Every day thousands of consumers go to Under Armour’s website and click “buy” on a T-shirt or a pair of running shoes, transactions that total an estimated $500 million a year. To those customers it may seem as if their transactions are processed instantly. But in that half-second or less, Under Armour, with the help of a Seattle-based tech company called Whitepages, makes the decision whether to trust the consumer and complete the sale.
Under Armour is just one of more than 2,000 businesses, including Wells Fargo, Saks and American Airlines, that rely on Whitepages’ subscription-based service, Whitepages Pro, to assess millions of transactions each day. Is a buyer trying to pass off a fraudulent credit card? Or using a prepaid phone card and shipping to a Mail Boxes Etc., a red flag for fraud? As businesses crank up their online sales–and consumers move to mobile phones, which are tougher to connect to real addresses–the database that Whitepages began building nearly 20 years ago as a simple online phone directory has become increasingly valuable.
It has taken most of those 20 years for Alex Algard, Whitepages’ 42-year-old founder and CEO, to transform what started as a side hustle into a real business with $70 million in revenue last year. That transition required guts and a steadfast belief in the business. In 2010 the company’s two biggest clients cut back, its revenues plunged, and its investors decided they wanted out. “I was dreading going to board meetings,” Algard says. “We were fighting about whether to invest in the business. It was a very painful process.” And there was no guarantee the business would survive.
The son of a Swedish father and a Korean mother, Algard was born in Stockholm, moved to Vancouver as a teenager and studied economics and engineering at Stanford. During the dot-com boom, he landed an internship with Morgan Stanley in Silicon Valley. While there, in 1996, he had an idea for an online directory and thought to call it Whitepages.com after the soon-to-be-obsolete phone book. When he typed in the URL, he saw a “coming soon” notice, so he contacted its owner and flew to Los Angeles to negotiate the purchase, paying just $900.
After graduation Algard took a job as a junior analyst at Goldman Sachs in New York, tinkering with the online phone directory in his limited free time. In those days, before the advent of open-source technology and cloud-based software, building a database of phone numbers would have been prohibitively expensive, so he wrote some code that pulled data from American Business Information (now part of Infogroup) in real time. It cost just $5,000 a year in licensing fees and allowed users to search nationally rather than having to go state by state.
Before long Algard’s hobby, which generated revenue by displaying ads, was producing more income than his day job. Eleven months into his career he stunned his colleagues and bosses by quitting Goldman to pursue the dot-com dream. (Some at the firm were further stunned when they mistyped his URL and found themselves on Whitepage.com, then a porn site.)
Whitepages quickly became a cash cow. Consumers could save on directory-assistance charges by looking up numbers online, and advertising followed. An early win came from deals that rewarded Whitepages.com generously for forwarding searches for local businesses to Yellowpages.com and Superpages.com. The contracts produced $15 million a year by 2005, and those results attracted investors.
In 2005 Technology Crossover Ventures (TCV) and Providence Equity Partners invested $45 million for a minority stake. Revenues continued to grow almost effortlessly, reaching $66 million in 2008. But online business models were changing, Google was horning in on local business search, and the company’s fortunes were tied to the contracts with Yellowpages and Superpages. “We saw the writing on the wall,” says Max Bardon, who served as Whitepages’ CEO during a period when Algard stepped down to focus on a second fast-growing startup, an online community for car enthusiasts. “We started building our own business-search capability instead of outsourcing to those guys.”
But the new model required better engineering and design, and couldn’t match the easy revenue–and 99% profit margins–of the business-search deals. When Yellowpages and Superpages cut back, their payments dropped from $33 million in 2008 to $7 million in 2010. “It felt like an asteroid had hit us,” says Algard, who had by then returned as CEO and had to try to calm his VC investors. “They put a lot of pressure on us to magically go find profit. It really got to the point where I was thinking we would end up suing each other.”
By 2012 Algard saw two options: He could find a buyer for Whitepages, or he could come up with some $80 million to buy out the VCs himself. He chose the latter. While Whitepages had cash on hand he could put toward a deal, he was still roughly $30 million short. To bridge the gap, the company took out a bank loan–and Algard pledged his family’s house, savings accounts and other personal assets as collateral. “That’s a ballsy move that I really respect,” says Whitney Bouck, chief operating officer at HelloSign and a Whitepages board member. (“We’re glad this worked out well for Alex and our investors,” said a Providence Equity Partners spokesperson; TCV declined to comment.)
The deal left Algard with the task of turning Whitepages into a sustainable business. Now fully engaged, he shifted the company’s business model, culminating this year with turning off the advertising on the consumer side–Whitepages’ primary source of revenue–and switching to a subscription model. For a monthly fee of up to $29.95, users can get details on anyone they’re trying to find, including mobile numbers and bankruptcy records. For business users, Algard created Whitepages Pro. “It keeps our fraud rates low, which is really, really important for our business,” says Matt Oppenheimer, CEO of currency-transfer startup Remitly.
Algard’s early insight was to link people’s identities to their mobile phones rather than to their landlines and to work the data into an “identity graph” that ties together phone numbers, addresses, e-mail addresses, social networking profiles and the like. He has also spun off a division that uses the phone data to identify mobile-phone spammers. Called Hiya, the spin-off has deals with T-Mobile and Samsung.
Algard refused to say what impact he expects these changes to have on revenue this year but did say he expects it to surpass $150 million next year. A poker player, he says he has no regrets about borrowing millions to buy out his investors, though the company is still paying off the loans and his house is still on the line. “You must take risks to win,” he says. “If you do not take risks, you do not win.”