and we can be a poster child for you.” Rackspace was on board. Every day that week James would call them and say that more machines were needed and Rackspace made it happen.

Evoking Community Participation

Keeping the website clean and appropriate became the next obstacle in the HOTorNOT co-founder’s trek to the top. Problems with porn and naked pictures being submitted to the site began to run rampant and James knew that this would preclude people from advertising with them. They come up with the motto “Fun, clean and real” and created a community regulated system that allowed people to click a link under inappropriate pictures and, based on an algorithm, the picture would be killed if it has been clicked on too much. After that failed to completely obliterate the problem James hired his parents to do the moderating.

James asked his father after a few days how it was going. He explains: “I originally had my parents moderating since they were retired, and after a few days I asked my dad how it was going. He said, ‘Oh, it’s really interesting. Mom saw a picture of a guy and a girl and another girl and they were doing…’ So I told Jim, ‘Dude, my parents can’t do this any more. They’re looking at porn all day.’” The decision to open up a community of moderators to the public was not far behind.

Experimenting with Pricing Models: Free v. Paid Memberships

After solving the problem of keeping the site clean, ad rates began to drop. The decision to charge $6 a month for the “Meet Me” section of the site seemed like the best option. The pricing was based on what would be considered an impulse buy. It wouldn’t become apparent until later that a full fledged dating system through the HOTorNOT site would be a possibility.

Deals to cut costs became the focus of James’ work on HOTorNOT with his first major affiliate deal with Ofoto. Since a great deal of people were using digital cameras it seemed to make more sense to send them to Ofoto, instead of Yahoo, to host them. Ofoto agreed.

Though never truly considering himself the CEO, James Hong dealt with every problem that arose for HOTorNOT over the following months. At one point Howard Stern referred to HOTorNOT as “Am I Hot” and James was quickly hit with a cease-and-desist letter from a website called AmIHot.com, claiming to predate them. After ironing things out, James re-branded the site and bought AmIHot’s assets. The re-branding, marketing and growth continued from there.

Exit Strategy: Soak Up the Sun

In the first year, HOTorNOT.com and its founders were featured in Entertainment Weekly, Newsweek, Time and People Magazine. Offers from Lycos for $3-$5 million dollars were also received.

Just this past winter, James and Jim sold HOTorNOT.com to Avid Life Media for a reported $20 million dollars in cash, as first reported on TechCrunch.com on February 11^th 2008.

James credits the success of HOTorNOT.com to people’s love of voyeurism and something new. A love of hot chicks didn’t hurt one bit either.

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James Hong

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• How Evan Williams and Blogger.com Survived the Dot-Com Crash

But what if, conversely, we had entered the market in late 2001, just after the dot com bust, lost funding, had our company depleted to a single employee, were abandoned by our coworkers, had our friends turn their backs on us, and to top it all off, and broke up with our long-time girlfriends? Would we have had the fortitude to continue with your company? Could we have emerged as one of the most influential and lasting companies of the dot-com era? Well, that’s precisely what happened to Evan Williams, founder of Blogger.com.

The Start of Blogger.com, 1999

Back in 1999 Evan Williams, along with some of his close friends, founded Pyra Labs and soon thereafter, launched its first product, Blogger.com. Though they enjoyed some initial success – quickly gaining a loyal user base and investment backing – by 2000, with the downward spiraling trend of the startup funding and eventual dot com bust, Pyra’s resources began to run dry. By January of 2001, after their second failed acquisition deal, the idea of a Pyra becoming a successful startup seemed all but lost.

From Bad to Worse

That’s when the series of inauspicious events began to occur for Evan Williams. With no money left to pay salaries, Williams’ startup Pyra Labs began to experience a mass exodus of employees, many of whom Williams had initially recruited from his circle of friends. Even long-time girlfriend and Pyra labs co-founder, Meg Hourihan, lost faith in Williams and the future of their company, eventually parting ways with both. Despite his precarious situation, Williams never lost faith in himself nor his company.

Going It Alone

Without employees for his company, or even friends for morale support, Evan Williams trudged forward as the sole employee of Pyra Labs. Somehow he managed not only to keep the Blogger.com service running, which at that point had several thousand users, but also continued to grow and expand the utility of the service. Through the struggle, Williams taught himself Linux system administration and Java, just to keep the servers running. During this time he also launched the first for-pay features of Blogger, which incorporated his innovative “reverse advertising” scheme – a system in which users pay a nominal fee to not have advertisements posted their sites.

Turning of the Tide

By 2002, Evan Williams launched Blogger Pro, the paid-for version of Blogger and managed to bring some new employees to his company. Soon thereafter, Pyra managed some significant licensing deals of its Blogger service. And, as we all know how the rest of the story goes, in October of 2002, Pyra managed to get acquired by Google. Not only does Blogger.com remain as one of the most popular websites and services on the web today, but it also stands as an emblem of the success that an individual can achieve with a little bit of faith and determination, no matter what dire circumstances he or she faces.

On to Better Things…

Evan Williams Left Pyra Labs in 2004, just one year after its acquisition by Google. In 2006 he co-founded Obvious Corp., where he’s been behind his latest project, the increasingly popular social-networking/micro-blogging service Twitter.

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• How Evan Williams and Blogger.com Survived the Dot-Com Crash

However, the short period since News Corp’s acquisition of MySpace has not only proven the critics had underestimated the value of Facebook, but perhaps even that Zuckerberg had undervalued the potential of his own company. The retrospective view of the News Corp deal seems to be at a consensus as perhaps the net bargain of recent years. This past year, New Corp has been the dominant media conglomerate who’s shares have outperformed those of its major competitors including, Walt Disney, Viacom, CBS, and Time Warner – much in thanks to MySpace; while each of its competitors shares have either remained unchanged or are down for the year, shares of News Corp are up 10% for the year. But Facebook can do even better.

Although MySpace commands a much larger audience, I still believe Facebook has more value for 5 Reasons:

1. Facebook was built on personnel integrity. This is the single most significant factor behind the success of Facebook. That is, your friends on on Facebook, are your friends in the real world as well. Users are able to find old friends by searching real names, whereas most people on MySpace go by aliases. (This also brings up a subsidiary issue in that although MySpace may have more users, some of those users make up several aliases, artificially inflating the number of MySpace users.) But more importantly, this underlying aspect encourages commitment from its users. Because Facebook keeps you connected with your real friends, leaving the network is almost equivalent to abandoning your friends, whereas, I can imagine MySpace users leaving their online aliases as they mature.

2. Facebook values privacy. This is important for two reasons. First, Facebook users know their audience and are therefore more comfortable with publishing genuine information about themselves. Secondly, and perhaps most importantly, it minimizes the potential for users to become victims to online predators, as has been the case for some MySpace users.

3. Facebook has better site layout. Not only does Facebook have a clean, slick layout, but it is also devoid of the excessive and often offensive barrages of advertisements that engulf MySpace. As a result, Facebook users are able to easily navigate through its pages and focus on what matters the most – their network of friends.

4. The few ads that Facebook does allow, provides more value to both its advertisers and the users. Because Facebook is based on real people and real college networks, advertisers have a targeted demographic based on class, age, education, geography, and income that they can reach easily. And because the advertisers can reach the right audience, the users get advertisements that are actually relevant and desired, such as notification of on campus events, job opportunities, social club meetings, and parties. In contrast, MySpace users are often bombarded with advertisements to generic dating sites and mass marketing promotions.

5. Facebook is ever-evolving. Facebook continues to put additional features based on user recommendations and feedback that have taken the site beyond the status of merely a social networking site. There are those features that provide utility, such as Facebook Mobile, as well as ones that make the site more enjoyable, such as photosharing. Facebook has now become the number one photosharing site on the web with its users uploading more photos than Flikr and many other sites that are based exclusively on photosharing. More recently, Facebook has added media sharing feature that has proven that Facebook is up to date with the technological trends of time. And of course, there’s the unique NewsFeed feature, which was initially met with much criticism, but has eventually become a staple of its users daily lives.

As the internet moves out of Web 2.0, I suspect people will begin to abandon their online aliases, and many social networking sites will become the artifacts of a bygone era. As its users mature and grow out of the pop phase of internet activity, only those networking sites that are built on substance and are willing to keep up with the ever-evolving standards technological innovations will stand the test of time. It is this exact combination that Facebook, more than any other social networking site, has displayed thus far, hence making Facebook worthy of a serious investment by a company seeking to create a dominant online prescence with lasting potential.

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• How Evan Williams and Blogger.com Survived the Dot-Com Crash