Friendster: How They Blew It

Morning folks and welcome to today's episode called Friendster: How They Blew It, and I just love this story - it has everything - Jonathan Abrams, a young, smart coder from Canada, moved to California because he wanted to be at the very heart of the internet boom. And on nothing more than an intuition, a feeling of how things should be online, he comes up with the framework for a social media platform, the very same model that MySpace, Facebook and all the others then learnt from or copied. But Abrams and Friendster were first, and for a brief moment, they were the hottest property in Silicon Valley - Google tried to buy them. VCs were desperate to invest with them - and within just a few months, it all fell apart, leaving the door wide open for MySpace and then Facebook. It’s a fascinating story, enjoy

Jonathan Abrams was born in Toronto, Canada, in 1970 - his father was a research scientist and his mother an artist. Abrams got into computers at a very early age and went to study computer science at university.
After graduating, he went to work writing code for Nortel in Ottawa — back then it was the dominant telecoms equipment maker.
Now at this time, 2 very important things happened in Abrams' life - the first - he read the book Startup: A Silicon Valley Adventure by Jerry Kaplan - which I had never heard of - it tells the story of Kaplan's company Go Corporation in the late 1980s - basically Kaplan was developing an iPad-type concept with its own operating system - and in doing so, his company went up against Microsoft - and I love this line from Kaplan’s book: "The good news is that we have Microsoft on the run. The bad news is that they're running in our direction" - by all accounts, it’s a fantastic portrayal of startup culture - so yeah, it's going on my reading list.
Anyway, Abrams read this book and was inspired by it, and the second important thing that happened at this time - Netscape had just gone public - and as a result, the internet was about to take off, and Abrams, like so many young techies at that time, and I suppose similar to a gold rush, he just knew he had to go to California.

He sent his CV to Yahoo and Netscape - Yahoo didn’t reply, but Netscape offered him a job, so in 1996, Abrams moved to Silicon Valley.
At this stage, Netscape held something like seventy to eighty percent browser market share. And it really was the first company that defined how all other internet startups behaved. The culture inside was intense, a real seat-of-the-pants hacker vibe going on, the concept of internet time emerged, working throughout the night, the belief that product cycles should be measured in weeks, not years.
And I’ve listened to an interview with Abrams and he talked about how much he just loved working there. And look, I remember this time, I was in my early 20s reading about Netscape and it inspired me and a group of friends to start our own internet venture, and I know I always mention it whenever I get a chance, but the Netscape story, together with the dawn of the internet, inspired so many young entrepreneurs.

But Netscape was under siege from Microsoft, who were bundling their own browser, Internet Explorer, free with Windows, and within a few years, Microsoft won the browser war, so in 1998 AOL bought Netscape for $4.2 billion - I covered this in the episode on Marc Andreessen - it’s a cracking story.

Anyway, Abrams, like many Netscapers, didn’t really fancy working for AOL, so he took a redundancy package and got a job with another startup, but was also working on a side project that became his first proper startup - Hotlinks.
HotLinks was essentially a way to take your browser bookmarks, upload them online, and organise them into structured directories that other people could browse - shareable bookmarks, I guess - kind of an early version of Pinterest.

And because this was the height of the dot-com boom, it was pretty easy to get investment - Hotlinks raised $7.5 million.
It never really moved into the mainstream, but then again, it didn’t get the chance to evolve because in March 2000, you guessed it, the dot-com bubble burst, and that was the end of Hotlinks. Abrams got a job as head of engineering at a mobile startup - that fact alone is pretty impressive - in the Bay Area, between 250,000-300,000 people lost their jobs after the bubble burst, so the competition to get any kind of tech job was intense, so Abrams must have been pretty good at what he did - and while there, he started working on a new idea — one that didn’t come from a single moment, it was more of a pattern that he observed.
Like most young single people at the time, he'd tried online dating — Match.com, Kiss.com — and found it frustrating, even a bit creepy. Everything was anonymous — usernames, unverifiable profiles.

And it wasn’t just dating sites — it was the entire internet. Chat rooms, forums, message boards — back then everyone hid behind anonymous usernames.
And that felt just wrong to Abrams, because in the real world, you meet people through other people, specifically through friends, through introductions, through networks of trust.
So he basically asked a simple question:
Why doesn’t the internet work like this?
What if you could map real relationships online — real people, real identities, real connections?
That was the insight behind Friendster.
That sounds so obvious now, but at the time, it was a really radical idea.

Even Abrams himself wasn’t sure it would work — but he figured it was worth a shot, and so he officially incorporated Friendster in March 2002. And together with a few friends, they spent the spring and summer of 2002 refining the code, specifically the "Circle of Friends" algorithm that mapped how people were connected. So when you joined, you didn’t see random profiles — you saw your friends, your friends’ friends, and then one step beyond that — essentially three degrees of separation.
And crucially, those connections had to be confirmed — when you added someone, they had to verify it. So this wasn’t anonymous… it was grounded in real relationships.
And this was the breakthrough — it laid the groundwork for all social media that came afterwards. Abrams even filed patents for it. And those patents… would end up being very valuable.

Abrams started testing with a small group of friends and family, and it quickly grew to a few hundred users. What stood out was who got it — people in their early to mid-20s understood it instantly, while older users didn’t. One of Abrams' friends recalled telling a younger colleague about it — she spent a weekend on it and came back obsessed. She’d reconnected with an old friend she hadn’t seen in years… and even got a date through a friend of a friend, just like real life.
So these early adopters were using it exactly as intended: uploading photos, messaging, connecting.
This must have been a great feeling for Abrams - proof that not only was your theory working, but it was working better than even he could have expected.

In mid-2002, he raised $115,000 from a small group of angel investors, including a guy called Ram Shriram - a very interesting character - he was one of the original three investors in Google. I had a quick look at his Google investment, because, you know, it’s interesting - so Shriram invested $250,000 in 1998, and at the time of Google's IPO, that was worth $450 million. Of course, we don’t know when Shriram sold his shares, but he has a net worth of $3.7 billion today, so it's fair enough to say that he did alright.
Anyway, back to Abrams, it’s now early 2003, the site is still in beta mode, and he raised $1.1 million from angel investors - and crucially, 2 of these angel investors were Peter Thiel and Reid Hoffman. Also, joining Abrams at this stage was Sean Parker, former Napster founder, future Facebook president, and while he didn't have a formal role in Friendster, he was an early advisor and was even given some stock in the company.

So right there, between Thiel, Hoffman and Parker, you have 3 people who really helped shape the future of social media, they were there with Abrams and Friendster at the very start, and so in 1 way, you think, well how could it all go wrong for Friendster with these people in Abrams' corner. But I believe, at this stage, that just like Abrams, Thiel, Hoffman and Parker weren’t sure how this would all turn out, they just knew that this was going somewhere, that they were onto something.
They weren’t all-knowing at this stage - Friendster actually turned out to be central to their learning curve, in essence, its failure informed their future success.

Friendster launched publicly in March 2003, and the growth was immediate; the platform hit 1 million users in a matter of months.
But this caused a problem - the servers just couldn’t handle the traffic. Pages were very slow to load. And look, you’d think, ok this is a good problem and something that can be solved pretty easily - but back then it wasn’t easy to fix this. Today, you can add more capacity almost instantly. Back then, scaling meant literally calling a hardware supplier, ordering machines with specific specs, waiting for them to be built, driving out to collect them, and physically installing them in a data centre.
But in those first few months, Friendster was the only social network out there. So despite the slow page load times, people were joining in their tens of thousands — and it quickly became a media sensation.

In July, Abrams appeared on Jimmy Kimmel Live, The Howard Stern Show was talking about Friendster because there was a story where Kathy Griffin said she had to fire her assistant because he was spending too much time on the site.
So of course, by this stage, there were VCs lining up to get in on the action. But before he sat down with any of them, Abrams got an unexpected visit — Larry Page and Sergey Brin of Google showed up in person at Friendster's small office. No lawyers, no term sheets.
And you’ve got to remember, Google back then was the coolest company on the planet and headed for a huge IPO. Brin and Page were fascinated by how Friendster was mapping human relationships and they wanted to buy it outright - they offered Abrams $30 million in Google stock — pre-IPO stock, so that would have multiplied many times over the next few years.

But Abrams turned it down - and I can see why he would have. He had the top VC firms in Silicon Valley literally pounding the door to invest. The VCs actually said to him of the Google offer: "If Google thinks you're worth $30 million today, you'll be worth $1 billion next year."
But more importantly - Abrams could see that his theory of social networks was actually working - the site was growing at a huge rate, people were staying on the site for hours at a time - so I think he had every reason to believe that with the right backers, Friendster would become the next big thing - just like Google.

And when he chose his VC partners, on paper, it looked like he had hit a home run because he chose 2 of the most highly regarded VCs that were operating in the internet space. The first was John Doerr, general partner at Kleiner Perkins and one of the most famous VCs ever. Doerr had backed Amazon, Sun Microsystems and Google.
The second VC was Bob Kagle, founding partner of Benchmark Capital, and he was one of the first investors in eBay - one of the few internet companies that continued to thrive after the dot-com bubble burst.
So between them, they invested $13 million at a valuation of $53 million.

Now what's very interesting as part of this deal was that on top of the $13 million investment, because Friendster was such a hot property, Abrams was able to negotiate a secondary share sale, whereby the VCs paid an additional $5 million to him personally for some of his shares, but he still held onto a significant minority stake (somewhere around 30%) - so good for him, you might think, except for 1 crucial factor - as part of the overall deal, Abrams gave the VCs a 3-to-1 majority on the board. In effect, he gave up control and this, I believe, was hugely detrimental to the company.

I've talked about this in other episodes - I believe that in start-ups, the founder has to have control, they have to be in the driving seat - yes, bring in senior people to advise and guide, but the founder has to have the last say in all major strategic decisions.

And I know we just mentioned Google, and Eric Schmidt was CEO from 2001-2011 - but context is everything - when Page and Brin were more or less forced by their investors to get a grown-up CEO, they chose Schmidt themselves after a very arduous interview process. And crucially — they never gave up control of the company. Even after going public, their share structure meant they still held the majority of the voting power.

Anyway, back to Friendster, with VC investment, everything moved fast, as you’d expect — suddenly there was an influx of heavyweight Silicon Valley talent. Top tech executives with big resumes and strong opinions. At first, Abrams was excited. Validation. The best people want to be here.
But it quickly became obvious to Abrams and those who had been with him from the start that these senior hires had their own ideas about what Friendster should be. They didn't treat Abrams like the boss. One reportedly dismissed him openly in front of others. Abrams started losing authority almost immediately.

Why did Abrams let it happen? Maybe he held these high-profile tech executives in such high esteem that he deferred to them. Maybe he just didn't move fast enough to stamp his authority. Maybe these people realised that the ultimate power lay with the board. It was probably some mix of all three.

And despite all of the new talent, the fact remained that Friendster’s technology was still a mess, page load times were still really slow.
Abrams and his engineering team were "firefighting," spending 90% of their time just trying to keep the servers from crashing.
That was their priority, and rightly so.

The board, however, after having been burnt during the dot-com bubble by hot startups with great ideas but zero revenue, were fixated on monetising Friendster as quickly as possible.

So internally, with all of the politicking and split priorities, the company was in a mess.

And now, as we get into late 2003, as a result of Friendster's huge growth and exposure, other social media websites were launching, and the biggest threat came from MySpace - which we covered in an episode that I co-hosted with Keith - it’s a cracking story as well.
The guys behind MySpace openly admitted that they started off by basically copying Friendster.

But MySpace had some key advantages. It was launched by an existing online marketing company — a pretty shady one, as it happens — but that meant it already came with servers, engineers, distribution and marketing in place. Without the same technical headaches dragging them down, they had the bandwidth to actually innovate. New features kept shipping — customisable profile pages, music integration.

The irony, of course, is that all these customisations would eventually become MySpace's undoing — because Facebook's cleaner, less cluttered, faster-loading profile pages ended up giving it an advantage over MySpace. But that was further down the road. Right now, MySpace's pages loaded faster and looked fresher than Friendster, and in the early internet era, that was enough to give it a serious edge.

A lot of people also point to the fake profiles debate — MySpace allowed them, Abrams was militantly against them. And yes, being so rigid about it made Friendster look uncool, so it did play a part. But the idea that users were clamouring for fake profiles is largely a media invention — Facebook's success alone disproves that theory.

As 2003 came to a close, Friendster still held the top spot with around 4.5 million users — but MySpace had hit 1 million and was growing faster, pulling in a younger, louder audience. Bands, musicians, minor celebrities — MySpace was where the cool kids were at. And that was the problem for Friendster: nearly 70% of its users were over 25. It wasn't losing on numbers yet. But crucially, the momentum was with MySpace.

And what I find striking, looking back from the $13 million investment in October 2003, is how quickly the window, the opportunity, closed. By April 2004, in the space of about six months, Friendster went from being the hottest thing on the internet to a company with an identity crisis, a scaling crisis, and a governance crisis.

Because on April 1st, 2004, Abrams walked into a board meeting expecting to talk about growth metrics and server issues. But John Doerr and Bob Kagle had already met privately and made their decision — Abrams was out. The board had lost confidence in him. Too deep in the weeds, they said. Too much the engineer, not enough the executive who could scale a billion-dollar company.

From Abrams' perspective — and from people close to him — the real problem was the opposite: that the company had been taken over by people who didn't understand the original vision, and were now making decisions that would destroy it.

My own view is that Friendster was probably doomed either way — because even when Abrams was the CEO, he was never really in control. Whether that was structural — the voting rights he'd signed away, effectively making him a lame duck from day one — or whether it was simply a personality thing, is hard to say. He was clearly smart, clearly a visionary. But maybe not forceful enough - maybe he didn’t have the sharp elbows that you kinda need. I don’t know, I’m speculating.

What we do know is this: once the board pushed Abrams out, the buck stopped with them. Everything that came after — that's on them.

Tim Koogle stepped in as interim CEO for a few months until the board announced Scott Sassa as the new CEO. Now Sassa was a former president of NBC Entertainment and he has a fantastic CV - he oversaw the development of The West Wing, Freaks and Geeks - remember that, I loved that show, Fear Factor, Law & Order - so I’m not going to dump on Sassa - he was a brilliant TV guy, but he was totally the wrong hire for Friendster - a social networking company that had a huge engineering problem and now you have Sassa, coming from NBC, with a focus on getting large advertising deals.

But this shows you how out of touch the board was - you don’t monetise a consumer product until you get the product right, and Friendster, as a consumer product, was still really crap - the page load times issue still hadn’t been fixed.

At a conference a few years later, Sean Parker said the following of that time: “we were all screaming 'the sky is falling' and nobody was doing anything about it. I mean, that's a classic case of where a company just... blew it."

So by mid-2004, Friendster wasn't just losing the battle for new users — its own core users had started leaving, because now people had a choice. MySpace was building huge momentum, and then, enter stage right: Facebook. Launched in early 2004 - it was cleaner, faster, and in those early days, because you could only join with a .edu email address, it had an exclusivity that neither Friendster nor MySpace had - now, of course, they ditched that after a while, but at the start, this made Facebook the kind of VIP section that only certain people could get into. That summer, it raised $500,000 from Peter Thiel and $38,000 from Reid Hoffman, while Sean Parker jumped ship to advise Zuckerberg directly.

So if you think about what that meant. Three of the sharpest minds in Silicon Valley — they’d all had a front-row seat in Friendster, so they could see the huge growth potential in social media, but they also saw every mistake, every missed opportunity, every moment where the right call wasn't made — and they were now in Zuckerberg's corner. So having those 3 people, it gave Zuckerberg a huge advantage - not only over Friendster but also over MySpace - and just to clarify, I’m not trying to diminish Zuckerberg's own input here - he of course played the biggest part in Facebook's success, but he did start off with a dream team.

By early 2005, the numbers told the full story. Friendster had somewhere between 7-10 million users, but they were only getting about 1.1 million monthly unique visitors in the United States. MySpace had 22 million monthly visitors. Facebook was at 5 million and growing fast.

And then Friendster had another problem - it had accidentally become massive in Asia, particularly the Philippines - to the point where roughly 50% of their traffic was now Filipino. Which sounds like growth, but it wasn't the type they wanted - American users were logging on, seeing a platform that no longer reflected their social world, and leaving - and advertisers, who wanted American eyeballs, were losing interest.

In May 2005, Sassa resigned after exactly one year. The board, finally accepting that the product was the problem, brought in Taek Kwon — a tech and product executive. And in fairness to Kwon, he did fix many of the technical issues and launched a redesign that added features people actually wanted — blogs, better profile customisation — essentially copying what had made MySpace successful. But the game was already over. Friendster had lost its momentum, and it wasn't getting it back. A good analogy from that time: Friendster was trying to fix its engine while the car was already in the scrapyard.

Six months later, the board got impatient and sacked him too. That was five CEOs in three years. A shitshow, plain and simple.

That same year, MySpace was bought for $580 million by Rupert Murdoch's NewsCorp — and just like Friendster's board before them, Murdoch's people thought they knew better. They brought in top media executives who had no feel for social media whatsoever, although it still took 4 years until 2009 before Facebook overtook MySpace, which really shows how big MySpace became - and because of that, MySpace's demise was an even bigger failure in management than Friendster's.

Anyway, for the next few years, Friendster limped along, surviving on Asian traffic — and I was surprised by this number because they had real traffic of about 80 million users — but from a revenue angle, it was low-rate display advertising that wasn't generating the returns investors needed.

So in December 2009, a Malaysian company bought Friendster for $26 million — then turned around and sold its patents, remember the ones that Abrams filed in early 2002, well they sold these patents to Facebook for $40 million. Facebook bought the patents as a legal shield — to protect itself from potential lawsuits as it scaled its own social network, which was built on very similar underlying ideas.

Friendster was then converted into a gaming portal and it eventually closed down in 2015.

As for Abrams - he left Friendster in 2005 and over the years has launched a few different startups, the most successful was Nuzzel, a very well-regarded app that aggregated the news stories on Twitter and Facebook - Nuzzel was sold, but I couldn’t get any numbers. He’s also invested in over 50 startups, so he’s been busy. And I’ve listened to interviews with him, and he really comes across as such a normal, smart guy - sure, he’s a bit frustrated at how Friendster panned out, they had first-mover advantage in the social media sector and they blew it - while Meta is worth $1.4 trillion at the time of recording. But as Abrams said himself, it’s hard to feel sorry for yourself when you're a millionaire instead of a billionaire, I like that, and he can take a lot of pride from the fact that he was right, his idea as to how people interact online was right - and it became the blueprint for social media. And in terms of how did it all go wrong, Abrams and particularly the board did make a hames of it, but at the same time, you can kind of understand how none of them were really prepared for this - social media was a totally new phenomenon, and it’s kind of understandable that the first crowd who came across it would make a lot of mistakes, and others, as happened, would learn from those mistakes.

As Keith, my co-host, was always fond of saying: "Pioneers get the arrows, and settlers get the land." Anyway, it makes for a fantastic story and that brings us to listeners' emails, and this one is from Sarge, who suggested that I do an episode on Lei Jun, the founder of Xiaomi. He wasn’t on my list, so thanks a million, Sarge, for the recommendation and for listening. And remember, if you have any comments, any corrections or any story that you’d like us to cover, email me at: info@gbspod.com

All the best folks