The Class That Built Apps, and Fortunes

ALL right, class, here’s your homework assignment: Devise an app. Get people to use it. Repeat.

That was the task for some Stanford students in the fall of 2007, in what became known here as the “Facebook Class.”

No one expected what happened next.

The students ended up getting millions of users for free apps that they designed to run on Facebook. And, as advertising rolled in, some of those students started making far more money than their professors.

Almost overnight, the Facebook Class fired up the careers and fortunes of more than two dozen students and teachers here. It also helped to pioneer a new model of entrepreneurship that has upturned the tech establishment: the lean start-up.

“Everything was happening so fast,” recalls Joachim De Lombaert, now 23. His team’s app netted $3,000 a day and morphed into a company that later sold for a six-figure sum.

“I almost didn’t realize what it all meant,” he says.

Neither did many of his classmates. Back then, Facebook apps were a novelty. The iPhone had just arrived, and the first Android phone was a year off.

But by teaching students to build no-frills apps, distribute them quickly and worry about perfecting them later, the Facebook Class stumbled upon what has become standard operating procedure for a new generation of entrepreneurs and investors in Silicon Valley and beyond. For many, the long trek from idea to product to company has turned into a sprint.

Start-ups once required a lot of money, time and people. But over the past decade, free, open-source software and “cloud” services have brought costs down, while ad networks help bring in revenue quickly.

The app phenomenon has accentuated the trend and helped unleash what some call a new wave of technology innovation — and what others call a bubble.

Early on, the Facebook Class became a microcosm of Silicon Valley. Working in teams of three, the 75 students created apps that collectively had 16 million users in just 10 weeks. Many of those apps were sort of silly: Mr. De Lombaert’s, for example, allowed users to send “hotness” points to Facebook friends. Yet during the term, the apps, free for users, generated roughly $1 million in advertising revenue.

Such successes helped inspire entrepreneurs to ditch business plans and work on apps. Not all succeeded, but those that did helped to fuel the expansion of Facebook, which now has nearly 700 million users.

Venture capitalists also began rethinking their approach. Some created investment funds tailored to the new, bare-bones start-ups.

“A lot of the concepts and ideas that came out of the class influenced the structure of the fund that I am working on now,” says Dave McClure, one of the class instructors and founder of 500 Startups, which invests in lean start-ups. “The class was the realization that this stuff really works.”

Nearly four years later, many of the students have learned that building a business is a lot harder than creating an app — even an app worthy of an A+.

“Starting a company is definitely more work,” says Edward Baker, who was Mr. De Lombaert’s partner in the class and later in business. The two have founded Friend.ly, a social networking start-up.

Still, many students were richly rewarded. Some turned their homework into companies. A few have since sold those businesses to the likes of Zynga. Others joined hot start-ups like RockYou, a gaming site that at the time was among the most successful Facebook apps.

The Facebook Class changed Mr. De Lombaert’s life. His team’s app, Send Hotness, brought in more users and more money faster than any other in the class. And its success attracted the attention of venture capitalists.

“The class, more than anything, set the tone for us to try to start something big,” says Mr. Baker, 32, Friend.ly’s C.E.O.

When the Send Hotness app began to take off, Mr. Baker encouraged Mr. De Lombaert to treat himself to a new car. Mr. De Lombaert settled for a laptop. (He also put some money aside to help to pay his Stanford tuition.) They eventually sold the app to a dating Web site.

Facebook did not actively participate in the Stanford class. But some of its engineers attended sessions, and it benefited from the success of the students’ apps. “It really felt like an incubator,” says David Fetterman, a Facebook engineer who helped develop the applications platform.

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With Silver Soaring, Attics Give Up Small Fortunes

As investors send prices soaring for not only gold, but now also silver, consumers have been unearthing ancient stashes of silverware, teapots and jewelry from long-discarded beaus, and trading them in at pawn shops or selling them on eBay for cash. More and more cash, in fact, as weeks go by.

“We’re seeing an increase of people coming in from all walks of life because they hear the news — gold prices are at record highs, silver prices are at record highs, so they’re basically grabbing what they have in their home and coming in to pawn, or sell, the items,” said Yigal Adato, an owner of CashCo Pawn in San Diego.

The sharp increase in prices — on Friday, gold hit a new high, not adjusted for inflation, while silver in April had the largest monthly jump in 28 years — has had an effect across the spectrum of retailers dealing with precious metals. Plain old silver enjoys new cachet among jewelers moving away from gold. And jewelry designers are opting for cheaper alternatives than metals — like emeralds, in one case.

Even the business of marriage enters in. Bands of gold are getting closer in price to the diamonds that sit on them. And Indian weddings, with traditional displays of celebratory gold, may be less gilded this summer.

Gold has been surging for years, and on Friday, it almost hit $1,570 for a troy ounce (a nominal high, not adjusted for inflation). Silver, measured by futures for July delivery, is almost as high as it has been since 1980, at more than $48 an ounce, though that comparison, too, is not adjusted for inflation. So far this year, the price of silver has risen more than 50 percent.

Gold has been slower to increase, with contracts for future delivery rising about 9 percent this year. When gold started its most recent run after the banking crisis in fall 2008, it posted a 25 percent gain for all of 2009.

Pawn shops are benefiting. Three publicly traded pawn shop companies, Cash America, EZCorp and FirstCash Financial, recently reported sharp increases in net income compared with a year earlier. For Cash America, the rise was 14 percent; with 34 percent for EZCorp; and 87 percent for FirstCash. Armloads of metal merchandise brought in by customers helped to drive those results: at FirstCash, domestic revenue from wholesale scrap jewelry rose 45 percent.

Worried about inflation, and wanting the stability of precious metals, investors are buying them in coins, and via vehicles like the iShares Silver Trust, an exchange-traded fund backed by silver.

“Investors who feel they may have missed the boat with gold have jumped into silver because it has a better price point,” said Suki Cooper, a precious-metals analyst for Barclays Capital.

Yet even if investors think $48 an ounce is reasonable, jewelers say the price has turned once-plebian silver into something extravagant.

“I felt you’d never see the day when silver would start to jack up like this,” said Alexis Bittar, who designs jewelry sold at stores like Saks Fifth Avenue and Nordstrom. “It’s always been considered not like a base metal, but fairly close to it.”

He added, “But next to gold, it’s the next precious metal in line, and it makes sterling seem more luxurious.”

Mr. Bittar, whose jewelry typically sells for a few hundred dollars, said he was making shifts to keep prices flat. Brass, for instance, substitutes as a base for silver on items that will be coated with gold, and he is reducing the amount of metal used in some designs.

J. C. Penney, which is also trying to keep prices flat on most items, began using alternative metals when gold prices started rising, and now sells items made with sterling silver, cobalt and Platinaire, a mix of silver and platinum, said Rebecca Winter, a Penney spokeswoman.

Also, she said, the retailer realized that customers did not mind paying higher prices for trendy pieces. In February, Penney introduced Alexandra Gemstones, a line meant to capitalize on the popularity of colorful accessories while avoiding silver and gold.

Michael Bisceglia, the president of the jewelry company Stauer, is also emphasizing gemstones — even rubies, he said, can be had at low prices.

“Emeralds, rubies, sapphires, tanzanite, pearls — those prices haven’t gone up that much, so I’m adding more gemstones to jewelry now, and less silver,” he said.

As for the Indian weddings, some changes are under consideration. Indian weddings typically involve a lot of gold jewelry, said Anu Duggal, a founder and the executive vice president for new business development for Exclusively.In, a site that sells Indian fashion and jewelry and just introduced a weddings section.

“It is very common for not only the bride and groom, but also the family members to purchase new outfits and jewelry for these events,” Ms. Duggal said in an e-mail. She added, “Gold itself is the most common gift given during weddings, and it is customary for the bride to wear pure gold as part of the formal wedding ceremony.”

But as the cost of gold has shot up, brides are altering the tradition, shifting to semi-precious and gold-plated jewelry, Ms. Duggal said. “This is becoming more and more acceptable,” she said.

At CashCo Pawn, the metals rush has brought in lots of silver inventory, like coins, teapots and flatware. “People receive Tiffany silver items,” Mr. Adato said, “and the girlfriend brings it in to sell — they say: ‘You know what? I broke up with this guy. I don’t want to see this anymore.’?”

In addition, people are still bringing in scrap gold, he added: “gold teeth, a lot of dental work. We get grills once in a while, gold grills.”

Joe Ellis, the owner of Cherokee Coins in Alpharetta, Ga., said he had never seen higher demand for gold and silver bars. Customers want coins like the United States silver eagle, generic silver bars, circulated silver dollars, and dimes and quarters from before 1965, when they were made with 90 percent silver.

Cherokee accepts pawned items, but, Mr. Ellis said, that business had slowed. During the recession, he accepted a steady stream of items like broken bracelet chains and silverware, but now, he said, his customers seemed to have little left in their attics and basements.

“Quite frankly, I think people just have so much they can sell,” he said.