Sun, Oct 15, 2006 - Page 11 News List

A cautionary tale from Silicon Valley

MISSED OPPORTUNITY Friendster was ideally placed to cash in on online networking, but it all went wrong after its founder spurned an enticing offer from Google

NY TIMES NEWS SERVICE , NEW YORK

Danah Boyd, 25, a graduate student at the University of California at Berkeley, studied Friendster during its heyday, hovering above the fray with a Web log called Connected Selves and interviewing Friendster users.

PHOTO: NY TIMES NEWS SERVICE

Jonathan Abrams was in a spot. He could take the safe bet and accept the US$30 million that Google was offering him for Friendster, the social networking Web start-up he began only a year earlier, in 2002.

Saying yes to Google would provide a quick and stunning payout for relatively little work and instantly place the Friendster Web site in front of hundreds of millions of users across the globe.

But at the same time, some of the biggest names in Silicon Valley were lobbying Abrams, a computer programmer, to reject Google's offer. America Online had offered the two founders of Yahoo a few million dollars each in the mid-1990s for their Web site -- and both became billionaires because they said no.

Sell us a stake in your company for US$13 million, the advisers told Abrams, and we will help build Friendster into an online powerhouse worth hundreds of millions, if not billions, of dollars.

Abrams spurned Google's advances and charted his own course. In retrospect, he should have taken the US$30 million. If Google had paid him in stock, Abrams would easily be worth US$1 billion today, one person close to Google said.

Friendster essentially created the social networking sector three years ago by offering users a site where they could browse profiles posted by friends and the friends of friends in search of dates and playmates. But so badly did Friendster fumble its early lead that, as of last month, it ranked 14th among social networking sites tracked by comScore Media Metrix.

Why and how Friendster missed the mark is a salutary Silicon Valley tale so instructive that Mikolaj Jan Piskorski, an assistant professor at the Harvard Business School, uses the company's inglorious fall as a case study in his strategy classes.

`an ego story'

There is no single reason that explains Friendster's failures, Piskorski said which is what makes it academic fodder. "It's a power story," he said. "It's a status story. It's an ego story." But largely, he said, Friendster is a "very Silicon Valley story that tells us a lot about how the Valley operates."

The second half of the 1990s had seen any number of failed social networking sites, including forgotten enterprises like Six Degrees and SocialNet.

"We all basically hit the market several years before the market was ready for social networking," said Reid Hoffman, the founding chief executive of SocialNet and an early investor in Friendster.

Abrams, though, had perfect timing. Friendster made its Web debut in March 2003, and though it was then a speck of a start-up that spent no money on marketing, it signed up 3 million registered users by the fall.

The list of venture capitalists enticing him to say no to Google and to go it alone included John Doerr, the legendary venture capitalist at Kleiner Perkins whose list of greatest hits includes Google, Netscape and Amazon.com, and Bob Kagle, the Benchmark Capital partner who first spotted eBay.

Doerr and Kagle took seats on Friendster's board, as did another investor, Timothy Koogle, who had been the chief executive of Yahoo through the second half of the 1990s. Other investors included Peter Thiel, a co-founder of PayPal, which eBay bought for US$1.5 billion in 2002, and K. Ram Shriram, one of the first investors in Google and perhaps the most-sought-after angel investor in Silicon Valley.

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