LISA CHOW: From Gimlet Media, I’m Lisa Chow. You’re listening to Startup, the show about what it’s really like to start a business. Last week, we told you about the beginnings of Friendster, the company that essentially created online social networking. It had launched in 2003, before Myspace, before Facebook, and grew incredibly fast. Users were making all sorts of new connections on the site...for business, romance and friendship… and investors were dying to get a piece of the company. But the site started crashing because of all the traffic. Pages were taking forever to load, and Friendster's board decided that the founder, Jonathan Abrams, had to go. So they fired him. But they told the staff not to worry... they would find a great new CEO someone with lots of experience. That's where we ended last week's episode, with the board telling Friendster employees the future was bright.

KENT LINDSTROM: It was the board of directors coming in and saying. This is going to be amazing. We're going to get you a professional CEO. And all of a sudden it was stars and lights. Today on the show, what happened next.… and how Friendster’s mistakes may be the reason another company is worth over $400 billion today.

LISA: A quick warning, there’s some swearing in this episode.

[MUSIC]

LISA: After Jonathan Abrams was removed as CEO, one of Friendster's board members filled the spot temporarily. And then, 3 months after Jonathan was out -- the board announced that they’d found their impressive new CEO. His name was Scott Sassa. Scott was a TV wunderkind. He’d dropped out of college but went on to be the first employee at Fox, writing the TV network’s original business plan. He then worked for Ted Turner, and at 25, became one of the youngest cable network executives in the country. After that, he ran Marvel, a division of NBC, and in 2004 … Friendster.

LISA: why do you think they picked you for the job?

SCOTT SASSA: I'm not sure exactly why they did, but I would hope that part of it was I had a background of starting companies and scaling companies, albeit media companies, but you know, TNT, Cartoon Network, things like that.

LISA: The TV networks that Scott ran made money through advertising. And Friendster’s board saw advertising as the way the site was going to make money. They were focused on revenue because they’d been burned by the recent dot com crash when a lot of companies went public with no business model. When the Wall Street Journal reported on Scott Sassa’s appointment, they wrote that it was a move to turn Friendster from "a quirky internet startup to a profitable online business." But other people at Friendster had their doubts.Why would you recruit a media guy to run a tech company, especially one that’s facing serious technology challenges. The skepticism was so apparent that even Scott, the new CEO, was aware of it.

SCOTT: My favorite thing is the engineers used to say, how’s our brain dead media executive doing today?

LISA: But it wasn’t Scott’s job to fix the page load problems. Friendster had just hired a bunch of superstar engineers and the new head of engineering, who came from Netscape, had a radical plan to fix the site.
He invested millions in a new server system, and rewrote the site from Java to an open source language, called PHP. People I’ve interviewed debated whether these were the right decisions at that time. But one thing became clear pretty quickly. These moves did not solve the site’s issues. Chip Benson, an early employee working in customer support, says this period was really frustrating.

CHIP BENSON: I can remember you know the board coming in to one of the all hands meetings. And ... I stood up in the all hands meeting and just basically went off -- on ... I didn't understand why things hadn't been fixed. I didn't understand what was taking so long. You know the board should have the power to make this stuff happen. And you know I just remember them going, "Thank you very much, Chip, for your feedback and insight. We're going to take this into consideration and then we're going to work on it." You know, and I sat down and I thought, "Ah, crap this isn't going to go anywhere." I just had that feeling.

LISA: We reached out to Friendster’s board members from this time. None of them agreed to talk for this story. The technology problems at Friendster were difficult to solve, but there was something deeper happening at the company that was making it nearly impossible to make progress—power struggles and conflicts between teams. Chris Lunt, an early engineer at Friendster, says a highly political culture had emerged as its leadership changed.

CHRIS LUNT: People started to get into camps and form loyalties within the company. And there was a lot of politicking in order to see who was right about the vision for the company, who could best carry the company forward. And so there was a tremendous amount of gossip, rumor, innuendo that drove what people were doing day to day.

LISA: A big tension was between product and engineering. People on the product side wanted to release new products. Like blogging, chat, music sharing. But people on the engineering side thought: we have to fix what we already have before we can even think about new features. Scott Sassa, the CEO, said the tensions showed up in all sorts of ways.

SCOTT: My favorite line was a product person from Yahoo told a 5 year MIT PhD, "You're a plumber and you'll do as I say!" So that was a problem.

LISA: Friendster was already dealing with managerial, technical and cultural problems when Chip, the employee in customer support, started to see a completely different kind of problem on the horizon...a serious competitor: Myspace.

CHIP: You know -- MySpace started to come into being. And we noticed some of the people were saying, "We don't want to join Myspace. We want to stay on Friendster, but you know you got to fix the performance." And around that time, we started seeing all these profiles being created and there was a picture of a really charming man and woman, you know, a really clean cut having fun skiing or something. And all there was on the profile with the names, what I like to do, about me, and stuff all in caps. Excuse my language, but all in caps it said, "Fuck Friendster join MySpace." And there was thousands and thousands of those profiles being pushed out by, you know, MySpace obviously.

LISA: Chris Dewolfe who founded MySpace with Tom Anderson, told me the company wasn’t behind those fake profiles. But he did say the whole idea to start MySpace came from watching Friendster. He and Tom were living in LA, working for an internet marketing company when they kept hearing about this new website.

LISA: Do you remember getting an invitation to join friendster?

CHRIS DEWOLFE: Yes, it definitely piqued my interest

LISA: This is Chris Dewolfe.

CHRIS: it was like the first time I think ever that I'd gotten 5 or 6 invitations for any kind of service ever, from people that I actually knew. So I thought that was interesting and there must be something to it.

LISA: But when Chris started using Friendster, he noticed it could be super slow. And he thought the site was too restrictive about what it let people post.

CHRIS: There were bands on the site, that would set up profiles on Friendster. They would get taken down. You could set up a profile with your dog being your primary photo. They would take that down.And it seemed a little bit too dictatorial for where the web was going.

LISA: And some of Friendster’s users agreed. Tila Tequila, who was a little known model when she joined Friendster, complained to Howard Stern about being kicked off for not following the rules.

TILA TEQUILA: They would always delete my profile so I’d make another one, so they deleted me 5 times. So I said fuck you Friendster.

LISA: Tila says Tom Anderson from MySpace saw this happening and recruited her to join him at his new website.

TILA: So then I joined Myspace and I was like oh my gosh nobody is over here. I feel like a loser. There’s like the cool party over there and I’m here by myself with all these dorks. And so I used my website, and said hey guys. Fuck Friendster. They kicked me off so why would you guys want to be on a lame site like that anyway, and

HOWARD STERN: And you went to myspace

TILA: I’m on myspace now. Come join me here...so I kind helped them blow up.

HOWARD: Right.

LISA: Tila Tequila went on to be a reality TV star. She was booted from Twitter last year after a photo showed her doing a Nazi salute. But at the time she was a young pretty woman racking up friends on a brand new social media platform. And it wasn’t just the Tila Tequilas of the world who started preferring Myspace. Tommy Nguyen was an early Friendster user.

TOMMY NGUYEN: my friend Amy Wang sent an e-mail to our group of friends on an e-mail and basically said, “hey guys I got a new website called MySpace sort of like Friendster but a little souped up. There's more bells and whistles to it.”

LISA: Myspace gave people all kinds of options. You could make your page whatever colors you wanted, have whatever photos you wanted in the background, even have music playing on your page. And not only was Myspace seen as a freer more laid back world, it had another huge advantage. It was fast. Myspace didn’t have the same page load problems as Friendster. That’s because Chris and Tom started it as a side project at a much large tech company called eUniverse -- which meant they had infrastructure, resources, and server capacity. All of this made MySpace a big threat. Here’s Chip again, from Friendster customer support.

CHIP: We knew that there was going to be some jumping ship if we couldn't do something about it pretty quick.

LISA: MySpace wasn’t the only one. New competitors were popping up every day like Bebo, Tribe and Orkut. Friendster was still the number one social networking site, but its position was quickly eroding. And so Friendster’s executive team thought, let’s join forces with one of our competitors. Maybe one of them can help us with our technical issues. Friendster approached Myspace. Chris and Tom were not interested. Friendster met with another social networking site called Bebo. They said no. Jim Scheinman was head of business development at the time and was setting up all these meetings for Friendster. He says they also approached another little startup they’d heard about, founded by some 19 year olds from Harvard. Facebook.

JIM SCHEINMAN: By the way, this is controversial because there are people at Friendster at the time who were like, "Harvard only. OK so they're doing well at Harvard. But come on. We were so much bigger than they were." But if you look at the growth trajectory, actually, in the engagement numbers, they were actually doing quite well relative to how we were doing. I knew it. But it was hard to admit it because of ego and we're still much bigger.

LISA: And so there were actually people at Friendster who were like, "No way, we're not going to buy this company."

JIM: Yes. Who pushed back -- like this is stupid. They're two kids! Who's going to -- why are we going to pay them 10 million dollars, I don't know what the number was -- why are we going to give them millions of dollars, you know? But you know to the credit of the executive team and the board, they said, "Yeah, great." So they met him multiple times and they were -- we made an offer.

LISA: At the time Mark Zuckerberg was also talking to Silicon Valley investors. And ultimately, he chose them.

JIM: You know look -- Zuck had a vision and he didn't need to sell out to Friendster.

LISA: So another potential deal was dead.

JIM: Friendster was still adding users, so it did have that going for it. But there was something a little unusual about that growth….something that would develop into a bigger problem for the company. Chris Lunt, the engineer, remembers the first time he saw it.

CHRIS: I sort of noticed that seems like traffic has been shifting later, and so why don't I take a look at some traffic graphs. And I found that, 2 in the morning was the peak of traffic that we were receiving. I spent some time trying to convince myself that it was college students on the west coast up really late, and realized that something wasn't right about those numbers. So I went and I looked at the map to see where the traffic was coming from and that was the point that we discovered that the site was exploding in the Philippines.

LISA: Chris says by 2004, a year after Friendster launched publicly, 50 percent of new users were coming from the Philippines. And it was bad news because these users ... who appeared to be a lot more patient when it came to page load times ... they were starting to crowd out users in the U.S.

CHRIS: You can believe that you're the most egalitarian person on the planet, and if you walk into a bar and everyone in there is Filipino and you aren't. You're going to turn around and walk out. And we started to see that as a public forms in places where people were maybe weren't already connected started to be dominated by Filipino topics, it started to erode our traffic elsewhere in the world.

LISA: Chris says he and other people at the company came up with all kinds of ideas for dealing with the growth in Asia.

CHRIS: "Should we just block the traffic from the Philippines?" And I think it would have been a very bold move, and we decided, that no we couldn't do that, that it was a large audience that was getting a lot of value out of this site and that we should focus on trying to find a way to monetize that audience.

LISA: But monetizing that audience wasn’t easy. To big advertisers, users in the Philippines just weren't as valuable as users in the U.S. Jim Scheinman, the head of business development and an early employee at Friendster, was getting increasingly frustrated.

JIM: I still remember that feeling in my gut like, I think I'm having an ulcer. I can't. Stand the fact that we're so close to building something so amazing We all knew, we all knew we were onto something very special. We all knew this was a 100 billion dollar idea. We also knew that we were losing. Things were not going in the right direction.

LISA: And so two years after joining the company, Jim left. Then Scott Sassa, the former TV executive that the board brought in to lead the company and boost ad revenue … he left as well. That made three CEOs in three years. Jonathan Abrams, an interim CEO, and now Scott Sassa. By this point, Myspace had eclipsed Friendster. It had more users. And the company that once feared growth… was now desperate for it. Especially in the U.S. The board brought in a new CEO, a guy named Taek Kwon, who came from Citysearch. His job: to turn things around at Friendster in a big way. And to do that, he hired a new head of product, a woman named Larissa Dinh.

LARISSA DINH:I love a good challenge um I'm not gonna take over a product that's you know already successful and it's just on maintenance mode it was exciting to me to to the thought of turning around this company that people had pretty much given up on was was huge.

LISA: After the break, Larissa sets out to remake Friendster. Launching some new features that are both addictive … and controversial…

[BREAK]
LISA: Welcome back to Startup. So Friendster was on its fourth CEO with a new head of product. Larissa Dinh. She went hard out of the gate, working to innovate at Friendster. She started by cleaning up the site… getting rid of features that people weren’t using…. for example, a feature that displayed users’ horoscopes. She thought it was weird. And then she started experimenting, trying to give users more of a reason to come back to the site. She and her team launched something called a friend tracker, which was similar to the newsfeed on Facebook. But before Facebook had the newsfeed. Then she discovered something else that she thought might stick.

LARISSA: It was like a backdoor feature that one of our engineers had built to see and he wanted to see who was looking at his profile.

LISA: Who viewed your profile … a feature that’s now incredibly popular on Linkedin … it was Friendster that came out with it first.

LARISSA: It was controversial because it wasn't in our terms of service or our privacy policy so people hadn't opted into this but I knew it would get people coming back to the site. I knew they would be curious to see who was looking at their profile and it would give us an uptick

LISA: The team went back and forth on this but ultimately they decided to go ahead and release this feature. Chip Benson, who worked in customer support, saw the reaction from users.

CHIP: Overnight, I mean overnight they turned it on the next day. We had over 10,000 messages and they were all people going nuts about why we did that. And like an example was that some guy wrote, "My boss just called me up and he's going to fire me because he found that I was looking at his wife's profile. Turn this thing off!"

LARISSA: It pissed off some users but you know we have to take a chance and it was Friendster was dying and it was on life support and I was trying to bring it back to life. So you know I did what I could. To get the numbers up and it worked.

LISA: It worked for a little bit. Friendster got some press, got a bump in users. But in the end, it wasn’t enough… It was 2006. Myspace was the biggest social network in the U.S. And by now Facebook had also overtaken Friendster, taking the number two spot. By this point, Friendster’s board had made a big decision. They wanted to sell the company. But so much of Friendster's traffic was now coming from the Philippines and across Asia that it had become a liability. U.S. companies weren't interested …. So after 10 months, CEO number 4. Taek Kwon was gone. This is Reid Hoffman… an early investor in Friendster.

REID HOFFMAN: I was watching from the outside but it was like oh my gosh is that a trainwreck.

LISA: OK so why did you think it was a train wreck.

REID: Look, changing a CEO's brain surgery. So if you said oh we're sending the patient back in each month for a new brain surgery. It’s like, well what do you think the mortality rate is? Pretty high.

LISA: Sean Parker, who co-founded Napster when he was 19, was also involved in Friendster early on….he was an advisor to Jonathan Abrams, the company’s founder. He spoke about Friendster’s failures at a Fast Company event in 2010.

SEAN PARKER: I can tell you exactly what happened at Friendster. It was bad management.

SEAN: It was a bad management team that couldn’t keep their servers running, couldn’t maintain simple things like the integrity of their database, the login times the load times for every page were going up, and that created an opening in the marketplace where MySpace was able to enter. Myspace never would have existed if friendster had been a properly managed company. And I was close to that because most of my friends were investors, I was an advisor to the CEO. We were all screaming the sky is falling and nobody was doing anything about it. That is a classic case of where a company just blew it.

LISA: Even though Friendster had lost the top spot and couldn’t find a buyer, the company didn’t die. Instead, it pushed ahead trying to grow its users in Asia, under one of Friendster's early employees, Kent Lindstrom. The board tapped him to be CEO number 5. Kent made headway but then the board brought in the sixth and final CEO, a guy named Richard Kimber. In 2009 he sold the site to a Malaysian company for 40 million dollars.Chip Benson, the customer support guy, worked at Friendster under all six CEOs. And he remembers the day Friendster closed its office in Mountain View.

CHIP: They had all the furniture and the computers and this and that on the office all bunched up in corners and anybody could take anything they wanted and they were going to donate the rest to schools. I actually wanted to take my chair it was so comfortable. So I brought a little station wagon from home and I loaded all my stuff in. I just drove away from the building and sort of looked in my rearview mirror and then went home. I tell my wife when we drive by the building over in Mountain View it's on the corner of El Camino and Castro. I always wave at the building saying, you know, I kind of wish I was still over there at that job. But I was there through the bitter end and, you know, and then they closed the doors and it was all over.

LISA: Today when people talk about early social networking, they’re not usually talking about Friendster. They’re talking about Facebook. Facebook is now worth more than 400 billion dollars. And...the only mentions of Friendster are as a cautionary tale -- a prime example of a company that was positioned to win big but totally screwed it up. So what can we learn from all of this? What did Facebook get right and what did Friendster get wrong? Well for one, Facebook grew in a much more controlled way than Friendster did. Facebook didn’t open up to the entire world on day 1. It started at Harvard, and then grew little by little, university by university. Jim Scheinman, Friendster’s head of business development, says the slower growth allowed Facebook to avoid some of the technology challenges that Friendster faced.

JIM: The fact that they stayed focus on scaling within a college allowed them to scale. So when they went to the next college like Yale, they had a new server that just went for Yale. And then when they went to the next one, they had a different server that scaled for them. So each of those different demographics scaled and worked properly. And actually, if you have seen the Social Networking movie about Facebook. There's a famous quote in there from Zuck who said, "We have to remain fast and not end up like Friendster."

LISA: Number two, Jim says that even though Facebook grew slowly at the start, they also figured out how to chase growth. Facebook had an entire team dedicated to it, and that team found a magic metric: seven friends in 10 days. If Facebook could help a user connect to seven friends in 10 days, that user would be hooked. And so they focused a lot of energy on trying to get users to connect to friends. They developed features like friend recommendations to get people to find and add new friends. Another thing Facebook did right: they built a site that users would love, not a site that would immediately rake in as much advertising money as possible.

JIM: Facebook focused on how do we make this an amazing product experience and how do we keep growing this business? From not revenue, but from the consumer standpoint. Where at Friendster -- we were a like a traditional company. Now we've got millions of people, how do we make a lot of money, right? And at every board meeting, a big discussion was -- how much revenue are we doing, how do we make more money? That was the wrong strategy at the time, right? At the time, we should've just been like -- how do we just keep growing users, how do we get them happy? How do we keep them connected, how do we keep them engaged? Eventually, when we get to a 100 million people, we're gonna have a 100 billion dollar business.

LISA: The final big difference. Facebook has had one CEO over its entire life. A CEO with a very focused and singular vision. Friendster, on the other hand, had six CEOs in seven years. A lot of people who were involved in Friendster went on to do really well for themselves. John Doerr, from the venture capital firm Kleiner Perkins, who put millions into Friendster ... has since invested in big hits like Slack, Uber and Twitter. Reid Hoffman, an early investor, went on to be cofounder of Linkedin, which sold to Microsoft last year for 26 billion dollars. Jim Scheinman, former head of business development, became the first employee at the social networking site Bebo...which sold for 850 million dollars. He’s now a VC, and advises other companies. Even the Malaysian company that ultimately bought Friendster in 2009 made a killing selling Friendster’s social network patents to Facebook. According to a news report, Jonathan Abrams, Friendster’s founder, made close to 5 million dollars when he brought outside investors into the company. That’s a lot of money by most people’s standards … but the industry Jonathan pioneered ... it’s now worth hundreds of billions of dollars. And that’s left former colleagues like Jim Scheinman wondering how Jonathan feels…

JIM: I mean personally I'd be curious to hear. Does it. Like you came up with this idea. And other people made billions of dollars on it. They're billionaires that have been created because of this idea that you created. Did it eat away at you?

LISA: So I asked Jonathan.

JONATHAN ABRAMS: The reality is it is frustrating that Friendster was not a big success. When you just think about how little Friendster ended up being worth, that’s kind of astounding. You really have to think, like, how hard was it to mismanage a company with that much potential so badly. So yeah it sucked and it’s frustrating. But I still think the idea of people feeling sorry for me because I’m a millionaire instead of a billionaire is also kinda crazy.

JONATHAN: I'm not like in denial about Friendster or forgotten it and I'm proud about a lot of stuff we did. And I'm frustrated about a lot of stuff that happened at Friendster. But you know, it was a long time ago and I've moved on with my life. And I mean since leaving Friendster I started 4 other companies, became an American citizen, started a family, invested in more than 50 companies, and you know a whole bunch of other stuff.

LISA: And beyond all that... talking to Jonathan I get the sense that when he looks at the social networks of today... he feels a weird kind of satisfaction... like his original vision for Friendster was right... Because when you look at the king of the social networking world.. Facebook... it didn't build on the Myspace model, with personalization features and anonymous profiles. It’s simpler, cleaner… more like Friendster.

JONATHAN: People really ended up doing what we had always thought. I mean -- using their real names, connecting with their real friends and you know. So I think, you know, a lot of the original vision of Friendster, even though we weren't able to execute on it was valid.

LISA: Jonathan has moved on from Friendster but he still works as entrepreneur in the social media space. His latest company, Nuzzel, is in its sixth year … with six employees … and has raised 5 million dollars from investors. What does it do? It aggregates the stories that your friends are sharing on social media. Including ... of course ... on Facebook.

[THEME]
LISA: Next time on StartUp, an entrepreneur makes a visit to the CEO whisperer.

JERRY: What would feel comfortable talking about. And useful.

DIANA: Yeah yeah yeah. I mean, I think the biggest thing is… for me personally… Um you know… I’m like getting teary even talking about it… you know, I’m finding it challenging to navigate being a mom and being an entrepreneur.

LISA: Balancing the grueling work of starting a company, with the pains and joys of raising young children. That’s in two weeks. StartUp is hosted by me, Lisa Chow. Our show is produced by Bruce Wallace, Luke Malone, Simone Polanen and Emanuele Berry. Our senior producer is Molly Messick. We are edited by Caitlin Kenney and Pat Walters. Production assistance and fact checking by Alvin Melathe. Special thanks to Misiek Piskorski and Natalie Jones.

Mark Phillips wrote and performed our theme song. Build Buildings wrote and performed our special ad music.

Additional music by Typhoon, Jupyter, Marley Carrol and the band Hot Moms Dot Gov.

David Herman and Ian Scott mixed the episode.

To subscribe to StartUp, go to Apple Podcasts, or whichever app you like to use. Or check out the Gimlet Media website: GimletMedia.com. You can follow us on Twitter @podcaststartup.

Finally: a quick reminder that Alex Blumberg is taking listener questions… So if you want to talk to Alex about Gimlet, about being an entrepreneur… leave him a message at 812-641-1231. Some lucky callers will get a call back -- and might be featured on a future episode of Startup.

Thanks for listening. We’ll see you two weeks.

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