May 24, 2005

Friendster: What's a Business Model?

I'm somewhat amused by the news that Friendster CEO Scott Sassa plans to resign today after less than a year on the job. Friendster's biggest problem was it never had a vibrant business model. It was a quasi-cool, communications tool developed by Jonathan Abrams to help people meet new friends (in other words: it was a dating site for people who did not want to be seen as using a dating site). The big difference between Friendster and was that Friendster really had no obvious way to make money beyond banner ads and AdSense because its users weren't willing to pay for a service they were getting for free. When I met Abrams a couple years ago, he had this strange “I know something you don't because I work in Silicon Valley” attitude – clearly fueled by investment from some large VCs. Turns out Friendster couldn't find the secret sauce to turn users into revenue. Friendster was an example that investors often to fail to learn fundamental lessons. It was a classic dot-com that somehow emerged a couple years after the party was over. The best scenario for Friendster would have been its purchase by Google or Yahoo for its users but that didn't happen, which should tell you a lot about the company and the market.

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