Powerful Connections is another Wall Street Journal article on Friendster. This one focuses on the attraction of venture capital.
Venture Blog has a great little rant on these articles (and other good links and business comments)
Powerful Connections
Social-Networking Web Sites
Attract Venture Capitalists,
Evoking Memories of 1999
By ANN GRIMES
Staff Reporter of THE WALL STREET JOURNAL
Friendster has friends where it counts.
Although still in its “beta,” or testing, phase, the popular social-networking Web site has closed a $13 million financing round led by Kleiner Perkins Caufield & Byers and Benchmark Capital. Battery Ventures also participated in the funding, pushing the valuation of Friendster to around $53 million, say people familiar with the matter. Among those joining the Sunnyvale, Calif., company’s board: Kleiner’s John Doerr, Benchmark’s Robert C. Kagle and Yahoo Inc.’s former chairman and chief executive, Tim Koogle.
Launched eight months ago by a former Netscape engineer, 33-year-old entrepreneur Jonathan Abrams, Friendster is one of several social-networking start-ups. Among the others: LinkedIn.com (www.linkedin.com), Tribe Networks Inc. (www.tribe.net), Meetup.com (www.meetup.com), Emode Inc. and Ryze.com (www.ryze.com). Some of these sites already have raised money from Silicon Valley venture capitalists; others expect to do so shortly.
“Does it feel like 1999 again?” asks Andrew Anker, a general partner with August Capital in Menlo Park, Calif., and a backer of Emode. “In social networking, yes. I haven’t seen anything like this in four years.” Another venture capitalist who has steered clear of the sector cautions: “It’s very bubblesque.”
Most of the social-networking sites operate on the same basic idea: connecting people to new people. In the case of Friendster, an individual — say person A — creates a personal profile and invites friends B, C and D to join with their friends; B accepts and brings in his buddies, as does C, who brings in her friends, and so on, enabling person A to meet friends of friends of friends. Friendster connects to “four degrees of separation,” Mr. Abrams says.
The networking is free; Friendster plans to add revenue-producing premium services — perhaps video and sound capabilities. It also plans to link up with other online companies like Google and Overture Services Inc. (recently purchased by Yahoo) to exploit their search and ad capabilities. (Google recently considered buying Friendster, people close to the situation say.)
Friendster Web page shows a sample user profile; man in the photo is site’s founder.
Meanwhile, a lot of meeting has been going on. The site has attracted 1.5 million unique visitors as of September, up from 110,000 in April, according to industry tracker comScore Media Metrix.
“They’re obviously growing by leaps and bounds and spending no money on marketing,” says Mr. Doerr. “That they’re using very powerful human relationships to connect is really at the core of what makes this for me quite compelling.”
Ethan Watters, author of “Urban Tribes,” a recent book that examines friendships among young, unmarried urbanites, says Friendster has caught on with this group because the complicated tasks that confront them — finding a job, a friend, an apartment, a date or a used-car deal — are facilitated by connections.
Christian LesStrang, 33 years old, relied on Friendster recently when he moved from San Francisco to Chicago to take a new job with Seven Worldwide Inc., a marketing-services company. He didn’t know anyone in Chicago, but “in less than three months, I had a social circle almost as good as the one I had in San Francisco,” he says. “I had friends in San Francisco who had friends in Chicago and leveraged that,” he explains. “It made the whole process of finding friends easier. I met dozens of people I wouldn’t have otherwise.”
Friendster’s users have eclectic aims, but some networking sites specialize. LinkedIn and Ryze.com, for example, focus on matters of employment. Tribe.net functions like online classifieds. (How better to buy a used car than from someone you know?) Meetup.com helped Democratic presidential hopeful Howard Dean with successful grass-roots fund raising.
Emode gained steam as a place where users could take personality tests and then connect with like-minded friends. But whatever motivates the connections, a draw for investors is that the members themselves provide the site’s content and spread its attractions by word-of-mouth. This is in stark contrast to Web sites of the late 1990s, which burned through cash for content and marketing.
“It’s viral. You get infected and infect others,” says August Capital’s Mr. Anker of the sites’ exponential growth.
August Capital invested $8 million in Emode in 2000, at the height of the bubble. When the economy soured, he adds, Emode “went underground” but survived.
Emode’s business model has evolved, Mr. Anker says. The site initially relied on advertising, then moved to charging a monthly $12.95 subscription fee for personality profiles, then $19.95 to pay to connect to a dating service. The closely held company has had about six profitable quarters, Mr. Anker says. This month, it launched a social-networking service called “Tickle” that brings together people whose profiles — schools, interests, hobbies, and personality results — mesh. The company plans to rename itself Tickle Media Inc.
At Friendster, Mr. Abrams says he plans to use the cash infusion to improve the speed of his site and expand the number of employees to about 30 from 12. After that will come the new features that Friendster hopes will be income-producing. “Consumers will have a huge voice” in determining these features, says Mr. Kagle. Investors hope to keep the basic service free.
Both Messers. Kagle and Abrams are light on specifics in part because competition is stiff. More established sites, like USA Interactive’s Match.com (www.match.com) and Yahoo! Personals, already boast steady monthly totals of between five million and nine million unique visitors.
Sites like Friendster have to be careful about how they grow, says Charlene Li, an analyst with Forrester Research Inc. in San Francisco. “The social networks are great as long as they are small,” she says. But “in order to have a business model, that requires scale, typically,” she adds. “Those two things are inherently in contradiction. It’s a fundamental challenge.”
Another potential obstacle: privacy. While the social-networking sites make it easy for people to connect to a wider circle of friends, privacy experts say the same holds true for strangers. Conceivably, law-enforcement officials or stalkers could obtain information about a user through these online social circles.
Mr. Abrams, for one, says that the information users put on the Friendster site “shouldn’t be sensitive” beyond what they want to expose to their network of friends. “We keep e-mail addresses private and don’t sell them. We are approved by TRUSTe [a privacy group backed by the technology industry].”
As for making money, Benchmark’s Mr. Kagle describes the investment as a “leap of faith.” Still, he maintains: “If you’ve got this level of engagement, and people spending upwards of an hour at a time [on the site], that will translate into a set of economics that will support this business model.”
–Jennifer Saranow and Mylene Mangalindan contributed to this article.
Write to Ann Grimes at ann.grimes@wsj.com
