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Billion Dollar Empires
4 minutes | Feb 1, 2021
Episode 3: Friendster - How to Generate Network Effects and Avoid Pitfalls
This snapshot is about Friendster. Friendster was arguably the first social friend-based networking platform to rise to prominence, predating MySpace and Facebook. It went live in 2002 and within months had been adopted by 3 million users. In 2003, Google offered to buy it for $30 Million. The Friendster CEO and Founder declined the offer and took on VC funding instead. Eventually, however, the site was eclipsed by MySpace and Facebook. The CEO was kicked out of his own company, followed by a rapid succession of a number of CEOs. The site eventually found a second life as a gaming site, but that is another story.There’ a lot to talk about in this cautionary tale of a first mover failing to win a market: when to try to monetize a platform with advertising, whether to expose users to profile view information, etc. The one thing I want to talk about in this snapshot, however, is scaling.Friendster’s ChallengeOne of Friendster’s problems was that it outgrew its capacity. As traffic to the site hockey sticked, the company did not have the server capacity to keep up. This was before the days of wide-spread multi-tenant architecture, and Friendster eventually found itself in the unusual positions of having to try to find ways to slow its growth and usage until it built up extra storage. When the one necessary ingredient for your success is the same thing that’s going to kill you, you know you have a problem. And as more and more users flooded the platform – including a major contingent from the Philippines unrelated to the initial group of users – the user experience suffered dramatically.What Facebook Did RightFacebook scaled differently. It exposed access to one university at a time, requiring users to login with their university email address. This ensured that a critical mass of related users joined the platform at once, making that platform more valuable to all of them. It also ensured that Facebook could increase its server capacity one university at a time without letting the user experience suffer. In an industry where retention is dependent on connecting with 7 or more related users, this is mission critical.LessonsKey lesson? If the network connectivity model is core to your business idea, focus your launch efforts narrowly on specific categories of related individuals, and ensure you have the capacity to scale quickly within those categories, given low barriers to entry from competitors. Luckily, with advances in cloud computing, the storage concern has become easier and easier to address. But that also lowers barriers to entry even further, so it is critical to scale in related groups of individuals quickly.One more thing. If you are wondering which group of people / market niche to target first, start with the cool people. Once Facebook got all the young, hip college students on board, all their younger friends wanted to join, and then all their parents and grandparents too. Everyone wanted to be at the cool party. So target the market leaders first; the rest will follow.
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