Case Study 4 - Friendster

5/7/22, 8:36 AM What Happened To Friendster? Why Did It Fail?
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What Happened To Friendster? Why Did It Fail?

Last Updated on January 1, 2022 by Viktor
Executive Summary:
Friendster was a social networking service that allowed you to set up user
profiles, connect with other people, and communicate with them.
Friendster failed because of site performance issues, rising competition,

executive turnover, as well as extensive content moderation.
Founded in 2002, Friendster became the world’s most prominent social network
for a short time. It was later overtaken by Myspace as well as Facebook and was
ultimately shut down in June 2015.
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What Is Friendster?
Friendster is (or rather was) a social networking website that allowed you to
create user profiles and connect with (as the name suggests) your friends,
family, and colleagues.
Much like Facebook these days, users were able to make new connections by
adding them to their list of friends.
Furthermore, the site offered a variety of additional features, including:
Joining groups based on one’s interest

Replay
Message other users in private
Engage in a variety of activities, such as playing games or voting on
different topics
Set up your very own profile, expressing your interests, key facts, and
background
To be able to join Friendster, users had to be 18 years of age. Unlike Myspace,

users on Friendster were actually using their real names.
Friendster was later rebranded and relaunched into a social gaming site with
a focus on Southeast Asian users.
People were able to play a variety of games together, organize themselves in a

community, and consume gaming-related news.
What Happened To Friendster?

Friendster, headquartered in Sunnyvale, California, was founded in 2002 by
Jonathan Abrams. Abrams, a Canadian native, moved to Silicon Valley at the
height of the dot-com bubble.
In 1996, he joined Netscape, which sold to AOL in 1998 for $10 billion, as a
software engineer. Subsequent roles in tech at various Valley-based startups
would follow.
As the story goes, Abrams had the idea for Friendster after his girlfriend
broke up with him. He ended up registering on Match.com but found the
experience extremely frustrating.
In an interview with The New York Times, one of Friendster’s seed investors
recalled about his encounter with Abrams: “He told me himself, he started
Friendster as a way to surf through his friends’ address books for good-looking
girls.”
Adams, alongside a group of developer friends, began working on Friendster

in late 2002. In March 2003, Friendster was finally unveiled to the public.
Replay
Wayback Machine
By fall 2003, the site had amassed close to three million users – all while still
being in its beta test phase. Its growth was fueled by dozens of media
publications from sources as reputable as Time Magazine, Esquire, Vanity
Fair, or Entertainment Weekly.
The media coverage went so far that Abrams was even invited as a guest on
“Jimmy Kimmel Live”. During the show, he even boasted that Yahoo’s founders
had never been guests on a late-night television talk show.
Around the same time, Friendster was also able to raise its first-ever
institutional round of funding. PayPal founder Peter Thiel, former Yahoo
Chief Executive Tim Koogle (who also joined Friendster’s board), and others
poured a little over $1 million into the company.
Prominent investors weren’t the only ones taking a liking to the company,
though. Just days after the funding round was announced, Google made a $30
million offer to purchase Friendster. Abrams declined since he believed that
Friendster would be worth significantly more in the future.
Unfortunately, he wouldn’t be there to see that vision through. The board,

comprised of Valley legends including John Doerr or Bob Kagle, became
increasingly dissatisfied with Abrams and his antics.
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The entrepreneur was seen frequenting parties instead of focusing to fix the
many problems that befuddled Friendster. For instance, at one point, the
firm’s servers became so overwhelmed that it took 40 seconds for a page to
load.
In April 2004, the company announced that Abrams stepped down from his
role as CEO and was being replaced by Tim Koogle who had just joined its
board. Koogle himself only lasted three months in his role, oftentimes not
even being seen at the office.
His eventual replacement became Scott M. Sassa who previously held the role
of president at NBC Entertainment. Under Sassa’s leadership, Friendster
continued to mostly ignore fixing its most nagging issues, instead adding
features that no one really needed (such as a net calling service on college
campuses).
In May 2005, less than a year after his appointment, Sassa was already being
released from his duties. Taek Kwon, previously VP of product and
technology at Interactive Corp.’s Citysearch.com, became his replacement.
Furthermore, Friendster laid off 5 out of its 55 employees.
Kwon was able to at least partially stop the bleeding. Under his leadership,
Friendster completely redesigned its website, copying many of the features
that made Myspace so popular (such as the ability to publish blog posts).
Despite the successful overhaul, Kwon only lasted in his position for about six
months. In December 2005, he and many of his colleagues decided to depart

from Friendster. The company even had troubles meeting payroll.
As a result, rumors about a potential sale began to emerge. The board hired
Montgomery & Co., a boutique investment banking firm, to find a buyer. For
instance, Viacom was offered the chance to acquire Friendster for $5 million,
which was less than investors had poured into the company to that point.
Instead of being sold, Friendster’s existing investors decided to put some

additional cash into the company to keep it going. After all, Friendster still
had a valuable brand with millions of registered users.
Kwon was ultimately replaced by Kent Lindstrom who initially joined

Myspace as Chief Financial Officer right after it was founded. With Lindstrom
at the helm of Friendster, it began doubling down on the building blocks that
worked.
For once, that meant expansion into Southeast Asia where most of
Friendster’s users and growth were coming from. The company launched
different language versions of its website and even opened local offices in
countries like the Philippines.
Next, Friendster successfully filed for a variety of patents that it had

previously applied for. Over the course of the next two years, Friendster had
registered five patents that were covering general social media usage. The
company had developed key features such as a “method for sharing
relationship information stored in a social network database with third party
databases.”
Investors also began to regain trust in the company. In August 2006, eight
months after the firm’s initial investors saved the company, DAG Ventures
(with participation from two original investors Kleiner Perkins and
Benchmark Capital) put another $10 million into the company.
By the beginning of 2007, Friendster’s engineering team had finally fixed the
nagging issues that were slowing its site down so much. Additional features

such as a classmate function (to connect with people from high school or
college) or fan pages (to follow artists and other celebrities) added further
appeal to the site.
In December 2007, Friendster even launched its very own developer platform,
allowing others to create and advertise apps on its platform. The move
mimicked previously launched platforms by Facebook as well as Myspace.
Replay
To double down on the growth that the firm experienced in Asia, it hired
Richard Kimber, previously Google’s Managing Director of Sales and
Operations for Southeast Asia, as the firm’s newest CEO in August 2008.
Alongside the hire, Friendster had also raised another round of funding from
IDG Ventures, adding another $20 million to its balance sheet. At that time,
Friendster had close to 75 million users, up from 45 million just a year prior.
By the beginning of 2009, the majority of Friendster’s employees were either

based in Sydney or Southeast Asia (spread between the Philippines and

Singapore). Meanwhile, its San Francisco office had only a handful of people
left.
Replay
The office choice wasn’t a coincidence though. Over the course of 2009,
Friendster began shopping itself around Asia, making it clear that it was up
for grabs. Those advances finally came to fruition in December 2009.
Malaysia-based FinTech company MOL Global acquired Friendster for $39.5

million. According to TechCrunch, a fair bit of that purchase price ($13
million, in fact) was deducted with the acquisition, including:
$3.7 million in secured debt
$3.4 million to Morgan Stanley and other parties that helped with the
Replay
sale (M&A lawyers, etc.)
$2.5 million in cash in Friendster’s bank account
$2.1 million paid to Friendster CEO Richard Kimber
$1.4 million to other Friendster executives
Throughout 2010, it became evident why MOL decided to acquire Friendster.

First, in July, the Malaysian FinTech announced a partnership with Facebook
to become a payments provider for Facebook Credits across Southeast Asia.
Replay
Then, a month later (August), it sold all of its previously registered patents to
Facebook for $40 million. At the time, the patent purchase became one of
Facebook’s largest-ever acquisitions (before it paid $19 billion for WhatsApp,
$2 billion for Oculus VR, or $1 billion for Instagram). 
Meanwhile, MOL had some different plans for Friendster. The same month it
sold its patents to Facebook, Friendster added a social games portal, dubbed
Friendster Games, offering free MMO (massively multiplayer online) games.
Replay
The next year, in April 2011, Friendster announced that it would delete all of
its user’s data on May 31st. In June, Friendster relaunched as a social gaming
website that allowed its users to play dozens of games together,
communicate while doing so, and buy credits to boost their performance
(that’s where MOL’s expertise came in).
Wayback Machine
The site continued to be live up until June 2015 when it was eventually shut
down. MOL stated a challenging business environment as well as a lack of
user engagement as the reasons for its ultimate closure.
Why Friendster Failed
Friendster failed because of site performance issues, rising competition,

executive turnover, as well as extensive content moderation.
Let’s take a closer look at each of these in the section below.
Performance Problems
The single biggest reason why Friendster failed was that its website was often
overwhelmed with the massive traffic it had.
At one point, it took up to 40 seconds to load a single page on the website.

Instead of fixing the speed issue, its board and leadership team would be
more concerned with adding new (and oftentimes unnecessary) features to
the site.
Those features then added to Friendster’s server load, further slowing down
the website. The board members, which had invested in companies like
Amazon and Google, were more consumed with making Friendster the next
internet giant instead of getting the basic stuff right.
Instead of scaling up the number of servers (which would’ve at least help

temporarily), Friendster’s execs decided to scale down on user acquisition
(for instance, by lowering the number of notifications sent to users).
On top of that, they removed crucial features such as friend suggestions,

which made it harder to connect with new users.
Friendster eventually managed to fix the speed issue. Unfortunately, by that

time, Myspace and Facebook had already overtaken it to the point that it
became impossible to catch up.
Competition
Another big reason for Friendster’s failure was the extensive competition it
faced. In an interview with the L.A. Times, founder Jonathan Abrams would

later recall:
“MySpace wasn’t even amongst the first 50 copycats of

Friendster,” he said said. “If hundreds of people are copying
you, competing with you and your stuff is not working, you’re
going to get in trouble.”
Despite the onslaught of new competitors, Myspace and Facebook ultimately

proved to be Friendster’s proverbial nail in the coffin.
Most of Friendster’s users would eventually migrate over Myspace, which was
then beaten out by Facebook.
Executive Turnover
From its inception in 2002 to its eventual sale in late 2009, Friendster would
experience changes in its C-suite.
In fact, the company had a total of six different CEOs over that very same
time span. Each and every one of those CEOs brought with him a unique
leadership style and vision for the company, which made it tough to plan for
the long-term.
In the previously cited New York Times article, Jeff Winner, the firm’s former
Head of Engineering, talked about his experience of working under three
different CEOs in a span of 12 months:
“After a while all the changes really wear on you,” he said.

“Every C.E.O. represented a change of direction, and when a
company changes direction, the engineers really get jerked
around.”
As research indicates, founder-led companies oftentimes outperform their

counterparts due to the founder’s obsession with the customer and industry
as well as just a consistent message from the top.
It comes as no surprise that Facebook, which eventually outperformed all the

other social networks that came before it, had the very same CEO since its
inception.
Unfortunately, founder and first-time CEO Abrams seemed not capable to

meet the various challenges that the company had faced.
Moderation
Last but not least, another major factor why Friendster failed was the
extensive content moderation enforced by the platform.
Friendster was frequently banning users whenever they stepped out of line.
Many of these users ended up migrating over to Myspace, which was much
more lenient with its content moderation efforts.
Danah Boyd, a U.C. Berkeley Ph.D. and current researcher at Microsoft, made
a pretty interesting comparison between the two networks: 
“People were hanging out on Friendster before they hung out

on MySpace. But hanging out on Friendster is like hanging
out in a super clean police state where you can’t chew gum let
alone goof around and you’re told exactly how to speak to
others. Hanging out on MySpace is more like hanging out in a
graffiti park with fellow goofballs while your favorite band is
playing. That said, there are plenty of folks who don’t want to
be hanging out in a graffiti park and they are not sticking
around on MySpace as a result.”
The problem with Friendster’s content moderation efforts was that the
company was simply too strict. The platform famously removed the profiles
of users who put up joke pictures, like photographs of their dogs in place of
themselves.
Many of the platform’s predominantly young users weren’t accepting that,

therefore deciding to move on.
Friendster Funding & Valuation

According to Crunchbase, Friendster had raised a total of $48.5 million across
five rounds of venture capital funding.
Notable investors into the company included Benchmark, DAG Ventures,

Battery Ventures, Kleiner Perkins, and many others.
The last time Friendster’s valuation was disclosed was during its acquisition
by Malaysian payments company MOL Global. It allegedly paid $39.5 million
to acquire Friendster in December 2009. The company allegedly turned down
a $150 million offer the year before it was acquired.
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Viktor
Hi folks, Viktor checking in! Years of experience in various tech-related roles
have led me to start this blog, which I hope provides you with as much 
enjoyment to read as I have writing the content.
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5/7/22, 8:36 AM What Happened To Friendster? Why Did It Fail?

What Happened To Friendster? Why Did It Fail?

Friendster failed because of site performance issues, rising competition,

Furthermore, the site offered a variety of additional features, including:

Joining groups based on one’s interest

To be able to join Friendster, users had to be 18 years of age. Unlike Myspace,

People were able to play a variety of games together, organize themselves in a

What Happened To Friendster?

Adams, alongside a group of developer friends, began working on Friendster

Unfortunately, he wouldn’t be there to see that vision through. The board,

Sponsored by Advertising Partner

Instead of being sold, Friendster’s existing investors decided to put some

Kwon was ultimately replaced by Kent Lindstrom who initially joined

Next, Friendster successfully filed for a variety of patents that it had

By the beginning of 2009, the majority of Friendster’s employees were either

Malaysia-based FinTech company MOL Global acquired Friendster for $39.5

$3.7 million in secured debt

Throughout 2010, it became evident why MOL decided to acquire Friendster.

Why Friendster Failed

Friendster failed because of site performance issues, rising competition,

Let’s take a closer look at each of these in the section below.

At one point, it took up to 40 seconds to load a single page on the website.

Instead of scaling up the number of servers (which would’ve at least help

On top of that, they removed crucial features such as friend suggestions,

Friendster eventually managed to fix the speed issue. Unfortunately, by that

“MySpace wasn’t even amongst the first 50 copycats of

going to get in trouble.”

Despite the onslaught of new competitors, Myspace and Facebook ultimately

“After a while all the changes really wear on you,” he said.

As research indicates, founder-led companies oftentimes outperform their

It comes as no surprise that Facebook, which eventually outperformed all the

Unfortunately, founder and first-time CEO Abrams seemed not capable to

“People were hanging out on Friendster before they hung out

around on MySpace as a result.”

Many of the platform’s predominantly young users weren’t accepting that,

Friendster Funding & Valuation

Notable investors into the company included Benchmark, DAG Ventures,

 Business, Business Failures

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The Robinhood Business Model – How Does Robinhood Make Money?

The WhatsApp Business Model – How Does WhatsApp Make Money? 

The Airbnb Business Model – How Does Airbnb Make Money?

The PayPal Business Model – How Does PayPal Make Money?

The Shopify Business Model – How Does Shopify Make Money?

productmint.com provides tailored content on all things business and tech.

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