Friendster: A little cash goes a long way?

The increasingly popular personal networking site collects a million dollars from veterans of Amazon, PayPal and Yahoo in hopes of turning a shoestring operation into the Web's next big thing.

Paul Festa Staff Writer, CNET News.com
Paul Festa
covers browser development and Web standards.
Paul Festa
4 min read
With a million members and counting, servers for six-month-old Web site Friendster are staggering under demand. Copycat competitors to the site are cropping up, and rumors of imminent subscription fees are riling members.

In the thick of the frenzied attention being paid to the personal networking site, its founder and chief executive, Jonathan Abrams, is manning the phones, answering press calls.

"We have no marketing department," Abrams explained in an interview. "We have no press firm. I'm doing everything." The Sunnyvale, Calif.-based company has fewer than 10 employees.

Abrams may be able to fill out his staff thanks to an angel investment, announced Tuesday, amounting to just more than $1 million. The investors include former Yahoo Chief Executive Tim Koogle, who will join the Friendster board of directors; former PayPal Chief Executive Peter Thiel; and former Amazon.com and Netscape Communications executive Ram Shriram.

The new funds will go mostly into site infrastructure, Abrams said, including more servers and switches to improve response time on the now-sluggish network. In addition, the site is planning to debut new features, including an instant-messaging application.

Friendster, still in its test, or beta, phase, has grown to its current size by creating permission-based individual networks of friends and acquaintances through which members can trade messages, view each other's home pages and write testimonials. While many use the site for dating purposes, Friendster has gained and promoted a following of people already in romantic relationships as well.

Friendster's trio of new investors lauded the site, placing it in the context of prior Internet successes.

"Just when everyone thought that all of the large opportunities on the Internet had already been tapped, along come rule-changing companies like Friendster," Koogle said in a statement. "The opportunity that lies ahead of the company is huge and global, and I am thrilled to be involved."

One industry analyst said Friendster could have the potential to grow like previous Internet successes--but for consumers, the novelty has worn off even for the most successful of these.

"One benefit of this model is the 'eBayity' of them," said Ross Rubin, an analyst with eMarketer. "It's low overhead. The category is also rife with opportunities for Web services to create a kind of personal portal. And they haven't really tied into the whole blogging craze yet. It's a good match.

"But for most people, I think they can run out of steam. eBay, for example--I know people who went through an eBay addiction phase, but then it became just another channel for hard-to-find goods. On Friendster, there will be the curious rush. But then what do you use it for, unless you have copious idle time?"

Friendster, which last week added Napster co-founder Sean Parker to its advisory board, has generated considerable buzz. The site has expanded quickly through so-called viral marketing, as current members actively solicit nonmembers to sign up and join their network. The site has spawned a slew of knockoffs and parodies, though it is not without genuine competition or precedents of its own.

Ryze, for example, offers a network of contacts--but with a corporate focus. While its basic service is free, it has made the leap to paid subscriptions for premium services.

Emode, another potential competitor, recently introduced a preview of its Friendster-like Emode Friend Network.

Abrams warned Friendster copycats that he has a patent pending on the service and singled out Emode as one site that would be vulnerable to a patent claim, should Friendster's be granted.

Emode countered that it had patents of its own pending for parts of its friend network system but declined to say which parts or to comment otherwise on Friendster's pending patent.

But Abrams said his primary competitive concerns are less about start-ups than about established Internet giants such as Yahoo and USA Interactive--though neither has announced or previewed a Friendster-like service.

"Those are the two companies we think are real competitors, as we try to build the next huge Internet destination," Abrams said. "They are potentially really formidable competitors, because they are strong companies that are in the areas that we are currently in and intending to move into. And no matter what they do, whether that's copying Friendster or doing what they're doing now, they have considerable resources."

Before the investment announcement, Friendster had collected what Abrams described as a smaller, six-figure amount of funding from angel investors.

Abrams refused to set a date for when the site will emerge from its beta phase or when it will introduce paid services. But he did promise that people will always be able to use some version of the service free of charge.

"The first thing--the most important thing--is that basic membership will always be free," he said. "At some point in time, we will have some subscription component for some set of features or premium service. But those rumors flying around the Internet--that in two days Friendster will start charging--those two days keep passing, and it's obviously not true. People will never have to pay to sign up."