Friendster, one of the first social networks, has been reinvented. Will it be a sustainable fixture the second time around?
By GABEY GOH
THE general sentiment was one of disbelief in December 2009 when news broke around the world that pioneering-but-floundering social network Friendster had a new owner - MOL Global.
The Malaysia-born online payments provider had paid US$39.5mil (RM118.5mil at today's exchange rate) for the social network that was developed by computer programmer Jonathan Abrams in San Francisco in 2002.
The purchase perplexed and surprised many industry pundits and analysts. Friendster was plagued by problems with performance and limitations in interaction options for its users, topped by a revolving door of management executives.
Also, its failure to monetise its dwindling user base was reportedly bleeding out Friendster at a rate of US$10mil (RM30mil) a year.
Facebook, its rival, was fast gaining in popularity and many Friendster users were abandoning their accounts to jump into the young upstart's world of "likes," "pokes" and social games.
While the acquisition made sense because Friendster still had a strong following in Asia, taking up the fight against Facebook to be the world's No 1 social network looked suicidal at the least.
The Johnny Mandel and Mike Altman song Suicide is Painless must have been playing in MOL chief executive Ganesh Kumar Bangah's head when he contemplated the purchase, but he was no stranger to the risky proposition that was Friendster.
Just two months earlier, the two companies had cosied up to launch Friendster Wallet, a service allowing Friendster users to buy credits for virtual goods, which also gave MOL a peek into the state of the social network's health.
Bangah must have liked what he saw. When the option to purchase Friendster came up, MOL jumped at it and emerged the winner. It had outbid the other interested parties, which at the time was rumoured to be Facebook Inc and China's Tencent QQ.
Entrepreneur and podcaster Daniel Cerventus Lim of entrepreneur.my was one of those in disbelief. He recalled that at the time many thought this would be the end of Friendster because MOL would eventually cut its losses and shut it down.
"We knew MOL wanted Friendster for a reason, but we never expected that something so big would come out of the deal," he said.
That "something" was connected to Friendster's cache of patents. Bangah said he knew that there would be interested buyers for Friendster's patents, and that his own plans for the social network would not rely on those. Reports published in the months after the purchase have long unmasked that the most aggressive pursuer was Facebook.
MOL sold 18 Friendster patents involving social networking to Facebook in 2010, of which seven have been awarded and the rest are pending.
From the initial proposal of US$20mil (RM60mil) in cash, the final deal saw MOL receiving 700,000 Facebook shares, which by mid-2011, had turned into 3.5 million shares.
The transaction also included advertising credits and an agreement to allow Facebook credits to be sold via MOL sales channels in Asia.
It wasn't common knowledge that MOL had sold the patents for a stake in Facebook, but after Facebook filed for an initial public offering in February this year, the relationship received more attention.
It was quite a windfall for Bangah and his business partner, billionaire Tan Sri Vincent Tan of Berjaya Group, because the stake in Facebook is worth about RM450mil.
But MOL doesn't intend to kick back and relax despite having this potential mountain of cash. "It's a nice bonus, but I've got bigger fish to fry," said Bangah. "And Friendster is still the key to that."
The two main reasons behind the purchase decision was getting access to Friendster's user database, which at the time stood at about 10 million and mostly in Asia, along with the opportunity to leverage on a globally recognised brand.
"The brand certainly helped open a lot of doors for us, especially in Silicon Valley. No one knew who or what MOL Global was but they all knew Friendster," Bangah said.
Would MOL have done anything differently if it could go back to those days in 2009?
"I would have shuttered Friendster's US operations much sooner," said Bangah. "It didn't make much business sense for a company with the bulk of its business in Asia, to continue maintaining a presence in the United States.
"It was costing me about a million a month to keep the office there, running at a loss, while my Philippines operations was costing much less, had twice the number of staff, and was making a profit," he said.
With Friendster firmly under MOL, the next step was to remove the photos and social information accumulated during the platform's tenure as a social network, and to provide an app for users to export their data.
This move cut the number of active Friendster users from 10 million to three million, while MOL proceeded to expand its user base from 400,000 to 1.5 million.
And after an e-payment system was integrated with the platform - allowing users to get Friendster Coins to buy virtual goods - about 6% of registered users now spend an average of RM200 a month.
Last month, Friendster was relaunched in the Philippines; rebranded as a social discovery and gaming platform with the tagline "Living the Game." This is the model for the other Asian countries as well.
Friendster, available in 11 languages, offers more than 40 premium games and collaborations with 140-plus game publishers, including Electronic Arts and Zynga.
Boomz, a massively multiplayer online game, is its most popular, with more than 200,000 players.
There is also a rewards system where users earn points for every activity on Friendster, including adding friends, engaging with friends, daily log-ins, and playing games.
Friendster is also leveraging on MOL's network of more than 500,000 brick-and-mortar collection points across the region, making it easy for its users to obtain virtual currency for use in its secure social-web environment.
Also, there are two sub-brands under the Friendster name - Friendster iCafe, a cybercafe management system, and Friendster WiFi which provides retail outlets with a free wireless Internet infrastructure for their consumers and funded by advertising.
According to Bangah, the revamped Friendster offers the option to be anonymous, thanks to a virtual avatar.
"It's a throwback to a time where anonymity was the norm online ... before Facebook's insistence on real names for accounts changed the rules," he said. "One benefit is that your boss won't know that you are on
Also, the anonymity helps make social discovery on Friendster more exciting. "Who knows, you may start interacting with people who you would not normally initiate a conversation with," he said.
MOL is relaunching Friendster in Malaysia on May 17. Bangah said Malaysia is its fourth largest market.
Its strongest markets are the Philippines, India and Indonesia, in that order. "With the improvements, we are hoping more Malaysians will get into the Friendster experience."
John Cheah, market analyst for telecom & mobile research at IDC Asia Pacific, said Friendster's revamp looks promising, but noted that MOL has yet to hit on the "right formula."
He said if Friendster is already considered a region leader, then one potential avenue for further expansion would be tying up with local telcos in terms of content.
Malaysia alone has more than 35 million mobile service subscribers and partnerships with local telcos could open up a floodgate of new users for MOL and Friendster. "Niche platforms can only go so far; one needs to be realistic," Cheah said.
"We expect this to grow to more than 43 million in the next five years. And out of this these, we estimate 89% will be non-voice subscribers, which gives you an idea of how big the data/mobile content market is."
Bangah believes MOL is on the right track, and said the company's focus for this year is on strengthening its mobile content offerings. About 70% of its users access the platform via a mobile device, with casual games being the most popular genre.
"Mobile is the future," he said, explaining that Friendster's mobile platform is built on HTML 5 to future-proof it.
This bet is supported by research. According to Gartner, global mobile gaming revenue is estimated to reach US$16.8bil (RM50.4bil) by 2015. Alos, advertising revenue will account for 29% while micro-transactions will constitute 20%.
Tuong Huy Nguyen, Gartner's principal analyst at its consumer research group, said the largest market opportunity will be in casual games, which will represent more than 95% of mobile games.
Bangah said MOL and Friendster would be moving quickly to be in place to take advantage of these future developments. Also, MOL is considering a public listing, possibly in Singapore, by early next year.
But in the meantime, Bangah would be happier if people stop thinking that Friendster is like Facebook. "I take it as a compliment when people compare us to Facebook, but really we're not," he said.