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Friendster Looks to Recover Lost Glory

August 23, 2006

SAN FRANCISCO — Friendster Inc. said on Monday it received $10 million in new funding to expand abroad and help its pioneering social-networking site survive in a market dominated by younger successors who stole its thunder.

Friendster’s initial funding in 2004 set off a speculative boom of copycat investments, which drew comparisons to the dot-com bubble of the late 1990s but also spawned the rise of its now-far-larger rivals, MySpace and Facebook.

Friendster President Kent Lindstrom, a three-year veteran who took over day-to-day management in February, said his strategy was to return the company to its original vision of building on real-world relationships between friends rather than virtual friendships that other social networks emphasize.

“We are hopefully your place to link to your real post-college friends,” he said in an interview. “In some sense we have conceded that MySpace is a much better media company.”

MySpace is a teenage Web craze with 51 percent of the U.S. social networking market — 10 times more than No. 2-ranked Facebook, a favorite with college audiences, with 4.7 percent of recent visits, according to Internet audience measurement firm Hitwise Inc. Friendster attracts 0.24 percent, or 213 times fewer U.S. visitors than MySpace, ranking it 34th among U.S. Web users of social networks and online communities.

But it now has $10 million to improve technology and invest abroad. DAG Ventures of Palo Alto, California is lead investor in the new round, joined by previous venture capital investors Kleiner Perkins Caufield and Byers and Benchmark Capital.

FRIENDSTER GOES INTERNATIONAL

Under the radar of many former fans, Friendster has become far more popular among users outside the United States and Canada, which now accounts for only about a quarter of its 8 million to 9 million regular users, Lindstrom said.

Instead, he said roughly 40 percent of users come from English-speaking Asia — places like Indonesia, the Philippines and Singapore, where large expatriate populations often turn to Friendster to find friends upon arriving in new cities.

Another 25 percent of the audience comes from international users in places such as Mexico, Britain or France, he added.

“We have a very international point of view,” Lindstrom said. This transformation appears to parallel how Google Inc.’s rival social social networking service, Orkut, has become a big hit with Brazilians, which are estimated to account for roughly three-quarters of its global users.

Friendster is betting that social networks will remain divided among different peer groups. The company sees its brand as the natural socializing spot for urban professionals, in contrast to MySpace’s teens and Facebook’s college students.

Lindstrom sees Friendster as more the social complement to LinkedIn, a Palo Alto-based network popular with business professionals for job recruitment or sales contacts.

Rather than pushing into entertainment, where MySpace is chasing popular Internet video search site YouTube, Friendster aims to help people keep up with friends. “We will innovate in terms of meeting up with people,” Lindstrom said.

San Francisco-based Friendster is signing up brand advertisers like Coca-Cola Co. and automakers who seek out its older, financially independent demographic. In Asia, it recently launched a text-messaging feature to update profiles.

The latest investment by DAG, whose investments include Silicon Valley Web start-ups Plaxo, Grouper, SpikeSource and Zimbra and electronic scooter maker Segway, follows a $3 million recapitalization round in February of this year.

For all of its subsequent pitfalls, Friendster helped define the free Web consumer business model of get-big-quick, before figuring out to make money later, which has come to characterize the current generation of “Web 2.0″ companies.




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