Beyond Kyoto: Convincing Capitalists to Buy Clean Air. Q&A with Dr. Richard Sandor, the Chairman and founder of the Chicago Climate Exchange. By Natalie Pace, CEO, NataliePace.com


A reprint from NataliePace.com, vol. 1, issue 50.


Dr. Richard L. Sandor, Chairman and CEO of CCX

The Kyoto Protocol didn’t fail. It became a spark plug for a market place solution that has been alive and growing since 2000, when it began with a grant from the Joyce Foundation. The Chicago Climate Exchange (CCX) is North America's only and the world's first global marketplace for integrating voluntary legally binding emissions reductions with emissions trading and offsets for all six greenhouse gases. Time magazine has called the founder, Chairman and CEO of CCX a Hero of the Planet and the "father of carbon trading." Dr. Richard L. Sandor is an economist and financial innovator who has convinced hundreds of corporations and cities around the world to voluntarily reduce pollution and to promote a clean, healthy atmosphere through “offsetting” behavior, such as reforesting Brazilian rain forest.

CCX emitting Members make a voluntary but legally binding commitment to meet annual greenhouse gas emission reduction targets. Those who reduce below the targets have surplus allowances to sell or bank; those who emit above the targets comply by purchasing CCX Carbon Financial Instrument® (CFI™) contracts. Current member corporations include: Amtrak, Ford Motor Company, Knoll, Rolls-Royce, Dow Corning, Dupont, Motorola, Sony, Bank of America, Bayer, the cities of Aspen, Berkeley, Boulder, Chicago, Oakland, Melbourne, Australia and Portland. Click for a complete listing of members.

Goals of CCX:

* To facilitate the transaction of greenhouse gas allowance trading with price transparency, design excellence and environmental integrity
* To build the skills and institutions needed to cost-effectively manage greenhouse gas
* To facilitate capacity-building in both public and private sectors to facilitate greenhouse gas mitigation
* To strengthen the intellectual framework required for cost effective and valid greenhouse gas reduction
* To help inform the public debate on managing the risk of global climate change


I first spoke with Dr. Richard Sandor about his nascent project in 2002 before all of his acclaim, before the world took global warming seriously and before Al Gore became the winner of the Nobel Peace Prize. Certainly, if you haven’t already heard of the Chicago Climate Exchange and Dr. Sandor yet, you will. See below for Dr. Sandor’s description of what the Exchange can and should do now and going forward.

This is a reprint from NataliePace.com, vol. 1, issue 50.


Natalie Pace – Citizens around the world have seen startling photos of deforestation and melting ice sheets, yet so many of us continue with old habits. What does it take to convince consumers and companies to give up a little comfort now for the sake of our children?

Sandor-- What kind, if any, discomfort results from lower greenhouse gas emissions? Is it possible to have a net gain? We are in the business of trying to develop financial institutions and infrastructure to deal with pricing carbon. The debate can’t be brought to an adequate conclusion until we know what the price of carbon is. We’re here to inform the debate more than anything else. Rather than, basically, hypothesize or build models, we really need to be Orville or Wilbur Wright. We need this thing to fly for 56 seconds to prove that you can use the price system to effectively allocate air, water, etc. That’s the part of the debate that we’re participating in.

Are the technology and development needed to reduce emissions prohibitively expensive for companies? How do you tempt corporations, which have just now returned to capital spending, to sign on? Are corporations signing on because they believe in the cause or because they want to be on the right side of the “green” debate?

Sandor--I think they’re signing on for both of those reasons. They’re signing on because, as one of the companies said it, "We really want to learn about energy efficiency and carbon pricing and how they’re related." When asked, what side of the debate he was going to be on, he justifiably answered, "It depends on what the price is." It depends upon the company’s abilities to learn and what incentives are provided. We’ve got to paint the picture. Another motivation is that corporations see a trend among their shareholders. Over $2 trillion is environmentally screened in the U.S. capital markets. There’s a school of thought that companies have a 1-2% "sustainability" premium in their stock price. There seems to be customer demand on that side.

Some people may be able to be low-cost providers of carbon credits. Another facet of the issue is a desire to participate in the policy debate, to learn what kinds of things should be included in the trading systems, and what form that debate takes. [Corporations] want to have an opinion that is based upon experience and data, and to advocate their positions with solid information. And a very important reason is that pro-active action on climate change is being perceived as the right thing to do. There is growing scientific evidence suggesting there is a significant problem, and they want to be seen to be on the right side of the issue. There are also threats to shareholder value in the form of growing demand for corporate disclosure on climate change action, shareholder resolutions and increased liability. You have risks and rewards driving the process, as well as people believing in the right thing. So, the primary incentives are:

A. Increased shareholder value and demand from stakeholders;
B. Threat to shareholder values; and
C. The desire to be on the right side of an issue with potential global implications.

What is a carbon credit? Please explain how these credits are traded, and what kind of real world offsetting behavior can be expected.

Sandor---A carbon credit is an allowance. This is a system of allowance and offsets. You are allowed to emit a certain amount, and then you would have a targeted reduction. Let’s say it was a million tons, and you promised to get it down to 990,000 tons. If you knock it down to 980,000, you have 10,000 allowances or credits. Those extra allowances can be sold to somebody who hasn’t met their commitment. The result of this will be that the people who can cut most efficiently will do so. They have an incentive to do so because they can sell their excess cuts. Those people who can’t are going to buy them. That will be the cheaper cost to society of reaching the lower level systematically.

Just how is the Chicago Claim Exchange poised to address the problems of environmental pollutants BETTER than the public sector?

Sandor--We believe in free markets, and we believe that the government shouldn’t be in the chip, semiconductors or financial exchange business. This is a voluntary approach. We’re multi-sector. We have the involvement of the agriculture and forestry sectors. We’re multi-national. This is just one more evolutionary step to a full-scale market.

Just how does the Chicago Climate Exchange bring sustainable farming and forestry practices into the equation? What are your plans for Brazil, and what other areas globally do you believe are ripe for reforestation?

In some other systems you are only allowed to buy or sell credits that come from emission reductions elsewhere in the system. We allow offsetting behavior. For example, if you are a utility, you can reduce net emission in your entity by doing offsetting behavior, such as planting trees or changing soil practices. In a hypothetical example, you can eliminate a million tons out of the smokestacks, or you can sequester 20 million by bringing in carbon sequestration from reforestation. Agriculture and forestry--we think that these are beneficial effects to society, in addition to the carbon in the trees, wetlands, etc., in the form of improved soil and water quality.

Describe the reforestation deal that you coordinated with the Montana Indian Bureau, how it works and what the results so far indicate.

This was a deal coordinated by our predecessor firm--Environmental Financial Products. We were engaged by the Salish and Kootenai tribes. They had lost some forest area to fires. We represented them and we sold the future carbon that would come from reforesting parts of their land. They took the proceeds and bought seedlings. The buyer was a European firm that wanted to own carbon credits. It was a novel, cross-border trade.

(NataliePace.com Note: The purchase of "greenhouse gas emissions offsets," aka reforestation, was a coordinated effort between Dr. Sandor, then Chairman of Sustainable Forestry Management, the Confederated Salish and Kootenai Tribes of Montana and the Montana Carbon Offset Coalition. Mr. Tom Corse, Supervisory Forester for the Montana Tribes was pleased to be part of the "win-win" deal, saying, "This first project will set the stage for a process that will help fund chronically under-funded tribal reforestation projects and start the ball rolling on market-based solutions to global warming.")

The fifteen companies that made up the Founding and Charter members of the Chicago Climate Exchange in 2002 had carbon dioxide emissions of 275 million tons annually, which was half of the annual CO2 emissions of the U.K. Was the commitment that they signed, binding them to reduce emissions by 4% by 2006, enough?

Again the purpose of this was initially as a pilot program. It was a demonstration project. The job was to build the institutions. It’s like saying to the Wright Brothers, "You only flew for 56 seconds. You couldn’t even carry mail on that plane, so what good is it?" We want to build the institutions. Markets are like personal computers. What Steven Jobs had in the garage in Berkeley was a very rough copy of what you have today. Financial innovation is like industrial innovation. It occurs with a big idea and then subsequent refinements. We hope to prove that it will fly. You can build the banking, verification, monitoring, protocol, and prove that the system works and will evolve over time.

If you have more questions about this program, how it works or how to sign up your corporation, go to http://www.chicagoclimateexchange.com.

Will Dr. Sandor save the world and win a Nobel Prize to boot? Will Americans catch on to the hybrid craze, started by Cameron Diaz, Harrison Ford, Susan Sarandon and Robin Williams, who began showing up at the Oscars in 2002 in their new Toyota Priuses? You know that your gas-guzzler is so last year, when General Motors has committed to selling e-flex electric cars, like the Chevy Volt, beginning in 2010.

The 65 Million Dollar Idea. Rogue Status

The 65 Million Dollar Idea.

Meet t-shirt entrepreneur Johan E. Esbensen, President, Rogue Status, AWOL, Easy Company.



Two years ago, Johan Esbensen was a sneaker salesman at Undefeated in Santa Monica, California, who had a little hobby making provocative, in-your-face t-shirts that he gave away to his friends and customers. Today he is the President of Rogue Status, a company that has the hottest growing clothing line in the world.

Rogue Status sales jumped to two million in under two years. Part of the thanks for that explosive growth goes to pro street skater Rob Dyrdek featuring Yo's shirts on his MTV show, Rob and Big. However, having an MTV show doesn't explain why teens worldwide are tattooing Rogue Status and AWOL (a brother company) slogans on themselves.

I sat down with Yo on a sunny April 2008 morning at a local Venice Café over coffee. He'd walked over from his house just up the road. I'd driven the two blocks from my place and was feeling a bit wasteful about that. I had recently gotten a bike (a birthday gift from my teenage son), but still haven't bought the lock needed to actually use it on a morning like that day. Ridiculously lame excuse, really.

You see, Yo's motto is that everything is easy. If gas is too expensive, it's just easier to ride your bike. So stop whining and do it. Rogue created a bike for you to buy, so there are no excuses. You can have your fashion, your passion, your exercise, extra dough in your wallet and green transportation, too.

Now an entire sub-culture of Westside teens own bikes in Venice, and both Venice and Santa Monica, California are having to install more bike racks to accommodate the trend. On Sundays, local Yuppies cycle down to breakfast at the Farmer's Market, or hang out to watch sports in an outdoor bar and grill. More and more, they are riding Rogue bikes and wearing Rogue t-shirts (and underwear as well – trust me. I wash my teen's clothes).

It's a life Yo has always dreamed of, but still has trouble believing that it happened so fast and so easily. Yo created a world where he and his friends blur the lines between work and play, called the enterprise Easy Company, and the world decided to grant him his first wish. In his mind, there's no reason that his morning can't include walking over to the grocery store to buy dog food, in between global deal making and designing more slogans that are bound to inspire and enrage – many times in equal measure. His "million dollar idea" began with two guys shooting the breeze on a couch, but looks to become more like a $65 million dollar idea before all is said and done.

Q&A with Johan E. Esbensen, President, Rogue Status, AWOL, Easy Company and Natalie Pace.

What's up with your signature slogan, "Curb your God?" Unlike some of your more controversial slogans, like the gun show shirt, this is one that parents (at least the liberals) and kids alike respond pretty positively to.

Curb your god. Too much of anything is too much. A little of what you fancy does you good. Just not all of it.

What was your inspiration for it?

We had dog tags and we called them God tags. They had "still standing" on one side and a bullet hole on the other. So, just walking down the street and seeing all of those Curb Your Dog signs… I thought, "No. Curb your God."

Speaking of God (in a slightly different way), let's talk about the limited edition Dillon Henry shirt, the memorial tee you produced for some local kids, Davis, Elliot and Gabe, when their best friend, Dillon, was killed in a car accident.

I had a Dillon shout-out the other day. This kid wears the Dillon shirt so much that I accidentally called him, "Dillon". Good things come out of tragic events – like seeing the boys grow through it and staying positive about it and remembering somebody forever. I love that there is still more stuff happening, like the memorial concert.

Natalie's note: On June 14th, RJD2 and GZA will headline the Dill ‘n Eddie Show at The Orpheum Theatre in Los Angeles, California, with proceeds benefiting the charities of Dillon Henry and Eddie Lopez. Both teens had their futures cut short by fatal accidents. Eddie was a victim of crossfire gang violence and Dillon was killed in a car accident. For more information on the memorial concert, go to Ticketmaster.com.




Artist: Davis Lau

These guys needed something and you stepped up and out of your heart and wallet funded something that was so meaningful for them – the first 100 t-shirts honoring Dillon.

That's how we spend our money. I didn't even think about that. There wasn't even a question. That's what we do. We make shirts, so we did a hundred initially of the black ones. But we don't just wait until someone dies. Right now, our friend Xavier needs a new wheelchair. He's part of that Life Rolls On Foundation. We're going to customize the chair. Rogue Status it out with artwork. He'll have a fresh new chair for summer.

Phil Knight, the founder of Nike, says, "Never underestimate the value of a free t-shirt." Are you saying, "Never underestimate the value of a free wheelchair?"

These are just projects that are fun. We can do them now.

What's your role at the company?

I'm the President. Rex is the head of design. Jaspar is the Vice President/brand manager. Brian in sales. Rex stays on top of all the artwork and production. Jason helps out with everything.

How long did it take to get here?

November 2005 is when Rex and I first sat down and designed 20 shirts. It just kind of snowballed from there.



Photo: Rob and Big. Rob is wearing the Rogue Status “Gun Shop” tee-shirt.

What are your top selling shirts?

The gun print is #1 to this day. #2 now is the brass knuckles in the shape of California. Another big seller is "Too much time; too much money." It's about the line-up of kids who wait for shoes, when there is going to be another hot one next month.

What is behind the gun print? What message do you want people to take away from it?

By now, I don't care. There have been so many different reactions. I was just watching the news and it was all just Iraq and guns. I was looking to make a simple linear print. I took the guns and lined them up. We coined it the Million Dollar Idea when we made it, sitting there on the couch.

Was it?

Yup.

Was it a multi-million dollar idea?

I'm sure it will be, yeah.

Quicksilver is a publicly traded company worth a billion dollars. Would you like to be that big or are you happy the way you are?

We're really happy the way we have it. The two partners I share the company with have the same vision for it. One day, we'd like to grow it as big as Quicksilver without having to sell out to anybody.

Remaining privately held and not accountable…

to shareholders. Yeah. But we'll see. I don't know. I'm learning all the time. I know we'll get to at least $60 million on our own.

I have a whole other gang of companies behind Rogue Status. We can grow Rogue Status as big as we want. And then we have DTA (Don't Trust Anyone) with a darker design element to it. So we'll hold onto that and grow it as a little brother. And then we have AWOL and Easy Company and Board of Authority.

Arlington Cemetery hoodie
“Gun Show” hoodie

Now, what is AWOL? I thought it stood for Always West of Lincoln - just a local Venice brand.

I gave out 200 of those shirts to locals when I was at Undefeated. But you can't keep that localism vibe when people from the East Coast are tattooing it on their bodies… That's outside of the neighborhood and now a way of life. AWOL is following a different path. Anti-establishment.

What is the AWOL ethos? You're a provocateur, but you're also a laidback dude who rides his bike on Main Street for a bite to eat.

I've lived all over the world, in Ottawa, Vancouver, New York, Tokyo, Australia. I've traveled quite a bit. And then coming to find Venice and Santa Monica, I thought, "This is where I want to stay forever." I don't have to call anybody in the neighborhood. I can get on my bike and bump into them. It's such a neighborhood feel. You don't have to go downtown LA or Hollywood. You have everything you need on the left hand side.

In fact, you've started quite a trend of young guys riding bikes in the hood. My son bought his first tank of gas. He was so disgusted with gas prices, that before he bought his second tank of gas, he bought a Rogue Status bike. That's a cool idea that neighborhoods are so local you can ride your bike. More people could do that, really.

Yeah. They just don't.

So, Rogue Status is in five countries already. How long have you been doing this? Two years maybe?

Yeah. The first year, I was just doing the hustle, still working full-time at Undefeated and doing this as a passion. I've just been feeling the rewards of watching it grow, and people accepting it and understanding it. Every shirt kind of inspires dialog whether it is good or bad. They don't know that the people behind the brand are a little more lighthearted than the brands look. That first year was a year of hustling.

What's the hustle like? What's the difference between you, the guy who actually did it, and the guy who doesn't do it?

It's just a matter of getting up and doing it. A lot of people say I want to do this or that but then they go back to sitting on their couch or doing nothing on their day off. The hustle is me getting Rex, driving to downtown LA, getting the shirts, driving out to the print shop, developing that relationship there. Coming back, going to work, picking up boxes, cruising around promoting people. Every minute you're not selling a sneaker, trying to put a t-shirt on somebody and pushing the brand.

What was the real key?

I followed my friend Chris Gibbs to Union in New York. I was always dreaming about starting a brand then, but never had the time or the money. Then I moved to LA. Undefeated wanted to start a company on Main Street. They asked Chris to help them open it, and they hired me also. If I didn't know Chris from high school, I wouldn't have ever have gotten that opportunity.

Was the MTV show a big boost? Rob and Big. Rob wears the Rogue Status gun shop tee-shirt almost everywhere he goes.

After Chris, the key to success was definitely the relationship with Rob. That was cool because I met him through Undefeated through the manager, Alex. Once I had the gun print in four colors, I thought, "Rob will like these." I had my friend get them to him. A week later, Rob came into the store and he said, "Yo, the reaction that I get from people when I get out of my Porsche is just insane. What do you want to do with this?"

So, I hustled to get to Rob and he became a partner in the company. It took a year to brand the sh** out of the company and then I pulled the trigger on getting a store.

We had a mess of orders that we couldn't even begin to produce. Then Travis Parker partnered in with a turnkey solution. We got warehousing fulfillment, accounting, all the stuff we don't want to deal with. We formed a distribution company called Killers.

You guys are pretty dedicated worker bees for a bunch of laid back sneaker salesmen from Venice.

That's the thing. We combine a really chill lifestyle with a strong work ethic.

How long is your day?

12 hours a day. Answering emails all over the world. Sometimes I go to Ontario [California] to visit the warehouse. We're just a well-greased machine that doesn't stop. We can combine work and pleasure. We blur it and live in the grey zone. It's not black and white.

We call our company Easy Company. Even our store. We have hangars that hang straight all the time. You never have to adjust them. They just always look good. I have a swivel chair. Everything is just always right there.

How did you go from NYC and not having enough dough for t-shirts to coming here and getting your ideas on cotton and your shirts on MTV?

You scrape the pennies. I gambled on 200 t-shirts initially. I took them straight to Union. Union got them on Friday and sold out in two days. I then re-ordered. I dumped all of my shirts on Undefeated and Union. Real baby steps. I went into the hole over $10,000, personal loans from people who really covered my ass. Then I stayed on top of the invoicing, making sure people paid me. Rob bought in. I spent that money but maintained it long enough to get Travis to come in. All that happened in like a year.

Cash positive in year one or year two?

I'd say year three. We were always spending more money to make more money.

What about the growing pangs? You have more orders than you can fulfill and Travis falls into the game. You have your first t-shirt and an MTV star loves it. You make it sound like everything just flowed so easily.

One guy bought in at one point who didn't share the same vision. We had to buy him out.

It doesn't seem that bothered you much. Some people would let that eat them alive.

I didn't let it bother me much. It was more just like it didn't work out, so here's your money back. There was animosity and he shit-talked about us for quite a long time after, but I was too busy to be bothered. We were going forward.

Have you faced any moral challenges? People promising you the moon…

I didn't want to sell the company out right away. There was an opportunity to do that. We wanted to let the company grow more naturally. The whole company motto is: "Do you." I have the perfect team right now to keep the company going. I keep coming up with new ways to push the limits of what you can put on a shirt. The rest of the guys do the same. We're just having fun with it.

Like the new Arlington (Cemetery) shirt?



That's up there in the top two. It's like the opposite of the gun print. People really understand the patriotism in that one. It's all about respect. All those guns symbolize the soldier, as much as the crosses.


The gun print by itself without Arlington is more in people's face. Some people take it like you're promoting violence. Were you intending to do that?


No. But I knew that it would push a lot of buttons and get people talking. I don't even know why people get that offended by it.





They do, though, don't they?

Yes. Kids get kicked out of high school for wearing it. People get kicked out of the malls for wearing the Curb your God; Holy F**k shirt.

Is this in the red states?

No, here in LA. I think it's the Holy F**k on the back. We do that a lot. "Kill Them" on the front, "With Kindness" on the back. We're having trouble finding product liability now because of those. They are worrying that someone might get shot for wearing the Hangover shirt, which says "Please Kill Me."

That's tough because your brand is built in controversy. If you tame yourselves enough to get insurance, you lose the very thing that your customers love about you.

We had a deal with DC Comics to do a Ghost Riders motorcycle jacket, shoes, the whole bit. Rob was presenting our media kit to the shareholders at Quiksilver (DC's parent company) for our product partnership with DC. It went all the way to the top and then the old guys objected, saying, "No way. We can't work with Rogue Status." They objected to an old t-shirt I made called, "Make Hate."

We shot ourselves in the foot on that one. People got on the Internet over that shirt and the World Trade Center shirt and started dragging me through the mud.

Old white, conservative dudes?

No, young neighborhood kids. With Make Hate, I was referencing that when you make anything positive or different, whether you make anything, even a painting, and you'll always get someone to hate on it. That's what's behind Make Hate. People get pissed off, but I will sell t-shirts for the rest of my life and make a great living and have fun with my friends.

The statistics are that a college graduate makes 80% more than a high school graduate. How far did you go?

I never got my diploma. I made it through grade 12, but there are 13 grades in Ontario [Canada].

You seem to be very educated, particularly in history. Where are you getting your information and knowledge?

Jason read every book and saw every film and talked about history the whole time and sparked my interest in it. I've learned by living through current events. I've got to credit the Internet, the History Channel, the Discover Channel. I read The Bible recently, and looked at it differently.

What is the biggest surprise? Your manna from heaven?

The fact that I can pay myself and all my friends right now to make t-shirts. I pinch myself everyday. People love that sh**? All of us are just getting warmed up. Every day is a surprise.

What is your biggest challenge? It sounds like things came fairly easy, but also you are not getting taken out with the stumbling blocks.

I don't know what to say. Yesterday was fun. Tomorrow's another one.

How fast are you growing?

We have nine people on the payroll including me. We have independent sales reps all over the United States. We're pretty much peaked on our staff. We'll probably need more people in a year and will outgrow our office space. We're growing like crazy.

How about the store?

Our store kills it. We pay our rent in a day or two days. It's been nothing but uphill. Growing growing every month better than the last.

We had a family drive straight from El Paso. The dad was real buzzed out on coffee. People come from all over. It's just a bonus really.

Any avoid this; do that tips?

Try to be original. Find your own motivation. Do you. Stay true to who you are. That's it.

What about those people who say, "I don't know who I am?"

It sucks to be you. I hate it when that happens. I've never understood people like that. Psychology is another thing I'm interested in.

Pushing past what you think you can do… Did you ever do that? You don't seem to have any fear really. Making t-shirts that push the edge so far and all.

I hate flying. I'd rather drive. If I can drive, I'll drive. I never fly to Vegas. That landing. The turbulence. The plane is really small.

Well, if I were a betting gal, I'd bet you're in your own 747 soon, just like Sergey Brin and Larry Page, since you can't ride your bike to Singapore. Thanks Yo. See you on the street.

Johan E. Esbensen is the President, Rogue Status, AWOL, Easy Company. Find out more about Rogue at RogueStatus.com.

Exclusive Q&A with MySpace co-founders Chris DeWolfe and Tom Anderson.

by Natalie Pace, CEO and founder, NataliePace.com™

NataliePace.com's 2006 Company of the Year: MySpace

NataliePace.com's 2006 Executives of the Year:
Chris DeWolfe, CEO, MySpace and
Tom Anderson, President, MySpace

Editor's Note: This article first appeared in the January 2006 NataliePace.com ezine. It was also published on Forbes.com.



In 2006, MySpace surpassed Google in a number of key online metrix, and was ranked as the number three web site, in terms of page views and user time online, just behind Yahoo and MSN (source: comScore Media Metrix). With 45,579,475 registered users (as of 12.28.2005), and increasing at 160,000 people per day, MySpace received 12.5 billion page views per month and popular culture and the digital lifestyle. All that in just two years of operations.

Nov-05: Unique Visitors (000), Total Pages Viewed (MM), Average Minutes Per Visitor
Total Internet Audience: 169,747, 454,480, 1,547.0
Yahoo! Sites 125,038, 43,345, 260.1
MSN-Microsoft Sites 115,526, 19,821, 182.3
Google Sites 90,889, 6,736, 30.6
MYSPACE.COM 26,684, 12,511, 78.0

Source: comScore Media Metrix
Audience: All Persons at U.S. Home/Work/College-University Locations

Numbers like that can launch a multi-billion dollar IPO, and indeed, in early 2005 it looked like MySpace's owners, Intermix Media, were positioning MySpace to be the Cinderella IPO of 2006. By September 30, 2005, however, in one of the most nimble, noncompetitive acquisitions ever, Fox Interactive Media, Inc., a wholly owned subsidiary of News Corporation, bagged MySpace (and its parent company, Intermix Media) for just $629 million (including the buy out of preferred shareholders and unvested stock options).

How does the Internet's hottest new property get scooped up for a song? Although MySpace is mixing it up with the giants on the Internet, it's parent company, Intermix, was slogging through a series of scandals in the summer of 2005. Indeed, when News Corporation came calling in May 2005, Intermix Media had just been slapped with a lawsuit for AdWare and SpyWare by Eliot Spitzer's office and the Intermix market capitalization had sunk to $137 million. In light of the lawsuit, lack of investor confidence and reduced cash position of Intermix, the News Corporation offer of $629 million was considered by many financial professionals at the time to be generous. According to Jim Moglia, Executive Managing Director, Harris Nesbitt, "Having a stable bidder at a price that was high for the time was a good deal."

Since the Fox Interactive, Inc. acquisition, MySpace, which was never named in the Adware/Spyware lawsuit, has continued to be on a tear, expanding its services, adding new users in the core advertising demographic of 16-34 year olds, and attracting those users to spend more time online.

Will MySpace be the Mother Lode Rupert Murdoch has been searching for to attract more investors to News Corp.? Will answering to the "man" kill the independent spirit that attracted teens and bands to MySpace in the first place? Can the co-founders of MySpace, who have taken the company from zero to 160 employees and from zero to 45 million registered users in just two years, hope to compete with experienced executives like Terry Semel (CEO, Yahoo!) and Eric Schmidt (CEO, Google)?

Read NataliePace.com's exclusive Q&A with co-founders, Chris DeWolfe and Tom Anderson, to discover how these two visionaries outmaneuvered the competition, survived two owners (Intermix and now News Corp.), created a lifestyle portal that MySpace users, quite frankly, couldn't live without in 2006. Peek into their plans to expand their revenue, reach and products.



Natalie Pace -- Your new owners at News Corp. have voiced a lot of respect for you and what you have achieved over the past two years. Ross Levinsohn, the President of Fox Interactive Media, is quoted as saying, "To ramp up that quickly with that kind of talent is pretty unique." Andrew Butcher, a spokesperson for News Corp., says that Rupert Murdoch is clearly very impressed. Is this a case of taking ten years of R&D to become an overnight sensation, or was it really that easy?

Chris DeWolfe - It's a little bit of both.

Tom Anderson -- Actually, things did go remarkably easy for us. I can't say that we struggled for a long time; we only struggled for about a month. When we were about a month into it, I remember thinking, "This may not work out." Just one day, in particular, we saw this huge spike because of people telling each other. It just went crazy from there. We didn't have this big, long struggle behind it. We put it up and it got popular very quickly.

Chris DeWolfe -- One of the major reasons it worked so well is that we had a very experienced management team. We've worked together for the last seven to eight years. With respect to timing, when we launched the site, social networking began to take off and the advertising revenue stream came roaring back. Two of the most interesting points were that we had no content costs and no customer acquisition costs. We had to make sure we had enough money to cover engineering and bandwidth costs, and we were confident that we understood the advertising business.

How do you get 43 million people to find out about your product in less than two years, especially without a spot of advertising and when you didn't buy a list of users?

Chris DeWolfe -- It was really key to create a set of functions that were compelling to our users and an efficient way to use them. Users socialize to figure out what they're going to do on the weekend. They use MySpace to discover new music and post events. Musicians upload their music. People use it for entertainment purposes, or to sell goods in the classified area. MySpace makes what they do in the offline world a) more efficient, or b) more interesting. If you have ten friends, and nine are on MySpace and you're not, you feel pretty left out. People end up joining sooner rather than later. The bigger the network gets, the faster it grows. We are now registering 160,000 people per day with no marketing.

But it starts somewhere. What community did you approach first and how well did your first efforts work?

Tom Anderson -- We didn't do traditional marketing, but we did try to find photographers and creative people because we thought that would make the site more interesting. In the beginning, it was all Los Angeles -- actors, photographers and musicians. That made for an interesting community, and brought in a lot of people. A lot of the early growth, however, had to do with the features and what our competitors were not allowing people to do.

Like what?

Tom Anderson - On Friendster if you were a band and you made a profile, they would delete it. They didn't want bands on their site. If you made a profile for your company or for where you lived or a neighborhood or an idea, you'd get deleted. We recognized from the beginning that we could create profiles for the bands and allow people to use the site any way they wanted to. We didn't stop people from promoting whatever they wanted to promote on MySpace. Some people have fun with it and others try to get more business and sell stuff, like a makeup artist or a band, and we encourage them to do that.

Bands have a huge presence on MySpace. How did you attract over 660,000 artists and bands to MySpace?

Chris DeWolfe -- Tom has a deep passion and understanding for what emerging musicians go through. He understands the frustration. I understood the macro trends of the music business. Labels were signing fewer acts, giving them less time to prove themselves and spending less money on marketing. We saw a need to develop a community for artists to get their music out to the masses. With MySpace, when they went out on tour, they could actually tour nationally. The band might have 20,000 friends on their list and send out a bulletin, saying, "I'm going to be in Austin on Tuesday night. Come see our show." It has allowed bands to make money on music without having a deal.

You can create a professional sounding CD, sell merchandise, and get your touring revenue in and make a living. It gives those artists a longer period of time to develop themselves before they get signed, or make a living without getting signed at all.

It has allowed bands like Fallout Boy to become successful and turn down record deals. Jonathan Daniel, a partner with Crush Music Management and manager of Fallout Boy and Panic, uses MySpace for all of his bands. He says, "For us, they're a great company to work with for two simple reasons. 1. The people that work at MySpace actually like music. We first met Tom when he sent one of our artists, Butch Walker, a message saying he liked his music. 2. People actually like MySpace. We don't have to work to get kids to go to MySpace to listen to music; they go there to listen anyway. Our artists are good and MySpace gives them a platform, like radio or TV, to be heard because it has an audience." Where else in the world can you market to millions of people FOR FREE?

Chris DeWolfe -- In the early days, there were a lot of bands signing up. They told us that they'd like to post their lyrics and tour dates. Users told us what they wanted to see, and we just built it. That's how we do a lot of our updates. We catalog what people tell us that they want. It's not super complicated.

Sifting through the suggestions of 54 million users sounds very labor intensive.

Chris DeWolfe -- Ninety percent of what people write in, we've already heard. Conversely, if we build a feature that doesn't work, they tell us and we fix it. It's similar to eBay in the early days. They would have all their sellers convene and ask them what they liked and didn't like and took action on that. That's exactly what we do. We're lucky to have that direct feedback mechanism.

Tom Anderson -- One example is that on the site everyone has access to me. What this means is that if you are a kid, you think that you can write to me. The users have uncommon access to the president who is deciding what the product will be. That's not something that most people would consider a good use of their time, having the users help us, telling us what is wrong with the site, and what's good about it. I'm spending time in the trenches, whereas the president might have hired someone to do that.

That's something that we have to stick to--being in touch with what people on the site want and staying true to our ability to be quick, and not following the business trends and tech trends that are the hot things, but going on our own instincts and feedback.

Most entrepreneurs will not be lucky enough to face all of the challenges that you've faced in the last two years. You've gone from zero to 160 employees. You've raised millions of venture capital. You positioned your company for an IPO, and a few months later were bought by one of the largest media corporations on the planet, in a deal that placed your company as pawn more than the kingpin. That's a lot of turmoil in the captain's quarters to navigate, while at the same time sailing on the Internet scene next to giants like Google, Yahoo and MSN. The MySpace story might rival The Odyssey.

Tom Anderson -- Chris had to deal with that more than I did. I focus more on the product. Chris has kept me shielded from it, and I come in when it is time to make a decision. We discussed an IPO. Ultimately, it feels a lot better to me where we are. With News Corp, we get the opportunity to grow. I think that is the smart thing to do in the long term.

Chris DeWolfe -- I've run businesses before. The other people on my team have worked in senior positions in other businesses. Your partners are the most important things. If you don't have good partners, it can't work. Some of our competition had extremely high turnover. It wrecks the continuity of running the business. You need to have similar sensibilities and people you trust to fill in your weaknesses with strengths that they have. That is underrated. Another trap that people fall into, when you start to grow and there is a little bit of success, is that people get on the soap box, like pundits and venture capitalists, who tell you how to run your business. It's important to be very disciplined in terms of not listening to them. We were resolute to do what our users wanted. Having discipline and saying, "No," is why we ended up being successful.

Ben Horowitz, the CEO of Opsware, says that when you are running a big business, you have to listen to a lot of smart people telling you how stupid you are.

Tom Anderson -- In a way, it's our lack of experience that helps -- definitely for me. The thing I like about Chris is that he's not like all the other people I've met in business. He's able to cut to the chase right away. We don't waste time on things. We didn't sit down and write up this big plan and spread sheets and try to force that imagined plan. We've been quick and nimble on our feet. I was working from common sense. Even though Chris does have that background, he's never been pushing me to that mold and he doesn't follow it himself. So, we are not doing what everyone else is doing. When we were getting popular, people were saying, "Why aren't you doing this or that?" I thought they were ridiculous and they thought I was ridiculous.

Chris DeWolfe - They said that we were trying to do too much -- music, instant messaging, blogs, etc. - and that we should just focus on one of those. That was the antithesis of what we aimed to do. Most of the sites that did that became boring after awhile. With that said, once you chose your product road map, then it becomes very important to focus on the top three to four initiatives and get those things done. Others try to do too many things at one given time. Our overall strategy was to build the next generation portal that would be extremely sticky, and layer those features in and around a social network. At any one time, we focus our developers on the top three to four initiatives, and don't get distracted with what others tell us we ought to do.

Well the buzzwords today are definitely text messaging and pod casting. What are you planning on those fronts?

Chris DeWolfe -- Pod casting is not really that different from streaming music, which we've done for quite a long time. Having a traditional pod cast that people subscribe to -- the hype is ahead of the quality. Pod casting is essentially a download, and you run into copyright issues. What you're left with currently is pod cast talk radio. If it's an established station, like NPR, it's fabulous. The average person having a talk radio show will not be that great. We'll keep our eye out and may undertake it at some point. We have a couple of different ways that people text message one another. There is Instant Messaging on the site. We also have an Internal email product, where people write messages. You can also leave testimonials on your friend's pages.

Let's talk about growth. You launched MySpace Records on November 7, 2005 into a very crowded space at a time when the record companies are getting slaughtered and the new music formats, like Apple's iTunes, are getting challenged on many fronts from Yahoo Music and Napster, to name two.

Chris DeWolfe -- The MySpace web site is the most important thing that we are doing right now. MySpace is a lifestyle brand. It's the first Internet company that is a lifestyle brand and produces life events. We had a festival with five bands where 10,000 people showed up at Dodger stadium.

Aren't ring tones outselling CDs? Can you make money on music in a world where everyone wants a free download?

Chris DeWolfe -- We embrace the ring tone companies. We embrace iTunes, Yahoo Music and the record stores. All of those venues will be distribution partners for us.

Supporting the streaming of tracks of 660,000 bands that use MySpace's music applications FREE OF CHARGE has to be very expensive. Was there ever a time when you thought that you were supporting this monolithic music community and not really getting any return of investment on it?

Chris DeWolfe -- With respect to our return for picking up the hosting/streaming costs, which are not small, we understand the advertising market. We feel comfortable with our ability to monetize the eyeballs on our site. We did not create a revenue model that relies on starving artists and the last ten dollars in their pocket. Advertisers can afford to underwrite the streaming and bandwidth costs. When you go to a MySpace band profile, you see their pictures, their friends, and you can send them a personal message. It almost feels like you're listening to the band in a communal experience. We saw a huge need. From that point, if you can aggregate all of these bands in one space, they are early adopters and trendsetters. By definition, they will bring their fans to MySpace. If you go to a show, ninety percent of the time now, the bands will say, "Come see us on MySpace."

MySpace is streaming never-before-heard confessions from Madonna for her latest album, Confessions on a Dance floor. I'm sure Maverick Records can afford the ads more than Hollywood Undead (the band that Tom found for the first MySpace Records CD). But is MySpace CASH POSITIVE or still a "nosebleed" as critics suggest?

Chris DeWolfe -- I can't talk about that. News Corp. isn't breaking out our revenue and profits. But I can tell you that we are number three in number of ads served on the Internet, which comes to 12% of all ads in the US on the Internet. I'm not suggesting that we are selling at the same price as Yahoo. We sell a lot of ads and we feel very comfortable with our business.

So, there are no plans for cost cutting? Others have critiqued your company for giving your web programmers a view of the Pacific Ocean, when it is much cheaper to farm out at least some of the labor to Bangalore.

Chris DeWolfe -- We have a great deal on office space, and we're at the tip of the iceberg of where MySpace can go again. We want to expand aggressively in wireless and internationally. Doing all of those things will grow our revenue. Now is the time to reach out and to expand. We haven't received pressure to do things differently.

So, the next area of growth is wireless and international. Those application strategies sound auspicious, and challenging. What are your plans for product growth in the near future, outside of MySpace Records?

Chris DeWolfe -- We're always looking for the right opportunities. We are going to be doing some events in Sundance, in conjunction with our independent filmmaker section on MySpace. We'll be doing more festivals, at least one major one over the summer.

I'm sure the MySpace summer music festival will be even more popular than last October's two-year anniversary concert. You've certainly won the allegiance of some great bands and music fans in the U.S. Do you think that MySpace can be as successful at attracting the independent film community?

Tom Anderson -- Another part of my background was that I was in film school. It made a lot of sense to me that the music part of our site would work for filmmakers as well. They'll be able to upload clips. There will be a section where you can watch what they are doing. They'll tell where their screenings are. It took a lot longer than we wanted to because we were growing so fast. For actors, directors and everyone associated with film and television, this will become as big of a resource for them as it has been for musicians.

Google's founders hired Eric Schmidt to run Google, and since then, the company has grown to $127.4 billion market capitalization. Do you imagine a time when the multi-billion dollar executive should come in and run things or, on the contrary, do you think that would be the kiss of death for a hip, young business?

Chris DeWolfe -- We feel really comfortable with our progress. We have huge plans for next year -- international, wireless and expansion into other mediums. We're hiring quickly, but in a controlled manner. We have set a plan that we believe everyone at News Corp. will bite off on. At the end of the day, time will tell. Continuity with senior management is very important. It's been one of the reasons why we've won. If we'd hired a big-time media executive a year ago, we wouldn't be where we are right now. We have a great relationship with our new bosses at News Corp.

Did you get much fallout from your fans, who worried that the renegade, independent spirit of MySpace would be sacrificed if you were answering to "The Man"? MySpace is, among other things, a site of free speech, personal whimsy, cutting edge music and the young.

Tom Anderson -- When this was announced, people were worried. It went away pretty quickly when we didn't change. If anything now, people will see it get better. We have more money to grow, faster bandwidth, and more programmers working on more features. We aren't getting pressure on designing it this or that way. It's our baby on what we want the experience to be. News Corp. has been great about that. I think we're going to continue to do well.

Do you see any other benefits about being part of a large media conglomerate, like News Corp.?

Tom Anderson -- I just came back from a screening at 20th Century Fox and they were asking me what bands to put in the movie.

So, I guess one of the final areas of concern would be predators and pornography on the site. How do you monitor and delete the creeps, and protect the teens that are on MySpace?

Chris DeWolfe -- These issues have been coming up. We're sensitive to it. We've undertaken a lot of different projects, and we're always looking for ways to make the site safer. Wired Safety wrote a bunch of safety tips for us and we put them on our site. We have a rapid response safety team that responds to issues very quickly. We have a team that weeds out anything that is pornographic in nature. Our users and our advertisers hate it.

[Editor's note: Safety Tips are located at the bottom of the MySpace home page.]

MySpace as NataliePace.com's 2006 Company of the Year and Chris DeWolfe and Tom Anderson as the 2006 Executives of the Year were the easiest calls we, at NataliePace.com™, have ever had to make. Just catch a rising star and hang on while the founders navigate the heavens. In the time it took me to complete this article, another million people registered with MySpace. The new filmmaker's section on MySpace will be introduced at Sundance this month, and launched officially "in the coming months," according to MySpace.


Other articles of interest:
News Corp. Takes on Cyber Space With Acquisition of Myspace.com by Natalie W. Pace, CEO and founder, NataliePace.com. vol. 2, iss. 10
Myspace: The Next Google. By Natalie Wynne Pace, CEO & Founder, NataliePace.com. vol. 2, iss. 4.